Why Brands Are Crucial To Innovation

Here’s a thought experiment. Imagine the engineers working in the product development labs at Volkswagen A.G. develop three innovations: a suspension for a smoother ride, a more fuel efficient ignition system, and a better safety restraint system. The strategic question for the company then is: which of its brands will carry each innovation? It wouldn’t make sense to introduce all of the innovations in all of its brands — not just because that would be too costly, but because the meaning of the innovation would differ depending on the brand that carries it.

So if you had to choose, you would probably suggest that the better suspension naturally belongs in the Bentley and Audi brands while the better fuel efficiency may be best introduced by the Volkswagen, Seat, and Skoda brands. The optimal strategy for the safety system may well be to do something unconventional: to license the innovation to a competitor, in this case, Volvo, to get that brand to first introduce it in its cars. Pioneered by Volvo, the safety innovation would then gain traction and market credibility.

Features or innovations introduced by the wrong brand can fall flat. An example from the news business provides a case in point. Henry Farrell, a professor of political science writing in the Washington Post, describes how Wikileaks grew frustrated that the general public wasn’t paying attention to its highly newsworthy stories. Eventually the organization realized that, in order for its revelations to have any impact, it needed brands such as the New York Times and The Guardian to make the news “impossible to ignore.”

Similarly, every product and feature innovation is a potential story whose impact on the marketplace is a function of the brand that carries it. Innovation is not just about R&D efforts or new product and feature development. Without brands that consumers trust, the story of any innovation is incomplete. In other words, brands are just as critical to innovation success as are new products. Trustworthy brands do three things:

1. They reduce the customers’ risk of trying new products and features.  American consumers are willing to try a finger-print sensor on the iPhone from Apple, but might not be so eager to try one from Huawei.

2. They position the innovation and give it meaning. Suspension systems developed by Volkswagen engineers make more sense in an Audi, a brand known for its comfort, than in a Skoda, an economy brand. Similarly, a quick lace-up system on Rockports would be interpreted as adding to convenience and comfort, while the same system would connote performance and speed to action on a pair of Nike shoes.

3. And finally, brands normalize the new product or feature; they give it credibility. MP3 players were invented as the MPMAN by Saehan Information Systems of Korea, but it wasn’t until the iPod was launched that the market truly took off.

Downstream, marketplace assets such as brands aren’t just nice-to-have complements to upstream assets such as R&D labs. They are a necessary condition for innovation success. Brands facilitate consumer acceptance and pave the market path for innovations.