How ‘costovation’ builds lean businesses people love

Innovation doesn’t require a high price tag.

In fact, many successful companies find ways to combine innovative consumer solutions with cost savings in what New Market Advisors Managing Director Steve Wunker calls “costovation.”

Wunker, who addressed Co-op THINK 23, defines costovation as building leaner, lower-cost businesses that consumers love. “Costovation is about meeting or exceeding customer expectations with less, not just straightforward cost-cutting. There’s this orthodoxy that cost efficiency, innovation, and member experience are enemies. That’s not true. Done right, they can be allies.”

How do companies create costovation opportunities? Wunker, who co-authored “Costovation” with Jennifer Luo Law in 2018, says it takes:

1. A fresh perspective on the market. Step back and look at what business you’re in. What do consumers really want?
2. A relentless focus. Find a target, intimately understand that target, and develop a value proposition that caters to that target.
3. A willingness to blur innovation boundaries “in ways that competitors often won’t do because they’re inconvenient for the way they’re organized.”

Wunker sees Planet Fitness as a strong example of costovation. Many other gyms have more equipment and options for exercisers, but Wunker says Planet Fitness leads the industry in customer satisfaction and growth.

“How does such a ‘lousy’ gym do incredibly well and delight its customers?” Wunker asks. “Planet Fitness ripped up assumptions about the gym industry. It focused on a customer that most gyms ignored: the casual, first-time exerciser.”

Planet Fitness catered an experience to them, creating a stress-free environment that includes a “no judgement zone,” pizza night, and more to keep people comfortable. The cheap approach allows the company to be profitable despite charging members just $10 per month.

“Plant Fitness really understands its customer,” Wunker says. “They know exactly what that customer wants, and they deliver.”

Wunker’s seven signs that a business or industry is ripe for costovation:

1. Expensive features. A handful of features drive a significant amount of cost.
2. Expensive customers. A handful of customers drive a significant amount of expense.
3. Expensive sales. Sales, not the product itself, has a significant amount of expense.
4. Over-standardized product. Output is standardized despite specialized customer needs.
5. Over-standardized sales. The offering is sold the same way to all customers.
6. Cost imbalance. The revenue for certain activities is not proportional to their costs.
7. Contingency creep. The system is built to cover all conceivable use cases, even those that are rare.

If a company determines it’s ripe for costovation, Wunker says its five opportunities are:

1. Their core offering.
2. How they perform and deliver it.
3. How they market and sell it.
4. Their business model.
5. Their partnerships.

“Great innovations, great solutions don’t need to be expensive,” Wunker says. “Done right, they can be cheap and delightful.”