Often when we think about innovation, it’s high tech or a game changing breakthrough.  Today, we look at innovation through a different set of glasses. Rather than innovating a product or service, “costovation” innovates on the business model.  Stephen Wunker talks about innovating behind the scenes, creating customer value through cost innovation.

New Markets Advisors founder and managing director, Stephen has had a successful and varied career.  From innovation consultant to leading innovator developing the first smartphone, he’s come full circle.  Back in consulting, he’s worked with Harvard professor and innovation great Clayton Christensen for many years.  (If you’ve never read Clayton’s books, they’re a must.)  Stephen has co-authored Costovation: Innovation that Gives Your Customers Exactly What They Want—and Nothing More.  His book opens up a new way of thinking about innovation.

What is Costovation?

If you’re like me, the initial thought on cost innovation may be that it’s just cutting costs and going down market.  But Stephen demonstrates that it’s much more and the result is not a cheap offering. It’s not about delivering an inexpensive product or service that is less than adequate.  Costovation is finding the “opportunity in the guts of the business”. Then, delivering customer value while minimizing costs.

Cost innovation on the overall business model can create immediate profits or make products more affordable.

The Importance of Costovation

While the U.S. economy has experienced a long recession-free streak, it would be foolhardy not to plan for a downturn.  Furthermore, median incomes are flat and many people are not growing with the economy. There is a market for people who deserve value.  They can’t afford the top of the line and don’t need all the bells and whistles.  The focus in costovation is to delight the customer with what they need at a price point they can afford.

Costovation Success Stories

Costovation is stocked with success stories.  Stephen’s book gives many examples from a spectrum of industries.  BMW’s re-release of the Mini Cooper is one example. BMW turned around the generally low profit market of small cars.  The Mini is low-cost to produce. Yet, BMW found a way to a market premium. They offer post production detail options to customize the Mini.  Their cost innovations have succeeded in creating customer value. The Mini is well built and a market success.

Another example is the electric toothbrush company quip.  By selling customer direct and using their own brand name, quip offers an electric toothbrush at much lower cost.

How to Costovate

The three common steps to cost innovation are

Get a breakthrough perspective.

Step back from industry

Critically look at long held industry assumptions

Take a fresh look

Have a relentless focus

Know the customer

Know what the customer wants

Blur the boundaries

Look at all aspects of the business

How to reach the customer

The service

The experience

Through cost innovation,