Discovery trail

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More than four years ago, Esselte took the bold decision to expand into new market segments focusing more heavily on innovation – particularly on proprietary products – rather than compete on cost alone in a commodity market.
The story dates back to 2003 when, to speed up transformation of its global business model, Esselte acquired Xyron, which had a strong position in the global creative products market. Esselte turned Xyron’s talented industrial design team – X Product Development (XPD) – into a company-wide R&D function. In addition, the European unit of Esselte realigned its Stuttgart-based R&D department to drive true innovation within its core European categories.
Since then, Esselte has significantly reduced the time it takes to bring new, innovative products to market, as well as incorporate improvements into existing lines. The company utilises a unique approach to product development by focussing on user-centred research. This involves the close study of a target user’s interaction with a product, behaviour and environment before product design begins, in an attempt to find the ‘unspoken needs’ of the user. Coupled with this, the company has embraced a new methodology known as QFD (Quality Function Deployment) in all its innovation processes to focus efforts on solving key consumer issues within its existing core categories.
Once the appropriate research has been conducted and the design team is confident it understands the end-user issues, the team starts the process of formulating, conceptualising, prototyping, designing and making the product – and all under the same roof.
This is in stark contrast to the conventional alternative, where product ideas are born in a boardroom or marketing department, and are only tested right before market introduction to validate the concept. Prior to 2003, Esselte’s R&D relied heavily on its product managers to speculate about end users’ needs. But such market insights tended to lead to incremental ‘me-too’ innovations, not game-changing innovations to meet users’ unspoken needs. Instead of just reacting to what product managers say that end users want, Esselte’s R&D decided to conduct more user-centred market research through in-situ intercepts.
R&D insight
Esselte’s researchers regularly study and interact with end users in their natural settings, observing, for example, how a mobile worker transacts business on the move, or how a CEO’s admin assistant files bulky documents.
When observing how end users perform these tasks, Esselte’s R&D team looks for issues that existing products can’t solve and users aren’t even aware of. Armed with this insight, the R&D team starts the process of producing breakthrough offerings that can be launched on to the market – such as Esselte’s Leitz 180° Lever Arch File which can be opened 180 degrees; 50 percent more than in a traditional lever arch file, so users can now file papers 20 percent faster. Similarly, the new Leitz Active Lever Arch File was developed with the mobile worker in mind – a new, multi-purpose, lightweight (new polyfoam PP material) and dramatically more ergonomic lever arch file that is easy to move seamlessly between the office and on the go.
"Innovation is now at the very heart and soul of our commercial focus and this has been hugely successful due to the incredibly close cooperation and alignment of our product development, manufacturing, marketing and sales teams," comments Barry McCool, VP of marketing and communications for Esselte Europe.
Esselte’s bold approach is applauded across the industry as dealers recognise the need for constant market development and innovation.
Carsten Marckmann of German dealer group Büroring explains the advantages of manufacturer innovation and describes how new innovative products can increase the revenues of his members.
Balancing act
He says: "Innovation and new products are very important for us and our members. Every year we speak with our suppliers to get input for our new catalogue. It is not so important for our profit margin. But it is very important for the profit margin of our members. There is not the usual decline in price for new products. Also there are no private-label products on the market when a product is brand new."
He claims it is a tricky balancing act between the manufacturer, wholesaler and dealer to ensure a product launch is successful but believes more can be done by all parties to deliver the promise of extra revenue.
And Dave Guernsey of US superdealer Guernsey Office Products agrees. He told OPI: "Product innovation and service innovations are critical to moving out in front, and staying out in front, of the competition. Absent these, and other similar features and the seller/buyer relationship would only be based on price, which always disaffects margin.
"We do not have a target for new products largely because independent dealers are at the bottom of the food chain when it comes to manufacturers introducing new products through our channel and, in the few instances where manufacturers will work with us, there is little in the way of predictability.
Guernsey believes manufacturers sometimes overlook the independent dealers when it comes to innovation, but identifies the clear need for new products to increase profit margins.
"Innovation can definitely affect the top line and therefore the contribution margin of gross profit dollars," he says and explains how dealers should educate their customer.
"Show and tell is always the best way. This is a valuable opportunity for dealers to leave a positive impression with a customer – it acquaints them with a new product that might increase their productivity or offer some other positive impact. Customers view the dealer as a resource looking out for their best interests – and rightfully so."
And Guernsey urges manufacturers to offer more support to the independent dealer community and target hard-to-reach markets.
He says: "Independent dealers can offer manufacturers meaningful access to the mid-markets. We have the end users’ attention in that segment, which provides an opportunity for one-on-one consideration of any newly released products.
"With us, the product doesn’t sit on a retail shelf waiting for someone to notice or rely on collateral material to sell its benefits. Our field sales personnel ‘show and tell’ the product’s unique selling proposition in a face-to-face meeting with the prospect. Arguably, there is no more effective access to mid-market buyers."
But Guernsey argues the wholesaler can do more to help drive and promote the launch of new products.
"The wholesaler – as with the independent dealer – relies on the manufacturer to opt for our channel, to provide training on the product, product samples and to participate in promotions to build the hype," he says. "However, if manufacturers do not see the independent as a preferred channel to introduce new products through, there is little that wholesalers can do to support an effort that doesn’t exist."
Exploit opportunity
Rick Needle of UK dealer group Integra, says innovation is an essential part of his organisation’s development plans. "Innovation is critical in all aspects of the business, especially in IT and eCommerce solutions, as well as helping to identify and exploit new product and new sector opportunities elsewhere.
"New products, if effectively launched and marketed, undoubtedly provide dealers with the opportunity to increase bottom line net profits even if the gross margins are lower than the company average.
"In the usual product life cycle – especially in IT and computer products – high margins can be earned early on, with a rapid tail-off as the product becomes more mainstream.
"The manufacturers must be at the forefront in supporting dealers as they are with the multinational corporates."
Manufacturers must also identify with the importance of delivering innovation to support the whole of the office products industry at every channel.
Alex Sinclair, marketing manager at Pilot Pen UK, says: "Good product and marketing innovation results in new or substantially improved products that are often premium priced and less vulnerable to price erosion or brand substitution. They are therefore very important to improving dealer revenues by increasing average selling prices and gaining incremental sales.
"The trend in recent years in the writing instruments market has seen volume increases, with value decreases, caused by the lower price offerings of trade brands, to the detriment of brands that fail to offer sufficient product or marketing innovations.
"To buck the trend, find the successful innovators and make sure they are well represented in your product mix."