Innovation by Individuals

Table of Contents

List of Figures

1. Introduction
1.1 Problem Definition and Objectives
1.2 Course of Investigation

2. Capability
2.1 The Need for New Products
2.2 Being Ahead of the Market
2.3 Cognitive Learning Theory

3. Motivation
3.1 Industry and Product Category Level
3.1.1 Heterogeneity and Homogeneity of Needs
3.1.2 Intellectual Property
3.1.3 Innovation Costs
3.2 Individual Level
3.2.1 Benefit Expectations

4. Traits
4.1 Locus of Control
4.2 Innovativeness

5. Knowledge
5.1 Usage Experience
5.2 Product Environment-Related Knowledge
5.3 General Technical Knowledge

6. Creativity

7. Conclusion

References

List of Figures

Figure 1: Variables determining innovation-related benefit and cost

1. Introduction

1.1 Problem Definition and Objectives

For many companies, innovation is a crucial success factor as competitive advantage is often gained through the introduction of new products to the market. The challenge thereby is to find the right mix between keeping existing products in the portfolio and introducing innovative new offers ( Spann, Ernst, Skiera, & Soll, 2009). In order to constantly bring innovation forward, companies have to establish an efficient process for development which generally requires the allocation of many resources to the respective department. Especially for companies operating in the consumer goods or service industry, it is a big challenge to constantly offer innovative products to the market ( Spann et al., 2009). Moreover, studies revealed a high failure rate of up to 50% for newly lunched products in these business fields (Urban and Hauser, 1993). Companies therefore try to reduce these failure rates by conducting further market research in order to better meet the needs of their customers. So far, many studies cover the topic of market orientation and its influence on companies’ successes (Jaworski & Kohli, 1993; Khurana & Rosenthal, 1998). One aspect of these studies is the integration of customers into the development process. The crucial factor for successful customer integration however is the selection of the right customers for the development program as only a small proportion of the user community is suitable for this task ( Nambisan, 2002).

It was Eric von Hippel who addressed the problem of selecting the right customers and who introduced the concept of Lead Users. According to him, Lead Users tend to be different compared to ordinary users with respect to certain character traits and are part of a progressive segment within the user community (von Hippel, 1986, 1988). In the course of his studies, he defined two basic characteristics that mark out users as Lead Users.

First, “Lead Users face new needs of the market and do so significantly earlier than the majority of the customers in market segment (capability)”and second, “Lead Users profit strongly from innovations that provide a solution to those needs (motivation)”.

Since von Hippel presented his Lead User concept, many studies have been conducted to analyze strengths and weaknesses of von Hippels’ idea and many companies have applied his concept in real-life cases to improve their innovation processes. Moreover, other researchers have modified von Hippel’s theory and added further aspect based on their personal experiences or empirical findings. The objective of this literature review is therefore to identify, evaluate, and reflect relevant literature about the topic and to present it in an academic way. In this paper, literature on the topic “Innovation by Individuals: A Review on Lead User Characteristics” is reviewed, examined, and analyzed in order to collect not only established characteristics from various sources but also to give background information and useful real-life examples to clarify what defines and drives Lead Users and what makes them special within the user community.

1.2 Course of Investigation

In order to describe what characterizes Lead Users, an extensive review of relevant literature has been conducted. The paper is structured as follows. Based on von Hippel’s central statements, the two major characteristics Capability and Motivation are presented in chapter two and three. Chapter two thereby explains in detail why and how Lead Users’ needs differ from ordinary users’ and includes central aspects of the diffusion and cognitive learning theory. The motivation of Lead Users to participate in an innovation process is examined in chapter three, whereas motivational reasons are discussed on an industry and on an individual level. Moreover, with Locus of Control and Innovativeness, two general character traits of Lead Users are presented in chapter four, following a more psychological approach. Chapter five deals with different forms of knowledge and their relevance for a user to act as a Lead User. Additionally, the process of Creativity that is crucial for starting an innovation process is analyzed in chapter six. Finally the conclusion of the paper will be given in chapter seven.

2. Capability

In order to understand what characterizes Lead Users and distinguishes them from ordinary users, the first aspect to analyze is capability. It points out that Lead Users are the first among all users who face new needs concerning a product or a service and additionally hold the capability to develop innovative solutions that differ significantly from existing ones. In the following, these aspects are explained in detail.

2.1 The Need for New Products

If we go back to von Hippel’s notion, “Lead Users face new needs of the market…”, it expresses the assumption that the feeling for a new product or solution does not impact all customers at once, but spreads slowly within user communities, market segments, and whole markets ( von Hippel, 1988). Thereby, the concept of the gradual diffusion of needs supports studies about the diffusion of innovation ( Lüthje & Herstatt, 2004). Information, ideas, products, and services never disperse instantly but need time, as one of the fundamental statements of diffusion theory points out (Dosi, 1991; Mahajan, Muller, & Bass, 1990). Previous studies on the adoption of new products have revealed a clear correlation between the perceived relative advantage of a new product and the likelihood of its acceptance in the market. Users naturally are more willing to adopt their buying behavior and switch to new products the larger their perceived benefits in comparison to previously existing products are. Therefore, the perceived relative advantage turned out to be good indicator weather a new product will succeed or fail (Davis, Bagozzi, & Warshaw, 1989; Gatignon & Robertson, 1985). These studies also indicate, that even if an innovative product offers a high level of benefits, it is not perceived in that way by all customers at the same time. Rather there are customers who are more suspicious concerning innovations and others, who welcome change and have a strong desire to be at the leading edge of the market. The existence of the last group within the diffusion theory corroborates the model of Lead Users.

2.2 Being Ahead of the Market

However, an additional aspect has to be met, as not all users who experience new needs can be categorized as Lead Users. In accordance with the second part of von Hippel’s notion, “…and do so significantly earlier than the majority of the customers in market segment.”, Lüthje & Herstatt, 2004, stated the following: “Lead Users by definition do not just face any new need, but realize needs that most customers in the market will face in the future”. So in order to be defined as a Lead User, a customer need not only face new needs ahead of the market but these needs must also be of interest for the majority of customers in the market in the future, even if they are not aware of it as soon as a Lead User is. It can be derived that the reason why some users face new needs earlier than others is that these users operate in the leading edge of the respective field, in a context that lies in the future for most users within the community (Lüthje & Herstatt, 2004 ). For example, the mountain biking sport started with a few cyclists who came up with the idea of riding down steep hills with their bikes. Due to the lack of appropriate equipment, they used normal bikes at first but quickly felt the need for stronger and more stable bike components ( Lüthje & Herstatt, 2004). After the mountain biking sport was established and specially designed bikes could be bought in regular bike stores, it was again a mountain bike enthusiast who triggered the next step of evolution. As a leading edge user who pushed his equipment to its limits, he felt prior existing models of breaks insufficient for his needs. As he could not find any model, which satisfied his needs in the market, he went to developing a new disc break himself, especially designed for the purpose of mountain biking. Today, this type of disc break has been commercialized and can be found in many regular bikes, too ( Lüthje, 2004).

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