Business in today’s dynamic economy requires that firms constantly improve existing products or offer new ones in order to stay competitive. Two of the most common means of providing this additional value to the consumer are innovation and imitation. While very distinct ideas, both innovation and imitation have both been very successful strategies when implemented correctly; both can lead to long run competitive advantage and profit. The question that immediately arises is what exactly is required to have a successful innovation or imitation? Through looking at cases of innovation and imitation in both the soft drink and personal computer industries, a pattern emerges. While both related to developing a position, successful innovation differs substantially from imitation in its use of parameters. Successful innovation requires that companies create new positional parameters in their products. Successful imitation requires that companies use existing parameters in a new and unique way; pure copying of another company’s parameters will not yield any added benefit to consumers and will therefore probably fail. A combinational approach to either innovation or imitation will most likely fail.

Innovation is typically associated with entrepreneurship as the creation of value through a new product. However, innovation is much more than the creation of the material parameters of a new product — it is also building a position for that product. The traditional view expressed by Peter Drucker is that innovation takes place in an environment that is given and not changeable; in other words, Drucker believes that positional parameters are not malleable and the innovator must operate within them. A closer look at successful innovation shows that this traditional view is not correct. Innovation is the development of a position, not merely exploiting opportunities given from the business environment. True innovation not only builds a position by using existing parameters, but actually creates new positional parameters. Drucker and others with traditional views of innovation concentrate on the building of a goal out of a given position — a combinational approach. Innovators actually develop new positional parameters in making new products. For example, a combinational approach would wish "to build a better mousetrap" while a positional approach would wish "to find a better way to catch mice." Thus innovation focuses on development rather than growth. The innovator starts with a goal in mind and does not know how he will reach that goal; thus he must develop new parameters to reach that final goal. A combinational approach would simply use existing resources to reach a stated goal. By finding a better means to meet customer needs, true innovation creates new positional parameters rather than simply growing existing ones.

Successful imitation in business is not the mere copying of another company’s product. A copy-cat product that has all parameters identical to an original will be predisposed to fail because it will not add any real value to consumers. Rather, successful imitation takes the existing positional and material parameters and reconfigures them in a new and unique way. It must use both combinational and positional in order to be successful. Imitation can be done successfully by changing material parameters such as making a higher quality product, lowering the price, or adding on a special feature to an already existing product — a combinational move. However if this improved material parameter is not accompanied by a positional parameter shift, than consumers will not buy the imitation over the existing product. Typical positional parameters that are changed or expanded upon in successful imitation are market positioning (niche strategy, etc.), public perception (through advertising), and distribution channels different than the original product. Without a reconfiguration of the imitated product’s position relative to the original, consumers will prefer the original because it is known and proven. By creating a new position an imitated product can differentiate itself from the original in some sense and be successful. An imitated product that merely changes its material parameters but occupies a similar position to the original will not be perceived by consumers as adding value and will fail. If successful innovation is development, than successful imitation is growth: the expanding of use of existing positional parameters in a new and unique way.

Thus both innovation and imitation can be beneficial to a company if they are done through creating a position rather than simply establishing and meeting goals. However innovation does lead to more of a long term competitive advantage because it creates new parameters while imitation only reconfigures existing ones in a unique way. Innovation adds more value to consumers by offering them a product that is unlike any other because of its unique parameter (whether that parameter is technological, societal, financial, or something else). A truly successful company over the long run concentrates on development rather than growth or mere survival. Thus innovation is superior to imitation in the long run. However when innovative opportunities are not available and imitation is readily available, imitation can provide benefits to the company as well. Imitation can add value when it is done through developing a position out of existing parameters, not merely copying the existing parameters of the original product. While developing a position out of existing parameters adds less value to consumers than the development of a new parameter, both are positive for a company.

While the benefits of innovation through developing a position are obvious, the benefits of imitation are not as intuitive. Empirical evidence assists one in seeing how imitation adds value, and how it is only successful when a position is developed. Examples of both successful and unsuccessful imitation abound, but they are especially distinct in the soft drink and computer industries in recent years. The following examples show how imitation can be a successful strategy when a position is developed for the imitated product.

Following the Cola Wars of the early 1980’s, a string of imitations came from both of the major ologopolistic players, Coca-Cola and Pepsi. The notable imitations were the introduction of New Coke in 1985 and Crystal Pepsi in 1993. These imitations were unsuccessful because the companies followed a combinational approach to their imitation rather than considering their positions. Both companies failed to take into account important positional parameters that they were hurting in the development of their imitations. Both New Coke and Crystal Pepsi simply tried to copy the position of the original products and thus did not add any new consumer value. By 1984, the advertising battles between Coca-Cola and Pepsi has reached an unparalleled height. The Pepsi Challenge found that in a blind taste test, people preferred the taste of Pepsi two-to-one over Coke. Coke verified these results in their own market testing. The executives from Coca-Cola panicked. One of their primary material parameters, taste, was inferior to their main competitor. They decided to launch a new soft drink that would imitate this material parameter of Pepsi. New Coke was launched with much fanfare in 1985, replacing the one-hundred year old Coke formula. The results were disastrous: Coke lost almost 7% market share (about $100 million) over a six month period, and decided to reintroduce the original Coca-Cola formula as Coca-Cola Classic.

The Coca-Cola management failed to take into account any positional parameters in their strategy. Their imitation was a pure copy-cat reaction that changed material parameters, but failed to take into account positional parameters. The key positional parameter here was tradition. Coca-Cola was associated by many people with a piece of Americana. The century-old formula was considered one of the hallmarks of our nation. When the material parameter of taste was changed, there was no corresponding positional shift to make up for the massive position lost from losing the traditional parameter. In fact, it is doubtful whether a new position could be found that would be better than Coke’s position with the tradition parameter. The managers of Coca-Cola did not even think about positional parameters, and thus the material parameter change did not lead to successful innovation. Although it was true that consumers liked the material parameter of the taste of New Coke better, the loss of positional parameter of tradition made that material change pointless.

Another prime example of an imitation failure is the introduction of Crystal Pepsi in 1993. This imitation followed almost precisely the pattern of New Coke a decade earlier. The 1990’s saw a trend towards a greater concern towards health. Pepsi’s market research showed that consumers perceived colas such as Pepsi as "heavy and syrupy", whereas non- cola soft drinks like Seven-Up were "lighter and cleaner’’. Pepsi took this to mean that people perceived non-colas as healthier than colas. Indeed, Seven-Up’s campaign as the "un-cola" has been very successful in raising their market share. Thus Pepsi decided to introduce Crystal Pepsi, which would have the same taste as original Pepsi, but would be clear. This imitation failed, but for a different reason than New Coke. Pepsi was developing a new position in the parameter of health, for Crystal Pepsi was in reality no more or less healthy than regular Pepsi. Thus along with changing the material parameter of color, Pepsi also changed the material parameter of health — or so they thought.

Crystal Pepsi’s position did not develop as Pepsi had planned. Instead of gaining the health parameter, Pepsi lost what can be considered the expectations parameter. The health parameter never materialized because people really did not feel that Seven-Up was any healthier than Pepsi, just lighter. Pepsi’s original position thus never materialized. Instead people started to feel that Pepsi was trying to play on their intelligence — that consumers would be duped into believing Crystal Pepsi was somehow different. Surveys after the introduction and trail period of Crystal Pepsi showed that people felt that "a cola should be darker". Consumers expected their cola to be dark, and did not react positively when they found it lighter. This expectations parameter meant that any change in the color would be unacceptable, because people were so used to the original color. Pepsi’s expectations positional parameter is related to Coke’s traditional parameter in that both are things that people are used to having. The difference is in the attitude towards them: people reacted violently negatively to a change in tradition (as in New Coke), but only slightly negatively to a change in expectations (as in Crystal Pepsi). Indeed, many consumers hated the Coca-Cola company for a time because of the New Coke strategy; the same cannot be said for Crystal Pepsi. Thus the new position that developed was relatively worse one for Crystal Pepsi and marketing has stopped for the product. Pepsi did try to develop a position, but did not take into account all of the parameters. It did do better than New Coke because all of Pepsi’s other products remained intact and Pepsi did try to develop a position. Imitation failed in this case because the position developed failed to take into account all of the parameters.

Successful imitation builds a complete position using existing parameters. Two such cases from the personal computer industry exemplify this phenomenon: the IBM Clones and Windows 95. International Business Machines had become the dominant player in the personal computer industry throughout the 1980’s. Through a strategic partnership with Intel corporation, the microchip processors in IBM personal computers (PC’s) were much more powerful than their counterparts at Apple Computer. By 1986, IBM had established market dominance with over 75% of the PC market. However, this dominance was soon to be challenged by what came to be known as the IBM Clone companies such as Gateway Computer and Dell Computer. These computers imitated the IBM DOS operating system and used Intel chips inside. Absolutely no material parameters were changed. Rather, these companies developed positions based on two primary parameters: perceived quality per dollar and what can be called the anti-large parameter. The IBM Clones wanted the public to perceive them as being just as high a quality as IBM (both in terms of the computer itself and service on that computer), while having a lower dollar. By purchasing the IBM Clones, consumers would perceive getting "more bang for the buck". This was no easy task considering that IBM had the best technical support service of any company in the world. However, through aggressive advertising, the IBM Clones slowly but surely gained acceptance as an alternative to IBM. At the same time, the IBM Clones used the anti-large parameter that Americans tend to embrace from time to time. Americans like to still think of themselves as they were two hundred years ago: a simple nation of small companies and farmers operating in a very egalitarian fashion. Thus there can be a resentment about large and powerful companies dominating the market. Many consumers at the time said that IBM was "too big to care about individual consumers." This very emotional positional parameter definitely gave consumers a predisposition to buy products from an underdog. The IBM Clones’ successful positioning of themselves as having the same quality as IBM at a lower price, along with this anti-large parameter added up to a successful imitation, There positioning cost IBM over 30% of its market share by 1992.

Another successful imitation was that of Microsoft’s Windows 95 application. Many industry experts said that "Windows 95 is like Apple ‘87", meaning that the Windows 95 application was exactly like that of the Apple computer almost a decade ago. The Windows 95 application is currently replacing the DOS operating system as the base system for personal computers. It uses a completely windows based environment rather than the command lines of DOS, much like the Apple computer. This imitation is very successful because Microsoft used two very powerful parameters: reputation and genius. Microsoft Windows 3.1 (the old Windows application) currently is on over 97% of all Intel based PC’s. The reputation of Microsoft as a company of quality is carried over to Windows 95. Microsoft made a distinct effort to market Windows 95 as just the next line of successful products from the company. Rather than positioning this imitation as something dramatically new for Microsoft, they positioned it as the logical extension of Windows 3.1. The power of Microsoft’s reputation makes Windows 95 almost seem like an innovation for Microsoft, rather than an imitation of Apple’s system (which at its core it was). The positional parameter of genius also helped the imitation’s success. Americans tend to have a great respect for intelligent people who put their intelligence towards practical ends. Microsoft Chairman Bill Gates was seen as both a computer genius and a great businessman. Thus, his appearance in advertisements and recent release of his book add to the position that Microsoft is developing. Their imitation was successful because of a position that configured positional parameters in a new and unique way.

Imitation can be effective just like innovation if developed in a similar way. Successful innovation requires the creation of new positional parameters in developing a position. Successful imitation requires the use of existing positional parameters in developing a position. Both require the successful use of a positional strategy. However, innovation adds more value and is more sustainable; it not only creates a new position, but develops new parameters. The empirical examples from the soft drink and computer industries confirm this finding. A more extensive study across many industries will yield a similar result: imitation based on a combinational style of merely copying material parameters will fail. Innovation and imitation are both means to add real consumer value and build competitive advantage, but only if based on a positional strategy.

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