Can you spot a bad idea - Pizza Hut of Yum Brands and stuffed pan pizza

Innovation comes in many forms, and some are a lot more valuable than others.  The most valuable bring in users formerly un-served or under-served thus expanding the market and offering new growth - like mobile phones did.  The least valuable are variations of something that exists, which do little more than give variety to existing customers. 

"Pizza Hut Intros Stuffed Crust Pan Pizza" from Mediapost.com is without a doubt the latter.  The company takes a product introduced in 1980, then adds an enhancement developed in 1995, and in 2009 launches a product that is merely the combination of the two.  At first blush you say "why not?"  But this launch costs money - quite a bit of money.  There's the cost in product formulation, the cost in training tens of thousands of store workers to make it, cost in new menus, cost for in-store marketing materials, and cost for media advertising of the new product.  The same costs (only much  higher now)  as incurred to launch the totally new innovation pan pizza 30 years ago. 

Only this won't generate new revenue.  These kind of variation innovations largely provide an alternative for existing customers.  Restaurants are famous for selling 70% of their product to repeat customers that return week after week.  These people often look for new, sometimes strange, variations.  Remember Hawaiian pizza with pineapple, or Bar-B-Que pizza with roasted pork and BBQ sauce?  These are the kinds of things that don't bring in new customers, they aren't finding an under-served market and bringing those people to the restaurant.  They merely offer variations, which might catch the interest of returning customers, but few others.  They are very expensive defensive product launches meant to keep the loyal customer from considering the competition.  But because these incur cost, with little new revenue, they are negative to the bottom line.

Part of the fallacy comes from the old logic of  "ask customers what they want."  Unfortunately, customers can only think of cheaper, faster and usually fractionally better.  Their ideas about innovation are almost exclusively variations on existing themes.  They already are your customer, thus not thinking hard about alternatives.  To find new products that can really grow your market, use lost customers to lead you to the new ideas.  And scan other industries and markets to see what's happening on the fringe of competition - things that can serve newly developing market needs. 

Companies that make high rates of return do not merely try to maintain revenues and cater to existing customers.  They use breakthroughs to tap into new markets and new customer segments.  Think about the "personal pan pizza" a product innovation Pizza Hut pioneered 35 years ago.  That made it possible for customers to buy a pizza for lunch - it was small enough, cheap enough, and could be served fast enough that it expanded the market for lunch pizza buyers in non-urban locations where "a slice" wasn't available.  There are new needs emerging in the restaurant business today - but putting cheese in the crust of your old pan pizza isn't the kind of thing that's going to bring new customers into the restaurant any time soon.

Comments

[Steve Dean]

Henry Ford supposedly said "if I asked my customers what they wanted, they would have told me a faster horse".

[Adam Hartung]

Excellent quote Steve. Thank you

[r4 ds games]

Thanks for sharing information. I just love pizza hut.