Consumer Resistance To Innovation

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  • 1. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUMMER 2007 V O L . 4 8 N O. 4 S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - Rosanna Garcia, Fleura Bardhi and Colette Friedrich Overcoming Consumer Resistance to Innovation Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published. REPRINT NUMBER 48419 SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 2. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - MArketing S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - Overcoming Consumer Resistance to Innovation I t took more than a half a century for the dishwasher, which was first intro- duced in 1893, to succeed as a mainstream product. No one sets out to develop an innovation that consumers are slow to adopt, and yet many ulti- mately successful innovations like the dishwasher or the microwave oven languish for years in the gap between early adopters and the mainstream mar- ket.1 Other examples of slow-diffusing innovations include automatic teller machines (which were first introduced in the United States and the United Kingdom in the late 1960s), online banking and alternative fuel vehicles. Slow takeoff times mean delayed returns on investment or, in the worst case, negative payback if the product is pulled from the market before sales have a chance to take off. Slow takeoff times have been attributed to high introductory prices,2 uncompetitive products that are low quality or insuffi- ciently innovative3 or failure to develop niche markets.4 Another reason is consumer resistance to an innovation,5 which may arise because the innova- tion conflicts with consumers’ ingrained belief structures, requires acceptance of unfamiliar routines or necessitates abandoning deep-rooted traditions. Slow-diffusing innovations that require consumers to change established be- haviors are called resistant innovations.6 How can managers create marketing programs that reduce takeoff time for resistant innovations? This article suggests marketing strategies appropriate for such innovations. Our conclusions stem from a multiphase research proj- ect conducted to examine why a particular innovation — screw cap wine Under the right closures — has achieved greater market acceptance in Australia and New circumstances, Zealand than in the United States. (See “About the Research,” p. 84.) Based on findings from this international case study, we elaborate on the role of vertical industry initiatives and horizontal cooperation as marketing strategies for resistant innovations involving “coopetition” and identify the reasons and conditions under which each strategy can suc- among competitors cessfully operate. can reduce customers’ Why Consumers Resist Some Innovations reluctance to adopt In developing launch strategies for new products, companies often overlook an innovation. consumer behavioral responses to innovations. From the perspective of con- sumer attitudes, innovations may be categorized as either receptive or resistant. Rosanna Garcia, Fleura Bardhi Rosanna Garcia is the McCarthy Family Research Fellow and an assistant professor of marketing at Northeastern University in Boston, Massachusetts. Fleura Bardhi is the and Colette Friedrich Riesman Assistant Professor of Marketing at Northeastern University. Colette Friedrich is a postdoctoral researcher at MIT Sloan School of Management. Comment on this arti- cle or contact the authors through smrfeedback@mit.edu. 82 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 SLOANREVIEW.MIT.EdU SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 3. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - Receptive innovations tend to be welcomed by the market. They Stelvin, have been found to eliminate cork taint as well as other do not require consumers to alter existing belief structures, atti- problems with cork closures, such as crumbling and leakage. tudes, traditions or entrenched routines significantly. Consumers Although screw caps perform well in preserving wine quality, are not required to move far from established comfort zones the wine industry has faced consistent resistance to them from con- when adopting receptive innovations. sumers and distributors. In consumers’ minds, screw cap closures Resistant innovations, however, may have clear competitive have often been associated with cheap, high-alcohol wines and thus advantages over existing products, but they either conflict with have had a negative image. As a result, consumers have not histori- consumer belief structures or require potentially large behavioral cally accepted screw caps on high-end, high-quality wines. changes from a status quo that the consumer finds satisfactory.7 Between 1976 and the early 1980s, approximately 20 million To adopt resistant innovations, consumers must learn new rou- wine bottles were sealed with the screw cap closure in Australia tines and habits or embrace new traditions and values. Resistant and New Zealand.11 However, by 1984, these wineries had stopped innovations thus require consumers to incur psychological using screw caps because of consumer resistance. Wineries found switching costs as well as economic switching costs.8 As a result, two types of consumer resistance toward screw caps: The first is consumers have negative attitudes toward these innovations and the image barrier, since brand image suffers when consumers resist adopting them.9 perceive wines bottled with screw caps as cheap and inferior, and Marketing programs for launching new products frequently the second is a tradition barrier. “Traditional consumers,” a seg- focus on the advantages of the products’ attributes over those of ment identified by wineries we interviewed, prefer the romanticism competing products. However, marketing a resistant innovation and tradition associated with opening a cork-bottled wine and requires a company to address not only the product’s attributes but have refused to adopt screw caps. Resistance also existed from the also the consumer’s mind-set regarding the innovation. Failure to distribution side, from distributors that doubted consumer ac- address both of these issues can result in slow diffusion times. ceptance of screw caps and shunned the extra marketing costs of In a 1989 article, Sundaresan Ram of Thunderbird School of pushing the new product into the market. Global Management and Jagdish N. Sheth of Emory University Despite the dismal market launch failure in the late 1970s, the identified five barriers that consumers can erect when resisting wine industry continued to push for the diffusion of screw caps. innovations. First, the innovation may not be compatible with Stelvin screw caps were reintroduced into the marketplace in Aus- existing work flows and practices; consumers may prefer the sta- tralia, New Zealand and the United States in the early 2000s — using tus quo if the innovation requires learning new skills or altering two quite different marketing strategies, with varying results. long-ingrained routines. A second barrier occurs when consum- To date, U.S. wineries have experienced individual success in ers do not understand the value of the innovation. A third selling their screw cap lines to their target markets. However, psychological barrier exists if consumers view the innovation as screw caps are far from being accepted by the mainstream Amer- being too risky and postpone adoption until the risk is mitigated ican consumer. A survey conducted in 200512 revealed that fewer — either by new knowledge or through the experiences of others than 10% of American wine consumers prefer screw cap closures who have shown that the innovation is safe. A fourth reason is to other closures. These findings were supported by 2005 U.S. that the innovation requires a customer to deviate from estab- wine industry statistics that indicate that less than 5% of U.S. lished social norms and traditions. The fifth barrier is tied to a wineries use these types of closures on their fine wines, defined product’s image; a negative image, whether deserved or unde- as those priced at more than $7 a bottle. As a result, the main- served, can produce a barrier to adoption. stream U.S. market has not yet adopted the screw cap as the standard wine closure. Screw Cap Wine Closures: A Case Study In Australia and New Zealand, however, screw caps have re- of a Resistant Innovation cently surpassed cork as the closure of choice for wineries, and Screw cap closures in the wine industry are a classic example of a screw caps are widely accepted by domestic consumers in those resistant innovation. Screw caps are an innovative closure intro- countries. Since the screw cap’s reintroduction in 2001, its usage duced in the wine industry as a solution to a major quality has grown: In 2005, approximately 40% of domestically sold problem known as “cork taint,” which occurs when poor quality bottles of wine in Australia and more than 80% of domestically corks cause a bottle of wine to take on a musty flavor. An esti- sold bottles of wine in New Zealand had screw cap closures.13 mated 2% to 15% of all wine bottles that use natural cork closures Wines with screw cap closures are now the first and fastest to sell are damaged by cork taint.10 For wineries, cork taint results in in both markets. (Economic factors are not the reason behind the millions of dollars in lost revenue and brand-name erosion when switch by the wineries, because, even though the screw cap clo- consumers attribute the poor wine quality to the winery rather sure itself is less expensive than the cork closure, screw caps than to the closure. Screw caps, often called by their brand name, require wine bottles to have threaded necks; as a result, there is SLOANREVIEW.MIT.EdU SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 83 SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 4. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - MArketing S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - no significant difference in manufacturing costs between the two a marketing strategy that will address consumers’ belief structure closure methods. Moreover, wineries incur costs to install new about the innovation. This strategy is important because dis- screw cap bottling facilities.) The quite different marketing strat- tributors themselves may be resistant to stocking the product. egies used by U.S. wineries and Australasian (Australian and New Resistance can also occur if distributors fear slow sales due to Zealand) wineries have apparently led to these vastly different consumers’ resistance to the innovation. Distributors don’t rec- diffusion results. In particular, the New Zealand wine industry’s ognize that they may be propagating the slow takeoff of products dramatic success in increasing screw cap usage yields key lessons through their own resistance. Thus, understanding all partners’ about using horizontal cooperation, also known as “coopetition,” motives in the distribution chain, as well as the consumers’ mind- to market resistant innovations successfully. set, is necessary to put together an effective vertical marketing campaign. Vertical cooperation does not require contractual Marketing Strategies For Resistant Innovations agreements, nor does it require long-term cooperation between The screw cap case study illustrates two marketing strategies for supply and distribution chain members. Once consumers accept overcoming the barriers resistant innovations face: vertical coop- the innovation, cooperation in the channel can diminish without eration and horizontal cooperation. Vertical cooperation refers to a negative effect on the marketing campaign. the need to involve the supply or distribution chain in developing Horizontal cooperation, or coopetition, refers to the need to About the Research This research into the diffusion of the local national wineries rather than from in- viously used screw caps on their products screw cap wine closure, a resistant innova- ternational conglomerates, and preferred or had discontinued their usage. The win- tion, began with a survey of more than midpriced wines over low-priced or high- eries ranged in size from small 2,255 wine consumers from Australia, New priced ones. The only significant difference family-owned wine producers to large Zealand and the United States; that survey between the two sets of consumers was in multinational ones. The U.S. wineries inter- was conducted by Olivier Toubia, assistant their preferences for the type of closure. viewed were located in the Napa/Sonoma professor of marketing at Columbia Uni- Wine consumers in Australia and New Zea- and Oregon/Washington wine regions. The versity; John Hauser, Kirin Professor of land equally preferred screw caps and cork Australian wineries were in the Clare Val- Marketing and head of the Marketing closures, but Americans rated screw caps as ley, and the New Zealand wineries were Group at MIT Sloan School of Manage- their least preferred type of closure from a from both the North and South Islands. We ment; and Rosanna Garcia, McCarthy list of four closure types (cork, screw cap, followed a semistructured interview for- Family Research Fellow and an assistant synthetic, combined cork-twist cap). A sep- mat. The average interview lasted 60 professor of marketing at Northeastern arate analysis of purchase behaviors of minutes, and the sessions were audio- University.i A component of that study was wine consumers in the three countries re- taped and augmented with handwritten to understand why one set of consumers vealed few similarities across these notes by the primary researchers. Analyses (in the United States) may be resistant to different cultures.ii of the interviews focused on company in- an innovation but another set (in Australia Based on these inconclusive results, ad- novativeness, industry culture and factors and New Zealand) may not be. In 2004, ditional research was conducted. We leading to alliance formation. when the initial survey was conducted, ap- interviewed key decision makers at winer- After analyzing both the consumer mar- proximately 30% of Australian wineries ies (owners, vintners and marketing ketplace and the wine manufacturers in used screw caps on their products and managers) to determine whether the dif- the three countries, we concluded that the more than 50% of New Zealand wineries ferent marketing campaigns used could be major differentiating factor affecting the used Stelvins, but less than 5% of U.S. win- the differentiating factor. The interviews success of the screw cap with consumers eries used this innovative closure. included eight Australian wineries, 15 U.S. was the formation of coopetitive market- However, the results of this quantitative wineries, and six New Zealand wineries. Of ing alliances. We thus used this research on study indicated very few differences those interviewed, five wineries had ad- the screw cap to begin to extrapolate how among the consumers in the three coun- opted the screw cap on all of their “coopetitive” alliances may be used as a tries. Overall, respondents preferred red products, 21 had adopted it on one or marketing tool to overcome consumer re- wine over white, preferred to buy from more of their wines and three had not pre- sistance to innovations. i. O. Toubia, J.R. Hauser and R. Garcia, “Probabilistic Polyhedral Methods For Adaptive Choice-Based Conjoint Analysis: Theory and Application,” Marketing Science, in press. ii. T. Atkin, R. Garcia and L. Lockshin, “A Multinational Study of the Diffusion of a Discontinuous Innovation — Screw Cap Closures,” Australasian Journal of Marketing, in press. 84 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 SLOANREVIEW.MIT.EdU SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 5. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - involve competitors in developing a marketing strategy for the Another marketing strategy innovation. In some cases, horizontal competitive cooperation U.S. wineries used was to educate can be a marketing option for diffusing resistant innovations; our both final consumers and distri- research suggests it can be used effectively by competing compa- bution channel members on the nies when they benefit collectively from the diffusion of a resistant benefits of screw caps. By educat- innovation. In these circumstances, two or more businesses share ing channel partners, wineries a mutual goal that cannot easily be attained without the coopera- hoped resellers would be more tion of partners. likely to recommend screw- The best marketing strategy for a resistant innovation de- pends on the company’s overall goal relative to the industry A company’s capped products. The Hogue Cellars,17 a winery located in environment. Often, the primary goal of innovation is for the primary goal in Prosser, Washington, and owned company to differentiate itself to maximize its profits and market by Constellation Brands Inc., share. The driving motivation of the organization is “survival of innovating is to which is headquartered in Fair- the fittest.” In such situations, vertical cooperation marketing port, New York, is an example of strategies are most effective. differentiate itself a winery that has taken this ap- However, sometimes a cooperative approach using horizontal to maximize profits proach. A third marketing strategy cooperation is more effective. Businesses within the same indus- focused on improving product try are frequently faced with similar problems, and in such cases, and market share. positioning. For example, Plump- a common goal exists for the industry as a whole. If companies Jack Winery,18 which is based in work together cooperatively, they can grow the overall customer However, a coop- Napa Valley, California, and is base so that greater profits ensue for the industry as a whole.14 erative approach part of the San Francisco-based The existence of this shared goal does not prevent companies PlumpJack Group, put screw caps from maintaining company-specific competitive goals; compa- can be more on high-end wines, in effect uti- nies within the same industry can continue to pursue individual lizing the extrinsic cue of price to interests while also focusing on the industry-level goal. effective when signal high quality. PlumpJack in- an industry has troduced the screw cap version of The Process of Introducing Screw Cap Closures its 1997 Reserve Cabernet for Wineries in the U.S. and Australasian markets had a vested inter- a common goal. $135 a bottle while bottles sealed est in using screw caps as wine closures, because screw caps with cork were offered at $125. solved a quality problem that wineries faced for years. However, With this price differential, U.S. wineries focused on vertical cooperation marketing strate- PlumpJack sought to change the negative public perception of gies while the Australians and New Zealanders took a marketing the screw cap by signaling higher quality with its use. Three approach emphasizing horizontal cooperation.15 U.S. wineries Loose Screws, a division of another Napa Valley winery, Don focused primarily on establishing niche markets. Their initial Sebastiani & Sons, which is based in Sonoma, California, created target market was the high-involvement wine connoisseur a separate product line, Screw Kappa Napa,19 to tackle the screw knowledgeable about the benefits of screw caps. After winning cap’s negative image, adopting a humorous brand name and over early adopters, U.S. winemakers targeted consumer seg- designing a playful Web site and bottle labels. This move re- ments where they did not expect resistance to the innovation, quired support from channel partners, which needed to stock an such as young wine drinkers, women consumers, consumers entirely new product line. who follow scientific developments in the market closely,16 or While the marketing strategies used by the American wineries business markets such as the airline market, where the experien- may have been successful for the individual wineries involved, the tial aspects of wine consumption are not as important. For strategies had only limited success in altering U.S. consumers’ example, in 2005, Two Tone Farm, a venture by Beringer Blass overall perception of screw caps. As of 2005, screw caps had not Wine Estates, which is now part of Foster’s Group Ltd., a bever- penetrated more than 5% of the U.S. market. The horizontal co- age company based in Melbourne, Australia, targeted young operation strategy used by the Australian and New Zealand urban professionals interested in music, food and fun. Two Tone wineries proved to be much more successful in altering consum- Farm’s wines were priced at approximately $10, and each new ers’ preferences toward screw caps. release included a music CD of up-and-coming small bands. This approach required the winery’s distribution channels to Coopetition As a Marketing Strategy cooperate in bundling the two products together. While individual winemakers in the United States marketed SLOANREVIEW.MIT.EdU SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 85 SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 6. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - MArketing S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - screw cap innovation separately, Australian winemakers were Why was coopetition beneficial to the New Zealand wine- the first to enter into a collaborative alliance voluntarily to pro- makers? They wanted to establish a new closure standard for the mote screw caps. Driven by the superiority of screw caps over market, but it was a closure that had been resisted by the final cork closures, a group of 15 winemakers from the Clare Valley consumer and that was not mandated by any outside agency, of Australia in 2000 selected the Stelvin for closing their pre- such as government enforcement. (Poor wine quality caused by mium Riesling wines. Gaining insights from the failure to cork taint does not constitute a threat to the welfare of New persuade consumers to accept screw caps on fine wine 20 years Zealand consumers.) In contrast to the individual efforts of U.S. earlier, this coalition jointly launched a marketing campaign winemakers, the NZ Initiative sought to send a unified signal to called “Riesling With a Twist” that communicated the quality the market about the permanent commitment of wineries to the aspects of the seal to the media, consumers and retailers. In this screw cap innovation and to send the message that screw caps campaign, wine media critics were used as change agents to provide better quality New Zealand wines. Without this collabo- influence opinion leaders, since wine critics understood the ration among independent market competitors, the innovation benefits of screw caps over other closures. Wine media writers, might be perceived as just another short-lived marketing or wine connoisseurs and distributors were also targeted through branding strategy. In interviews, New Zealand winemakers em- trade shows. In addition, the winemakers used a variety of phasized that while each engaged in individual marketing means to educate the consumer, including consumer-oriented campaigns similar to the marketing campaigns of their U.S. direct marketing promotions such as informative flyers, e- counterparts, they simultaneously promoted screw caps as part mails, Web sites and wine tasting events. By 2001, most wineries of the collective goals of the NZ Initiative. The NZ Initiative also in Australia had begun to use screw caps on one or more of allowed the participating wineries to reduce the risk of negative their product lines, with an overwhelmingly positive response responses to the innovation from consumers and distributors from domestic consumers. and to share the costs associated The success of the Australian launch motivated 27 New Zealand with switching to screw caps. wineries to form the New Zealand Wine Seal Initiative,20 launched Winemakers did not fully invest in August 2001. A key role of the NZ Initiative was to promote the in changing their wine produc- use of screw caps, to provide technical support to members regard- tion and bottling systems from ing the use of screw cap wine seals, and to educate the wine trade, cork to screw caps immediately, wine press and consumers about the benefits of using screw caps. but they often borrowed or shared In 2005, the NZ Initiative had more than 50 member wineries and bottling equipment. represented premium producers throughout New Zealand. Both However, the question remains: large and small companies were involved. The NZ Initiative also The NZ Initiative Why did American wineries not provided its members with additional benefits: They could share engage in similar cooperation ef- research news, exchange successful practices and share costs for the involved collabor- forts? Coopetition took place in collective public relations efforts associated with educating con- ative efforts New Zealand in part because in- sumers about screw caps. dustry characteristics provided The New Zealand wine industry is comparatively new in the among winemakers the right structural conditions for global wine market compared to European wine industries or forging cooperation among com- even the American wine industry. The New Zealand wine indus- who shared peting parties, such as industry try is also comprised of many small players, with newcomers frequently entering the industry. Accordingly, New Zealand wine- two goals: to age, industry climate and industry governing institutions.21 For ex- makers felt a need to establish a global brand by jointly promoting establish screw ample, as noted previously, the “New Zealand Wine” as a brand. Overall, the NZ Initiative in- U.S. wine industry is in a more volved collaborative efforts among winemakers who had two cap closures as mature phase than the wine in- shared goals: to establish screw cap closures as a standard closure dustry in New Zealand. As a result, for their products and to enhance the reputation of New Zealand a standard and many American winemakers re- wines in the global marketplace. A committee of four representa- to enhance the sisted the screw cap innovation or tives, elected by the winemakers, led the NZ Initiative. They moved more slowly to implement specified common goals and established formal leadership for the reputation of New it because of prior sunk costs in initiative. The collaborative efforts among winemakers revolved the form of established produc- around their two collective goals; the wineries remained com- Zealand wines. tion lines and well-established petitors in all other respects. brand names. 86 MIT SLOAN MANAGEMENT REVIEW SUMMER 2007 SLOANREVIEW.MIT.EdU SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 7. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - Furthermore, our interviews revealed that the overall climate in the U.S. wine industry is not Developing a Marketing Strategy For Diffusing Innovations generally characterized as cooperative. Interviews confirmed that information and knowledge are Innovations that are likely to face initial resistance from consumers slow to diffuse among U.S. winemakers, even may require different marketing strategies than do innovations to which among those in geographical proximity. Although consumers are receptive. quality was the primary motivation for moving to Type of innovation the screw cap innovation, U.S. winemakers also focused on creative market positioning efforts in Receptive Resistant order to stand apart. Consequently, U.S. competi- innovation innovation tors had few incentives to collaborate. In contrast, the New Zealand winemakers ap- pear to be loosely connected to one another, What is the goal of diffusing the innovation? making it more likely for collaboration to occur.22 Industrywide Purely competitive The industry climate in the New Zealand wine in- advantage for the goal? company? dustry can be characterized as more cooperative, open and friendly because of the need to promote “New Zealand Wine” as a brand. Compared to Use traditional Consider horizontal Consider vertical their American counterparts, New Zealand wine- cooperation/ cooperation with marketing and alliance makers are more willing to exchange research strategies. coopetition with other suppliers or industry players. distributors. outcomes concerning new innovations. New Zea- land winemakers also characterize collaboration as part of the New Zealand culture and identity, in contrast to the individualist and competitive spirit of the American wineries. Consider the resources available to address the issue. If com- pany resources are lacking, coopetition provides the benefits of Implementing Coopetition For sharing costs with other companies that share the problem. Diffusion-Resistant Innovations Although horizontal cooperation was a successful strategy for Analyze the specificity of the resources and knowledge that the New Zealand wineries, it is not appropriate for every resis- might be exchanged during coopetition. Managers need to tant innovation. If the goal of the introduction of the innovation determine the level of risk the company may face if knowledge is purely competitive, vertical cooperation with suppliers or is intentionally or unintentionally transferred during collabo- distributors is generally most appropriate. But there are situa- ration with competitors. For example, if knowledge regarding tions in which a common problem, shared collectively by a competitive advantage of Company A (a specific production industry players, cannot be overcome through the industry’s process) is easily transferred to a competing Company B dur- standard distribution channels. In such situations, many com- ing cooperative efforts, then coopetition is not advisable. panies in the industry suffer from the same problem. Where such an industrywide goal exists yet there is uncertainty about Evaluate the climate within the industry. As the screw cap case the success of the innovation in the marketplace, horizontal study suggests, coopetition is more likely to operate successfully cooperation between competitors in the industry may be an when a collaborative climate exists in the industry. Trust is often appropriate strategy. (See “Developing a Marketing Strategy For seen as a prerequisite for the evolution of cooperation between Diffusing Innovations.”) competitors.23 Such trust can stem from friendships or business However, before deciding to move forward with a horizontal co- relationships between CEOs or board members. Have there been operation strategy, managers need to examine the following issues: prior cases of collaboration between competitors in the industry, such as joint research? If prior instances of collaboration exist, it Investigate the scope of the marketing problem that the new in- may be easier to move forward with coopetition. novation faces. What are the consumers’ barriers to adopting the innovation? Are there high or low psychological barriers to adop- To work together successfully, industry actors also need to be tion? Also, is the problem the company faces an industrywide compatible. Compatibility can encompass similar historical, problem? philosophical and strategic backgrounds or common values, SLOANREVIEW.MIT.EdU SUMMER 2007 MIT SLOAN MANAGEMENT REVIEW 87 SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION -
  • 8. SUBSCRIBER COPY - NOT FOR REPRODUCTION - SUBSCRIBER COPY - NOT FOR REPRODUCTION - MArketing S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - N OT FOR R EPRODUCTION - S UBSCRIBER COPY - experiences and principles.24 Compatibility may also take the 5. E.M. Rogers, “Diffusion of Innovations,” 5th ed. (New York: Free form of common goals. Compatibility enhances cohesiveness Press, 2003). — and thus the evolution of coopetitive structures. 6. S. Ram and J.N. Sheth, “Consumer Resistance to Innovations: The Marketing Problem and Its Solutions,” Journal of Consumer Marketing Examine the role of industry-governing institutions or key 6, no. 2 (1989): 5-14; and D. Krackhardt, “Organizational Viscosity and industry experts. Our research suggests that when an industry- the Diffusion of Controversial Innovations,” Journal of Mathematical So- governing body such as a trade association is in place, it may play ciology 22 (1997): 177-199. the role of organizer for the coopetition. However, where a gov- 7. Ram, “Consumer Resistance to Innovations.” erning body is nonexistent or ineffective, the influence of industry 8. J.T. Gourville, “Why Consumers Don’t Buy: The Psychology of New opinion leaders may be needed to provide the necessary momen- Product Adoption,” Harvard Business School case no. 20039-504-056 (Boston: Harvard Business School Publishing, 2003). tum for initiating an alliance and keeping it on track. 9. Ibid. 10. D. Sogg, “The Science of Closures: Evaluating Corks, Twist-offs and The Potential of Coopetition Other Ways of Preserving the Quality of Bottled Wine,” Wine Spectator As innovations become more radical through technological ad- (March 31, 2005): 55-58. vancements such as nanotechnology, genetic modifications and 11. S. Courtney, “The History and Revival of Screwcaps,” Wine of the robotics, companies will increasingly encounter marketplace resis- Week (August 13, 2001), www.wineoftheweek.com/screwcaps/history. tance by the average consumer due to perceived risks and html. uncertainties about the new products. Relying on traditional mar- 12. O. Toubia, J.R. Hauser and R. Garcia, “Probabilistic Polyhedral Methods for Adaptive Choice-Based Conjoint Analysis: Theory and Ap- keting strategies to overcome the psychological costs of adopting plication,” Marketing Science, in press. resistant innovations may not prove successful. When consumer 13. Sogg, “The Science of Closures.” barriers to an innovation are universal within an industry, a coopeti- 14. The problem of “free riders” does exist, but it is not the focus of this tion marketing strategy may be suitable to overcome this resistance. paper. The screw cap case study argues for several advantages of a 15. R. Garcia and T. Atkin, “Co-opetition For the Diffusion of Resistant coopetition strategy when introducing potentially resistant inno- Innovations: A Case Study in the Global Wine Industry,” working paper vations into the marketplace. A coopetitive marketing strategy 05-002, Institute for Global Innovation Management, Northeastern Uni- versity, Boston, 2005. sends consumers a signal of serious, permanent changes in prod- 16. This “scientific” wine consumer segment consists of wine drinkers ucts or services, thus reducing consumers’ psychological switching who make wine choices based on quality and follow scientific develop- costs associated with adopting the innovation. As a result, coope- ments in the market closely. All winemakers interviewed identified this tition makes it easier to overcome consumers’ barriers to resistance. consumer segment. Furthermore, the New Zealand case suggests that coopetition 17. See www.hoguecellars.com/feature/homework.html (last viewed June 24, 2006). brings additional benefits to participating companies, such as shared marketing costs, faster diffusion of market knowledge and 18. See www.plumpjack.com. increased bargaining power in the global market. 19. See www.3loosescrews.com. 20. See www.screwcap.co.nz. ACknowledGments 21. B. Kogut, W. Shan and G. Walker, “The Make-Or-Cooperate Decision in the Context of an Industry Network,” in “Networks and Organizations: We would like to thank our colleagues Bruce Clark, Andrew Rohm and Structure, Form, and Action,” eds. N. Nohria and E. Eccles (Boston: Har- Richard McCullough for their thoughtful comments on previous versions vard Business School Press, 1992): 348-365; R. Gulati and M. Gargiulo, of this paper and the Institute for Global Innovation Management at “Where Do Interorganizational Networks Come From?” American Journal Northeastern University for funding this project. We would also like to of Sociology 104 (March 1999): 1439-1493; and G. Walker, B. Kogut and thank the German Academic Exchange Service (DAAD), which sup- W. Shan, “Social Capital, Structural Holes and the Formation of an Indus- ported this research with a postdoctoral fellowship. try Network,” Organization Science 8, no. 2 (1997): 109-125. 22. X. Luo, R.J. Slotegraaf and X. Pan, “Cross-Functional ‘Coopetition’: ReFeRenCes The Simultaneous Role of Cooperation and Coopetition Within Firms,” 1. As described by G.A. Moore in “Crossing the Chasm” (New York: Journal of Marketing 70, no. 2 (2006): 67-81. HarperBusiness, 1991), the gap between the early adopters and the 23. R.M. Morgan and S.D. Hunt, “The Commitment-Trust Theory of mainstream market is caused by the different preferences and expecta- Relationship Marketing,” Journal of Marketing 58, no. 3 (July 1994): tions of these two segments with regard to the innovation. 20-38. 2. P.N. Golder and G J. Tellis, “Will It Ever Fly? Modeling the Takeoff of Really 24. L.P. Bucklin and S. Sengupta, “The Co-Diffusion of Complementary New Consumer Durables,” Marketing Science 16, no. 3 (1997): 256-270. Innovations: Supermarket Scanners and UPC Symbols,” Journal of Product Innovation Management 10, no. 2 (1993): 148-160. 3. R. Agarwal and B. Bayus, “The Market Evolution and Sales Takeoff of Product Innovations,” Management Science 48, no. 8 (August 2002): 1024-1041. Reprint 48419. For ordering information, see page 1. 4. Moore, “Crossing the Chasm.” Copyright © Massachusetts Institute of Technology, 2007. 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