13 Chapter II Literature Review The reasons of DELI’s decision to innovate is to market the innovative product fasters and to stand out from competitors in order to gain competitive advantages. Increasing sales is often accomplished through the process of generating new products, which has become an established method in recent years. However, bringing a new product to the market does not necessarily guarantee that it will be successful. For instance, moving forward with new product development efforts while lacking knowledge on end-users might introduce a great deal of unpredictability. In spite of the poor success rate, businesses should continue to pursue their inventive spirit in order to stay up with the ever-accelerating pace of development and change. This chapter will explain the business strategy, concept of insurance product classification, Millennial and Generation Z as customers and the conceptual framework to propose business solution for DELI. II.1 Theoretical Foundation II.1.1 Business Strategy The business strategy outlined by Thompson et al. (2022), represents a mode of orchestration aimed at surpassing rivals and, in turn, attaining heightened profitability, the triumph of a strategy hinges on a company's sequential endeavours to contend with competitors, thereby acquiring distinctive competitive advantages. To craft an effective strategy, a series of actions are imperative for securing and upholding competitive advantages which encompassing 3 (three) essential steps: analysis, formulation, and implementation, all encapsulated within the AFI strategy framework which can lead to superior performance. (Rothaermel, 2019) 14 Figure II.1 AFI Strategy Framework (Source: Rothaermel, 2019) Thompson et al. (2022) asserted that there exist 5 (five) distinct strategic approaches that can be employed to shape a company's identity separate from competitors, cultivate robust customer loyalty, and attain a competitive advantage. These approaches encompass the following: 1. The low-cost provider strategy, involves implementing techniques to establish cost-based advantages over rivals. Companies strive to minimize production expenses, resulting in the creation of enduringly competitive products that prove challenging for competitors to replicate. This approach hinges on adopting the low-cost leader's methodology to drive costs out of the business. 2. The broad differentiation strategy, is executed by the company through product differentiation vis-à-vis rivals in a manner that appeals to a wide array of buyers. Sustaining this strategy entails an ongoing commitment to product development and innovation, rendering rival imitation of products a formidable challenge. 3. The focused low-cost strategy, in contrast to the low-cost provider strategy, zeroes in on a narrow market segment and outperforms rivals by serving that specific market at a reduced cost, thereby offering a lower price. 15 4. The focused differentiation strategy, concentrates on catering to a specific market segment by presenting tailored products that better meet customers' distinct needs and preferences compared to rival offerings. 5. The best-cost provider strategy, endeavours to deliver enhanced value for customers' money by meeting expectations for key quality, performance, and/or service attributes, while surpassing price expectations. This hybrid approach amalgamates facets of both a low-cost supplier and a differentiation strategy, striving to achieve a cost advantage over competitors while simultaneously incorporating superior differentiation features. II.1.2 Insurance Product Classification Kotler and Keller (2016) categorize products into distinct groups, differentiating between consumer products and industrial products based on the type of individuals or entities that utilize them. However, for this research only specific for insurance product which classify as consumer products. Figure II.2 Type of Consumer Product (Source: Kotler and Amstrong, 2017) Based on Figure II.1 above, insurance classify as unsought goods, which is a denoting product that consumers are unaware of or haven't contemplated purchasing. 16 II.1.3 Perceived Innovation Innovation is a multi-step process involving the creation and implementation of new and beneficial things, knowledge, or relevant information, as stated by Schumpeter (1934). An “innovation” indicates any new product, service, or creative element considered to be novel, including technological improvements, new changes to product and production, and new marketing methods (Porter, 1990). Innovation also represents updates to design that distinguish an organization from its competitors (Vrakking, 1990). According to Betz (1993), innovation is defined as the process of introducing new products, procedures, or services into the market. According to Johne (1999), innovation may be broken down into three distinct categories: (i) products include novel materials and new products; (ii) markets include new applications and new markets; and (iii) procedures include management and administrative procedures. This research focuses on the perspective of customers, including their thoughts about the characteristics of new products, the dangers involved with adopting them, and the behaviours that are necessary for transformation (Danneels and Kleischmidt, 2001). While De Brentani (2001) in terms of novelty towards the market, addressed that innovation indicates the degree of developing new products or gradual improvement, and simultaneously considered novelty in technologies and markets. In the exploration of competitive strategies cantered around innovation, Weerawardena (2003) put forth the notion that innovation entails a progressive enhancement in various aspects such as products, production methods, services, organizational systems, and marketing systems. The objective of this continuous improvement is to empower customers in creating value for themselves. Higgins (1995) classified innovation into four types which are (i) product innovation, (ii) procedure innovation, (iii) marketing innovation, and (iv) management innovation. Hence, innovation encompasses not only technology but also marketing, products, and service delivery methods. It exerts a positive impact on the growth of an enterprise, making it a crucial determinant of success (Schepers et al., 1999). Overall, innovation has the potential to enhance the quality of products or services, elevate the reputation of an enterprise, and foster customer loyalty. 17 Nevertheless, it is imperative for enterprises to actively strive to enhance customer perception regarding product innovation. According to Rogers (1995), innovation can be defined from the consumer's perspective, representing novel ideas or products that are anticipated by potential consumers which possesses five distinctive attributes, namely relative advantage, compatibility, complexity, triability, and observability. Expanding on the customer perspective, Kwaku (1995) discovered that product innovation is characterized by customers' usage experience and the alignment of the product with their consumption patterns, it was observed that the greater the novelty of a product, the lower the level of customer accommodation required for its adoption. This study was based on the customer perspective and innovation perceived by customer on innovative methods products was regarded as the basis for measuring the perceived innovation. II.1.4 Perceived Value Zeithaml defined customer perceived value as “the customer’s overall assessment of the utility of a product or a service based on perceptions of what is received and what is given” (1988). According to Kotler (1994), in order for a business to keep its dominating position in the market, it not only has to work to develop new product qualities, but it also needs to work to generate new perceived value among consumers. This brings to light the relevance of the value that is perceived by customers, which is likely going to be the key emphasis of businesses in the future. According to Petrick (2002), customers' perceptions of value are a significant factor in their purchase choices, the degree to which they are satisfied with the items and services they have purchased, the chance that they will make more purchases, and, ultimately, the competitive advantages that businesses might attain. Sheth, Newman, and Gross (1991) postulated that there are five different categories of perceived value: functional value, social value, emotional value, epistemic value, and conditional value.