MBA6262 - 2020 Fall

I started this blog because it is a required assignment for my entrepreneurship course at the Telfer MBA program. I will be writing about our project “The Forward Beauty Lab,” and the book I chose to read is “The Innovator’s Dilemma.” The book was written by Clayton M. Christensen in 1997. Even though the book was talking more about technological innovation and management, and most examples were from the US disk industry, it did provide me with another angle to view how disruptive innovation happens, and many concepts are still relatable in helping me with the group project. 

 

Our group’s business idea was born when my teammate, Katrina, visited a local Shopper’s Drug Mart and noticed that mature women’s images were missing from the major beauty brands’ advertisements, even in cases where the products they were selling were specifically for “mature women.” We thus had a hypothesis that mature women are not well-represented in the beauty industry, and they deserve products that can help them gain confidence and embrace the ageing process boldly. We were happy that from our first survey we were able to validate that.

 

Next, we started to formulate assumptions for the value proposition part of our BMC. My biggest concern for the forward beauty lab was, if we were to introduce a beauty product line for mature women, what our competitive advantage would be relative to those large companies. Wouldn’t companies like L’Oréal and Estée Lauder achieve our goal so much faster and better than us? They already have the manufacturing capabilities, industry know-how, large marketing funds, R&D capability and supplier relationships, and they could create a beauty brand targeting mature women fairly easily and quickly. What is our moat, then? Why haven’t they done so? More importantly, why are there no cosmetic companies in Canada exclusively focusing on the beauty needs of mature women, using mature women’s images in their advertising? While we want to come to understand this through market research and consulting industry experts, I also sought to find answers through the book “The Innovator’s Dilemma.”

 

The book talked a lot about why big corporations might lose to disruptors. The key dilemma that Christensen noted in his book is whether companies should focus on continuing to drive sales growth among their existing customer base, or explore product solutions catered to a niche market that could eat some of their profit margins but potentially grow into something disruptive?

 

One argument is quite interesting and can be related to the questions I had raised. Large companies tend to focus on ‘sustaining’ innovation, which improves the product’s performance based on the features valued by mainstream customers. ‘Disruptive’ innovation, on the other hand, often involves lower performance in many product features, but addresses needs that have gone unmet within a niche market.

 

Start-ups usually grow slowly due to limited resources and low investment, while larger companies with older technologies are mature and generating high profits. However, as new technologies become proven, often by new market entrants, they replace old technologies and become market leaders.

 

Why does that happen? One key explanation offered in the book is that large companies have less incentive to innovate. Niche and unproven markets to them don’t satisfy their short-term need for high growth; managers strive hard to improve their performance metrics (return on investment) within existing markets - they tend to focus on projects with big market size, the best profit margin, and seek validation from their lead customers. Unproven markets are considered to be risks to them. Emerging markets also don’t even fall into their traditional market research scope. It is usually hard for big corporations to change their well-established RVP framework. As Christensen pointed out, “this means the very mechanisms through which organizations create value are intrinsically inimical to change." 

 

That gives me some confidence, and the above two points might be the reason that explains why even large companies like L'Oreal, with marketing funds, R&D capability, and even a beauty brand specifically tailored to mature women, might be indifferent to this niche market. The majority of their resources will go toward leading customers. Compared with them, The Forward Beauty Lab can be a lot more flexible with margins, and there is little to lose; thus, we can apply “trial and error.”

 

Christensen also noted, if start-ups with disruptive innovation manage to grow the niche market, they can eventually erode the customer base of mature companies. And by the time mature companies realize, it is often already too late, as they have not developed the competitive advantage necessary to compete in the newly-developed market. This to some extent gave me a bit more confidence in moving the project forward.

 

The other concern I had was that since there is already so much competition in the beauty industry, how could we cut through the noise and break into such a saturated market? Do we need to seek a special, super-effective formula that nobody has discovered before? “Disruptive technology should be framed as a marketing challenge, not a technological one.” This quote reminds me of the group discussion about the skincare brand “The Ordinary” - it used well-known ingredients, a known formula, and nothing particularly “disruptive,” yet it was extremely successful. The “disruptive technology” I perceived, in this case, was simply its pricing and communications strategy - a combination of almost ridiculously low pricing, transparent disclosure of its formulas, minimal marketing and packaging, and reliance on Instagram and word of mouth - yet it became an iconic beauty brand that gained so much traction. “Disruptive innovators find unexpected and simpler ways to use existing technologies in markets large firms ignore.” Our vision with the forward beauty lab is similar: for example, in the hair gloss segment, there has been too much emphasis on colour boosting, and seldom has any product tried to address concerns for transitioning to mature/grey hair. After reading more, I am more confident that it is not necessary to invent better technology to be disruptive; it is more about creating new value networks through marketing that matters.

 

In our validation, we experienced many surprises. Affordability was one of the more-prioritized elements in our original value proposition, but after research, we found mature women seem to be willing to pay more for skincare products. Also, we originally thought cosmetic products such as a foundation that doesn’t settle in fine lines would help meet the needs of mature women; however, after validation, that wasn’t the case. In fact, they are not even looking for a change in their make-up products. This continuous validation process has helped us understand that as we move forward, there might be many other things that are beyond our expectations and prove our assumptions wrong. However, as Christensen noted, “There is a big difference between the failure of an idea and the failure of a firm,” we should learn that surprises and failures are expected as part of the learning process.

 

Reference:

Christensen, C. M. (1997). The innovator's dilemma: When new technologies cause great firms to fail. Boston, Mass: Harvard Business School Press.