Revolution through Innovation

Background ~ You know that I’m always challenging retail assumptions, often ones that are widely accepted as fundamental truths, and I found a kindred spirit in toy industry expert and thought leader, Richard Gottlieb. Together, in an exchange of letters, Richard and I are challenging first principles, those on which we base our business decisions and yet, we never think about.

You may read our earlier letters by clicking "Why we need to rethink what we never think about, Part 1” and “Why we need to rethink what we never think about, Part 2."

Richard Gottlieb ~ Known as the "Authority on the Business of Play," Richard Gottlieb is recognized for his knowledge and thought leadership in the toy industry.

[The following was originally published on Monday, 10/11/10, on Richard's Blog, Global Toy News.]

Dear Carol,

In answering your question, I have to start by pointing out that any time you change a first principle you are engaged in revolution and not innovation.  Let me provide an example. 

In our last exchange we spoke about the first principle of gender.  Under that organizing principle, toys are to be divided into “Girl’s Toys” and “Boy’s Toys.   In that case, an innovation might mean that a retailer develops a new way of displaying dolls within the “Girl’s Toy” section.  A revolution would be for the same retailer to do away with the term “Girl’s Toys” and the “Girl’s Toys” section completely.  All toys, no matter the gender, would be merchandised together.  That’s a pretty big difference.

Innovation is like tossing a pebble into a quiet pond, a leaf laying on the water moves, fish darts away and everything quickly returns to normal.  In the case of the innovative concept of developing a new way of displaying dolls, there would be only a ripple effect as the manufacturers would really not have to do anything to their product, marketing or merchandising.  They would just have to wait and see if they gained or lost space.

Revolution is like throwing a cannon ball into a bathtub. The result would be an enormous mess with water and pieces of shattered bathtub all over the floor.  In the case of the revolutionary concept of doing away with the “Girl’s department;”   every constituency from designer to manufacturer to marketer to packager and on would have to completely rethink the doll category.  There would indeed be “havoc” with some manufacturers going out of business.

So, bottom line, I believe that “havoc” is inevitable when challenging first principles but rather than calling it havoc we should call it creative destruction.  Creative destruction hurts in the short term but generates enormous benefits for the long term.

  

Dear Richard,

I’m all about revolution, particularly in retail, and I think we’re at the end of the beginning in that regard. After years of retailers obsessing about efficiency and trying to perfect their optimization strategies, we’re entering a new era of retail risk-taking that will be much more revolutionary than evolutionary, in my opinion.

What may surprise everyone, though, is that much of the revolution will be driven by retailers rather than by brands.

I’ll expand on your pebble-in-the-pond metaphor to describe how I see it already unfolding: The pebbles hitting the water are a series of initiatives that various retailers are incubating and launching but that nonetheless go largely ignored.

However, those ripples gain momentum as they interact with other ripple pools and waves begin to form—until a tidal wave (or two) finally appears, seemingly out of nowhere. As brands and manufacturers gaze at each isolated ripple, they fail to recognize the profound ways they connect and interact with each other—and eventually create something brand new (and unexpected) as a result.

Of course, this has happened many times throughout the history of retail. The advent of the private label is a great example. Manufacturers first saw it as a completely non-threatening experiment in “generics.” From there, it was rationalized to be an opening price point option that only lower income shoppers would favor. As more retailers began to expand their private label programs, many in the retail industry still called it a “cyclical” brand dynamic and predicted a swing back to national and licensed brands.

Today, in acknowledgement that the difference between owned-brand and national brand is greater than ever, private “label” is now changing into private “brand” and shows no sign of slowing down. In fact, not content to stop at private brand products, Best Buy, Target, and other retailers are now layering on private brand services (such as Geek Squad and Bullseye Mobile).

The tiny ripple created by the private label gained unhindered momentum for years, finally gaining attention only when the wave crashed onto retail shores—and completely transformed branding as we know it.

With social networking, digital marketing, proximity promotions, and multi-channel, retailers have never had a bigger pond to play in. The difference between then and now is that the pebbles are no longer hitting the water one at a time. As retailers become less risk-averse and more determined than ever to control the conversation, hundreds of pebbles are hitting simultaneously—without waiting for the pool to settle.  I’m expecting big waves. How about you?