Innovation Strategies
January 11, 2012 | Interviewer: Zhang Yue Han | Excerpted by: James Chin
As the year-end approaches, business leaders often say: “We barely met this year’s targets, but I have no idea how to achieve higher goals next year.” If you are troubled by this, you can relax for a moment and read this sharing article. There are two reasons: First, you are not alone—many others are also seeking better strategies. Second, this article aims to inspire you through six innovation strategies. All you need to do is spend a few minutes reading the stories, reflecting on their keys to success, and identifying applicable similarities. You will soon find solutions to your problems.
To achieve higher corporate goals, businesses commonly combine two variables (new/old products and new/old markets) into four approaches.
The four strategies and their combinations are:
• Market Penetration: Existing market + Existing product
• Product Development: Existing market + New product
• Market Development: Existing product + New market
• New Market Creation: New product + New market
Characteristics of the Four Strategies
1. Market Penetration: Businesses further explore and expand performance among existing target customers. Scholars often describe this as a cutthroat, bloody Red Ocean strategy—one most people are familiar with.
2. Product Development: Enterprises create competitive advantages (“We have it, you don’t”) by launching new products, rapidly boosting performance and market share in existing target markets.
3. Market Development: Expand existing products into new markets to cover a larger audience and drive revenue growth.
4. New Market Creation: Identify overlooked gray market areas, launch new products to serve untapped, competition-free target customers, enabling easier, faster achievement of higher goals. Early market entry typically yields substantial profits with zero competition—also known as the Blue Ocean strategy.
Today we will focus on how to formulate innovation strategies within these four categories to drive faster and smoother business expansion.
1. Market Penetration
In a fiercely competitive marketplace, how can we deliver superior value — making our offerings better than rivals’ — so that customers choose us more frequently when purchasing products and services? There are two core approaches.
First, solve customers’ problems. This explains why numerous companies have shifted their focus from mere product sales to delivering comprehensive solutions in recent years.
Second, identify and meet customers’ unmet expectations, such as helping them save time, effort, money and other resources. The following two strategies illustrate how to build competitive edges by optimizing resource efficiency.
Strategy 1: Retreat to Advance (Shift Resource Consumption to the Backend)
When serving customers, we may inconvenience them or unintentionally consume their resources. While customers may accept standard practices, they do not necessarily approve of them. In fact, recognizing such inefficiencies and developing innovative alternatives to deliver economic value to customers creates surprising differentiation.
Case Study
Company A (a display cabinet manufacturer) faced an explosion of competitors in recent years. Customers became pickier, while prices declined. Meanwhile, costs for materials, labor, and factory space rose sharply. Mid-sized competitors adopted a low-margin, high-volume strategy, hoping more orders would offset fixed costs and stabilize technical staff retention. However, this created a second problem: revenue growth required factory expansion and more hiring, circling back to the original issues—cost control and talent recruitment.
Solution
The management adopted innovative thinking to break free from this vicious cycle. The company first refined its target clients: B2B wholesalers in the footwear and apparel industries. A thorough business review revealed a notable pattern: these wholesalers renovate their stores 2 to 3 times a year to launch new products. Each renovation takes 5 to 10 days and inevitably disrupts daily operations. Store renovation thus represents a substantial opportunity cost, which became the core direction for innovation.
The innovative solutions include three key points:
1. Present renovation designs to customers in advance via 3D visual previews.
2. Divide decorative materials into modular components for flexible assembly. Though production of these modules is more sophisticated than on-site construction, it enables the company to deliver customized solutions based on standardized production.
3. Greatly shorten on-site assembly time. In the best-case scenario, clients can hand over store keys after work in the evening and reopen with a brand-new look the next morning.
Outcome
By helping customers cut down opportunity costs, Company A achieved groundbreaking competitive strengths and wider profit margins. It also put an end to the vicious cycle of rising costs and difficulties in recruitment.
Strategy 2: Integrate Strengths (Share Resources through Partnership)
Nowadays, many large enterprises divest non-core businesses and concentrate on their core competencies. Corporate mergers, acquisitions and strategic alliances have also become commonplace. For instance, airlines cooperate to combine scattered passengers onto the same flight, creating win-win results for all parties.
This reflects a key insight: competitors making similar products do not have to be relentless rivals. By changing mindset and finding a mutually beneficial balance, companies can join forces as partners to create shared advantages.
The key to this strategy is to identify and leverage respective strengths and share resources with peers to boost overall economic benefits. When each party focuses on manufacturing products with its own advantages and carries out cross-supply, the whole industry can achieve greater economic returns, realize optimized professional division of labor, and streamline cumbersome workflows.
Case Background
Company X and Company Y produce two types of products, Product A and Product B.
1. Company X makes 100 units of Product A (unit price: ¥10) and 100 units of Product B (unit price: ¥20).
2. Company Y makes 200 units of Product A (unit price: ¥6, thanks to allocated fixed costs, bulk procurement and higher efficiency) and 200 units of Product B (unit price: ¥14).
Solution
Company X specializes in producing Product A for both itself and Company Y, with total output rising to 300 units. Given the bottom price of ¥6 per unit for Product A, Company X sells it to Company Y at ¥7 per unit, earning a profit of ¥1 per unit.
Company Y takes charge of producing Product B for both sides, with total output reaching 300 units. Since ¥14 is already the rock-bottom price for Product B, Company Y sells it to Company X at ¥18 per unit, gaining a profit of ¥4 per unit.
On the surface, Company Y pays an extra ¥1 for each unit of Product A, yet it gains ¥4 profit from Product B in this partnership, resulting in a net gain.
Outcome
Total costs after integration:
1. Cost of Company X: 6×300+18×100−7×200=2200 Yuan
2. Cost of Company Y: 7×200+14×300−18×100=3800 Yuan
2. Product Development
Creating exclusive offerings that set a company apart from competitors is a common approach for rapid business expansion. That said, where should we start? How to ensure new products and services align with customer demands and expand profit margins?
One effective innovative approach is to restructure the cost framework: reallocate resources from low-value links to products and services that deliver unexpected, high added value. The detailed strategy is as follows:
Strategy 3: Transformer Strategy (Build Flexible and Optional Functions)
Transform fixed bundled services and product features into optional modules. This helps form a more competitive pricing system and improves market penetration.
To start with, enterprises need to break conventional thinking. Through systematic and comprehensive analysis, teams can activate innovative thinking and develop flexible products modeled after a "Transformer". This model features a flexible cost structure to satisfy a large group of customers with personalized needs.
For example, General Motors pioneered the car loan service half a century ago, allowing customers to drive a car first and pay later. This move greatly expanded its market share and secured its leading position in the industry. Many low-cost airlines in Asia cut less popular services and launched online booking platforms, which not only enlarged their market reach but also opened up new revenue streams.
Case Study
Intensifying price competition and rising costs have plunged many electrical manufacturers into shrinking profits, losses and even bankruptcy. Against this backdrop, one electrical enterprise stood out by achieving a seemingly impossible goal: developing products with better quality at lower costs.
Solution
The company first disassembled the cost structure of its products and services, then categorized individual functions based on customer recognition. With brainstorming and reverse thinking, it rolled out an innovative product line inspired by the "Transformer".
Unlike rivals that add more functions to stay competitive, this company streamlined products down to core features, slashing overall costs. This naturally catered to customers who only needed basic functions. Part of the cost savings was invested to enhance product quality and operational stability. Meanwhile, optional add-on parts were provided for customers to customize product functions freely. This flexible design delivered strong advantages in both quality and pricing.
Outcome
The new products quickly captured larger market share. Sales of spare parts and after-sales services also brought substantial additional revenue to the company.
3. Market Development
How can enterprises achieve rapid expansion by venturing into new fields, markets, industries or targeting new customer groups? Instead of expending immense effort blindly, businesses can adopt smart tactics to draw new markets to them. Below are two practical strategies.
Strategy 4: Freemium Model — Give First, Gain Later
When segmenting customers, you will usually identify multiple customer groups, which can be categorized as upstream and downstream players in the supply chain, or parallel participants at the same industrial level. Upon close observation, you will find these groups are interconnected. Offering free benefits to one group can strongly drive purchasing demand from another.
Case Study
A leather material supplier encountered huge difficulties when entering the Chinese market. Its products featured unique styles and superior quality, yet the avant-garde designs were unfamiliar and underappreciated by most shoe manufacturers upstream in the supply chain, leading to low selling prices. In the first three months, the company adopted traditional door-to-door sales and provided free samples, but achieved little success.
Solution
After analyzing its innovation strategy, the company summarized three traits of its ideal clients: they were proficient in using this new type of leather; their products were casual-style footwear; and their brands were mid-to-high-end.
In addition, the team noticed a bandwagon effect in the footwear industry: a small group of industry leaders set design trends. Their trendy and best-selling new styles would soon be copied by peers.
To encourage these trendsetters to embrace the new leather materials, the supplier proposed a cooperation plan: it would provide free advertising for clients and only charge a small commission after their products were sold. Essentially, this was an innovative marketing approach. The supplier directly tapped into the existing customer base of industry-leading brands, which drastically cut the high costs of traditional advertising and indirect customer acquisition. It turned out to be a win-win deal for both sides.
Outcome
Once other manufacturers learned that the trendy leather was sourced from this supplier, they rushed to place orders. The company quickly built up its client network, with monthly sales multiplying within just a few months, and successfully established a firm foothold in the Chinese market.
More Examples
Strategy 5: Capture Overlooked Segments — Accumulate Small Gains for Big Results
Major enterprises generally focus on serving large, standardized customer groups, and have secured solid market positions by catering to mass demands with streamlined product lines and operations. For new entrants and small-scale companies without established competitive edges, it is advisable to explore niche markets neglected by industry leaders.
This strategy differs from Strategy 1. While Strategy 1 pursues economic benefits by satisfying standardized customer demands, this approach targets numerous scattered clients with personalized needs, leveraging systematic efficiency to drive rapid business growth.
Case Study
A well-known pharmaceutical supplier faced mounting market pressures amid intensifying competition. The popularization of technology narrowed product differentiation among rivals, squeezing profit margins even as customer expectations kept rising. Caught between cutthroat competition and higher performance targets set by headquarters, the company urgently needed innovative strategies to make breakthroughs.
The company had long adopted a product-line-based sales model, with each line managed by a senior product manager and a dedicated team. The team once relied on rich experience and professional expertise to hit sales targets easily, but this model gradually lost effectiveness as competitive advantages faded.
Meanwhile, second- and third-tier cities had enjoyed robust economic growth in recent years. Local small hospitals did have demand for the company’s products, yet their purchasing power was relatively weak. Their order volumes could not compare with major clients in first-tier cities, and long-distance transportation costs further eroded profits. For these reasons, the company had never attempted to expand into these regions.
Solution
The company’s conventional thinking centered on boosting sales to existing major clients in big cities. By adopting innovative thinking and conducting in-depth analysis of market and internal operations, the management realized that the combined purchasing power of these overlooked clients in second- and third-tier cities was highly promising. The core challenge then became how to efficiently tap into these scattered customer groups.
The company rolled out an innovative plan with the following steps:
1. Select internal staff to form a dedicated team for new market expansion. Shift the marketing approach for second- and third-tier cities from product-oriented to solution-oriented: transform product managers into account managers with revised job responsibilities, knowledge frameworks and sales tactics.
2. Deliver change management training to the new team to mitigate risks, help them break psychological barriers and step out of their comfort zones.
3. Upgrade the sales model from simple product sales to solution-based consultative selling.
4. Conduct targeted training on individual product knowledge.
5. Build an internal information platform to deliver key data and operational support.
Outcome
The company successfully avoided fierce competition from dominant players and smoothly penetrated small-scale markets in second- and third-tier cities.
More Examples
Many B2B and B2C e-commerce platforms have achieved great success with this model. Their self-service trading platforms connect a large number of scattered buyers and suppliers with personalized demands, generating substantial turnover. A billiard cue maker launched an online store, overcoming the operational limitations of physical retail outlets. Running at low cost, it offered competitively priced products to gain higher profits and expanded its business to customers across the globe.
4. New Market Creation
Traditional versus innovative thinking: The former relies on past experience to plan for future success; the latter focuses on developing disruptive concepts to capture competition-free markets or build differentiation.
As the saying goes: “It doesn’t matter if a cat is black or white, as long as it catches mice.” The Blue Ocean strategy exemplifies this. With sharp market awareness, you can identify new customer segments with distinct needs within your existing base. Launching new products to serve these segments opens entirely new markets.
Two common approaches:
1. Develop new markets by understanding unmet needs (higher success rate, faster results).
2. Innovate new customer groups through product imagination.
Strategy 6: Golden Cicada’s Metamorphosis (Develop New Markets from Unmet Needs)
Case Study
The CIIC CIPT Internationally Certified Professional Trainer program was originally designed to help managers and professionals upskill for career transitions or retirement. Priced higher than similar public courses, it stood out for one key module: “Influencing the Learning Process Through Personal Charisma.”This content drove positive mindset and behavioral changes in 90% of participants, generating strong word-of-mouth and attracting high-end clients—including executives from global corporations and key administrators at top business schools.
Solution
Engage senior executives, observe their post-program growth, and launch a new market to add value to the course: Offer in-house training to help executives build high-performing teams rapidly during corporate growth. This differs from external trainers’ public programs in training objectives, methods, and audiences.
For example: Executives can pass on valuable institutional knowledge to their teams through one-on-one coaching—critical for companies with strong cultures, as external trainers cannot replicate this. Additionally, extending core cultural values across departments with tailored adaptations accelerates innovation success. External trainers, meanwhile, guide managers to adopt a higher-level instructional mindset for leadership—balancing personal growth and corporate sustainability in the new market.
Outcome
Developing a new market based on unmet needs enabled the CIIC CIPT program to undergo a Golden Cicada’s Metamorphosis, successfully carving out a Blue Ocean in the training industry.
Additional Case
A spa club in Guangzhou faced price and profit declines amid fierce competition. However, the twice-yearly Canton Fair presented an opportunity: Hotel prices surged and availability tightened during the fair, while some clients sought more stable relationships. After repositioning, the club transformed from a stress-relief spa into a one-stop lifestyle club, adding family entertainment, fitness, wellness consulting, acupressure massage, dining, children’s play areas, meeting rooms, and co-working spaces.
This innovation attracted more clients during the fair and became a popular venue for local business meetings and weekend gatherings year-round. Clients enjoyed premium services at three-star hotel prices; the club maximized space efficiency with compact seating (under 3 square meters per guest, like first-class airline seats). The new model delivered stable revenue and profits.
Other examples include 3M’s Post-it Notes (invented from a failed adhesive experiment) and Coca-Cola’s evolution into a global beverage brand. These cases prove that innovative thinking, paired with product-market alignment, can unlock entirely new markets.
Conclusion
Successful innovation is a journey, not a destination. The only constant in success is change. To sustain leadership and competitiveness, enterprises must stay closely connected to the market and target customers—understanding their feelings, expectations, trends, and pain points. The six strategies above address diverse customer needs and represent endless business opportunities. Unleash your innovative thinking, and every day you will take pride in your creations and contributions!