Pioneers-- those innovative "first movers" who enter markets before competitors are often defined as engines of economic growth while imitators are generally scorned as copycats and shameful followers. But who most often wins? Drawing on seven years of research, Steven Schnaars documents that, in sharp contrast to conventional beliefs, imitators commonly surpass pioneers as market leaders and attain the greatest financial rewards. How do they do it? In this ground-breaking book-- the first to formulate imitation strategies for managers-- Schnaars systematically examines 28 detailed case histories, from light beer to commercial jet liners, in which imitators such as Anheuser-Busch and Boeing prevailed over pioneers. He describes the marketing wars, court battles, and even personal vendettas that often resulted, and shows that imitators have several clear advantages. Pioneers are forced to spend heavily on both product and market development. They also risk making costly mistakes. Pioneers often aid in their own destruction, thrown into confusion by rapid growth, internal bickering, and the neverending search for expansion capital. Moreover, imitators do not have to risk expensive start-up costs or pursuing a market that does not exist, enabling them to quickly outmaneuver pioneers once the market is finally shaped. By patiently waiting on the sidelines while the innovator makes the mistakes, imitators can also usurp benefits from the test of time-- major defects in the product having been removed by the pioneer at an earlier stage in the game. Schnaars discusses the three basic strategies that successful imitators such as Microsoft, American Express, and Pepsi have used to dominate markets pioneered by others. First, some imitators sell lower-priced, generic versions of the pioneer's product once it becomes popular, as Bic did with ballpoint pens. Second, some firms imitate and improve upon the pioneer's product; for example, WordPerfect in the case of word processing software. Third, building on their capital, distribution, and marketing advantages that smaller pioneers cannot hope to match, imitators use the most prevalent strategy of all-- bullying their way into a pioneer's market on sheer power. In several cases a one-two-punch, or combination of strategies, is often utilized by the imitator to remove any doubt regarding their dominance in the market and in the eyes of the public. Schnaars concludes that the benefits of pioneering have been oversold, and that imitation compels recognition as a legitimate marketing strategy. It should be as much a part of a company's strategic arsenal as strategies for innovation.
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Steven P. Schnaars is chair of the department of marketing at Baruch College of the City University of New York. He is the author of Megamistakes (Free Press, 1989), Marketing Strategy (Free Press, 1991), and several widely influential articles in the marketing literature.Excerpt. © Reprinted by permission. All rights reserved.:
The Elements of Imitation
Not all copies are created equal. This chapter examines the different kinds of imitations that are frequently found in the business world and categorizes possible later entry strategies.
KINDS OF COPIES
Imitation runs the gamut from surreptitious and illegal duplicates of popular products to truly innovative new products that are merely inspired by a pioneering brand.
Counterfeits or Product Pirates
On the streets of New York, third-world entrepreneurs hawk counterfeit Gucci and Cartier watches to unsuspecting (or uncaring) tourists. They are engaged in the darker side of imitation. Counterfeits are copies that carry the same brand name or trademark as the original. They are an attempt to rob the innovator of due profits. Counterfeits are strictly illegal. They trade on the protected brand name or trademark of an established seller.
Counterfeits are usually low-quality, shoddy goods, sold under the guise of a premium-priced seller's respected brand name. They typically carry a much lower price than the original. Counterfeits are the least creative attempt at imitation. What sets them apart from other forms of imitative products is their illegality.
The consumer may or may not be aware of the intended deception. The cachet of a prestigious brand name at a much lower price may entice consumers inadvertently to support a counterfeiter's copy.
Counterfeits are big business. Business Week estimates that pirates steal $20 billion a year from U.S. businesses. Rolex and Cartier watches, Izod shirts, Gucci and Vuitton handbags, Jordache jeans, and Nintendo video games are examples of products that have all been subjected to widespread counterfeiting. Often, counterfeiters operate out of Korea, Taiwan, and Hong Kong. In recent years counterfeiting has become so widespread that sellers of popular brand products have been forced to track down and prosecute the counterfeiters. Search and seizure tactics are often used to slow the international flow of counterfeit products.
Much of the negative image attached to imitative products results from the illicit actions of counterfeiters. Their illegality is obvious, and the impression is widespread that all imitations are of a similar ilk. It is no wonder that imitators are reluctant to crow about their successes.
Knockoffs or Clones
When the IBM personal computer was introduced in 1981, it became an immediate success. That success, and the open architecture of the PC, created a secondary market for IBM-PC clones. The clones were close copies of the IBM product but carried their own brand names, not the brand name of the original. Eventually the copies surpassed the original.
Clones are often legal products in their own right. The absence or expiration of patents, copyrights, and trademarks makes many of them legal. But often there is a dispute, which the courts must resolve. Typically, clones sell the same basic product as the innovator but at a lower price and without the prestigious brand name.
Outside the computer industry, clones are usually called knockoffs. Knockoffs are legal copies of a competitor's product. Consider the case of Tyco Toys, which has succeeded on numerous occasions by copying the innovations of others. In 1984 Tyco introduced Super Blocks, a children's plastic building block that is nearly identical to those sold by Lego, the market leader from Denmark. Lego sued to protect its product from imitation, but its case was weakened by the fact that its patent had expired in 1981. Furthermore, as a Forbes reporter discovered in 1988, "Lego itself had copied the product from an English firm in the 1940s." Lego lost. By the late 1980s, Tyco was selling $20 million a year worth of "Super Blocks."
Tyco repeated the strategy with Super Dough, a direct copy of Kenner Parker's Play-Doh. Kenner Parker also sued. It also lost. For Tyco, copying proved to be a potent strategy. It sells knockoffs of established products at significantly lower prices.
Design Copies or Trade Dress
Design copies trade on the style, design, or fashion of a competitor's popular product. In instances where fashion or design is the most important part of the product, design copies mimic clones. But in instances where design plays a lesser role, design copies may be based on a unique and innovative technology. Design copies then combine aspects of innovation and imitation.
Consider, for example, the case of Japanese luxury cars. In the late 1980s the Japanese auto sellers moved up-market to challenge the German luxury auto makers Mercedes and BMW with prestige models of their own: Lexus (Toyota), Infiniti (Nissan), and Acura (Honda). The Germans assert that the Japanese are using a familiar marketing strategy -- they emulate the innovator and sell at a lower price. In this case the Japanese are accused of copying the coveted German design features. A BMW marketing executive is quoted by Business Week as saying: "Look at the shape of the Lexus, it's almost a blatant copy of Mercedes." The product carries it own brand name and possesses its own unique engineering specifications. It merely mimics the design of the market leader.
A nearly identical situation occurred with the Mazda Miata. A lengthy analysis of that product's entry in the New York Times concluded that the Miata is a design copy of the popular English sports cars of the 1960s and 1970s, especially the Triumph Spitfire. Mazda produced a classic British sports car without the attending quality problems that plagued the originals.
Creative adaptations are the most innovative kind of copy. They take an existing product and either improve upon it or adapt it to a new arena of competition. They are what Theodore Levitt calls "innovative imitations."
Creative adaptations of existing products are often more in tune with the innovation process than the glorified notion of the breakthrough invention. There is myth in American culture that innovation springs from the creative genius of heroic inventors. But few innovations actually develop in that way. Most innovations are deeply rooted in existing ideas and current practices. They are more accurately viewed as creative adaptations of existing ideas to new applications or incremental improvements. Innovation, in short, is often more incremental than revolutionary. Ideas rarely appear out of nowhere. Typically, new products build on old products. Stated differently, innovation often entails a great deal of imitation and extension.
Conversely, imitation often entails large degree of innovation. That is especially true in business, where the motivation for imitation is not necessarily to produce exact copies of original works but to earn profits. Art forgers may seek to profit by creating exact copies, but in business copiers have other motives. Richard Nelson and Sidney Winter conclude that "the imitator [in business] is not directly concerned with creating a good likeness, but with achieving an economic success." That is, copying is a means to an end, not an end in itself. As a result, the best business imitations often combine copying with creativity. In that way, technological development moves forward a small step at a time.
Creative adaptations often take the form of either copying and then making incremental improvements on existing products or adapting existing products to new situations.
Firms that enter a growing market after an innovator sometimes have access to newer technology. Sometimes the later entrant is able to read the market more accurately than the innovator solely because of the passage of time. Rarely does the innovator fully understand the form the market will ultimately take. That allows the imitator to "leapfrog" the innovator with a superior product.
Adaptation to Another Industry
Creative imitation often takes the form of recognizing the potential of an innovation developed in one industry for use in another. It applies innovation elsewhere. Arthur Bartlett, for example, who started the Century 21 real estate brokerage franchise, succeeded by using the idea of converting existing agencies to his system rather than relying on startups. John Fanning imitated the same idea to expand his Uniforce Temporary Personnel Services. He recalled: "We didn't reinvent the wheel...we try to leapfrog from someone else's ideas." Well, not exactly. Actually, he applied an innovation from one industry to another.
WHAT TO IMITATE
The four types of copies listed above apply mostly to products and services, but imitation is not restricted to products and services. It is also possible to copy procedures, processes, or strategies.
Japanese competitors have excelled at copying American products and selling them on world markets at lower prices. The popular press is loaded with examples of how American firms have failed to reap the economic benefits of innovations made here in America.
In recent years, many authors have argued that Japan has switched from a product imitator to a product innovator. It has. But it would be a mistake to conclude that the Japanese have sworn off imitation and embraced innovation. Instead, they have embraced the benefits of both approaches to new product introduction, applying each where appropriate.
American competitors have been less successful in copying Japanese products. Nathan Rosenberg and Edward Steinmueller attribute that shortcoming to an overemphasis on innovation. They observe: "American thinking about the innovation process has focused excessively upon the earliest stages" of R&D. The focus of American firms on basic research in pursuit of "creative leaps" results in a "preoccupation with discontinuities and creative destruction, and its neglect of the cumulative power of small, incremental changes."
Procedures, Processes, and Strategies
It is also possible to imitate the procedures, processes, and strategies of competitors. In recent years American firms have been especially interested in copying the procedures that have made Japanese firms so competitive on world markets. For a variety of reasons, however, it is more difficult to reverse-engineer intangible processes than it is to copy physical products. Not only are process innovations intangible and rooted in culture and organizational design, they are also easier to keep secret. Edwin Mansfield, for example, found that process technology leaks out more slowly than product innovations.
The results are as might be expected: The Japanese generally have had more success in copying Western product innovations than American firms have had in copying Japanese processes and operational innovations.
Processes, procedures, and strategies are often culturally bound. Consequently, imitations of them often must be tailored to fit a particular society. That means such imitations must entail a healthy degree of innovation.
When Japanese organizations have copied American procedures they have usually adapted those innovations to fit their own culture. An insightful book by D. Eleanor Westney examined Japanese imitation of Western ideas between 1868 and 1912, the Meiji period, when Japan sought to transform itself quickly from a feudal society to a modern industrial nation. She studied in great detail a small number of case histories where the Japanese conscientiously copied European practices. What she found was that imitation and innovation are inextricably intertwined. In the case of creating a modern police force, for example, the Japanese first conducted a ten-month study of the Paris police force. They then copied the idea, but found that it could not be applied without adapting it to their own peculiar needs and culture. She concludes that successful imitation of procedures almost always requires innovation.
In recent years the rush to improve the quality of American products has created an almost faddish interest in competitive benchmarking -- the legal and explicit practice of copying the best business practices of successful competitors. The idea is that quality can be improved by doing at least as well as the best in the business. The popularity of this newly discovered form of imitation is characterized by Roger Milliken, the textile firm chairman, who summed up his firm's interest in competitive benchmarking this way: "We borrow shamelessly."
Probably the most widely publicized example of copying came with the development of the extremely successful Ford Taurus. Ford officials readily admit that they scoured the world to find the most smartly designed components and best practices and then incorporated them, or better yet improved upon them, to build their innovative auto.
Gerald Nadler, a management expert, opposes the practice of competitive benchmarking. He argues that making exact copies of procedural innovations is a recipe for disaster. He takes issue with the practice of imitating the procedures of successful firms. When the Japanese once again "borrowed" American manufacturing know-how in the 1950s, Nadler argues, they did not copy verbatim. Instead, they adapted American manufacturing procedures to fit their own peculiar model. He calls such imitative adaptations "breakthrough thinking."
There are numerous examples of American firms that copied and adapted the strategies of other firms to fit their own needs. Retailers often take an idea that has been successful in one field and apply it to another. Home Depot, for example, has served as a model for many other retailers. In 1991 Forbes reported that the Pep Boys -- the once old-fashioned auto parts retailer -- adapted Home Depot's ideas to its own operation. Its president, Mitchell Leibovitz, said: "I consider myself a student and Bernie Marcus [of Home Depot] a teacher." In the early 1990s Pep Boys changed its promotional programs and merchandising strategy to match those used by the Home Depot.
Sometimes firms even copy each other's promotions. Radio stations often do so. Nationwide Communications, which owns a successful group of radio stations around the country, has raised imitation to a high art. In 1991 Forbes reported that Nationwide often copies promotions from competitors and then claims them as its own. In one particularly memorable instance in Columbus, Ohio, the Nationwide radio station started a drive to help a local family burned out its house within twenty minutes of a competitor who initiated the campaign.
THE MOTIVATION FOR IMITATION
Firms imitate for at least two reasons.
Some firms are caught off guard by the introduction of new and innovative products. They fail to recognize the potential of a new product introduced by a small, entrepreneurial firm until demand for that product explodes. Even then, they might view its initial success as a fad that will quickly dissipate. Often they are right. There may be a long history of similar types of new products that have entered and failed. The current may simply be viewed as yet another in a long string of inevitable product failures. But the product may suddenly show signs of staying around for a while. Still, the incumbent firm may be reluctant to cannibalize its existing lines, or be forced to split sales between two entries with no net gain. But at some point the in...
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Book Description Free Press, 1994. Hardcover. Book Condition: New. Bookseller Inventory # P110029281059
Book Description Free Press, 1994. Hardcover. Book Condition: New. Bookseller Inventory # DADAX0029281059