Markets seem to evolve in one of two ways that imply very different strategies for launching new offerings:
•    Market entrenchment
•    Market reinvention
Market entrenchment looks like this.  Someone creates an innovation that establishes a new market.  The second wave of “innovation” is comprised of a few differentiated nationally branded products, but really serves to reinforce the category benefits.  The third wave consists of lower priced alternatives (“we’re as good but at a lower price”) which include store brands entering the category, again reinforcing category benefits.  The market leader often maintains their leadership by dominating the shelf space via broadening their line…adding a lot of variants.  This can solidify share leadership but also commoditizes the category to some degree as consumers “are trained” to start seeing alternatives as bundles of attributes.  The market leader often (but not always) stays the leader but generating profitable year over year growth is a struggle, especially in hard economic times as national brands struggle to defend their price premiums.  Most CPG categories seem to develop along this “market entrenchment” evolutionary path.
In this pathway, one promising avenue is to develop a relationship with core customers in a social media context that is relevant and poignant for them.  Dove Campaign for Real Beauty and Tambrand’s “Being girl” are two examples.  The innovation is in the relationship via social media, not new SKUs.
Energy Drinks and Body sprays are two recent examples of categories that seem to be following a market entrenchment pathway.  First there was Red Bull (actually, first there was Jolt) and then a bunch of energy drink brands have followed.  If there isn’t a lower priced alternative yet, there will be.  The success of Axe has attracted competition as well.
When you create new products in a market entrenchment model, prior launches do a lot of your market research for you.  It is a lower risk launch strategy because existing products’ success rates act like test marketing for your new product.
Market reinvention is quite different.  The market leader and their existing business model are almost ignored as the new entry focuses on their relationship with (potential) customers and their unmet needs rather than the competitor. These offerings force a market leader to break their business model if they are going to maintain leadership but, as Gary Flake from Microsoft pointed out at the ARF day on innovating innovation, few can do this.  He observed that those who establish a market go after the head, while later entrants go after the tail.  He contends it is easier to spread “right to left”, tail to head.  His observations help explain why a surprising number of products and services, especially in the digital space have leaders who were not the ones who established the categories (e.g., Google didn’t invent search or ad serving, Microsoft didn’t offer the first spreadsheet, and Facebook/Myspace didn’t invent digital communities.  In market research, BASES was NOT the first sales volume forecasting tool.)  In fact, Profs. Jerry Tellis and Peter Golder documented in their book, “Will and Vision, How Latecomers Grow to Dominate Markets” that market leaders are usually NOT the ones who created the market…that the “first mover advantage” is largely a myth.  One example of someone who WAS willing to break the business model is Andy Grove from Intel who talked about strategic inflection points in his book, “Only the Paranoid Survive”.  At such moments, nothing other than business reinvention will do.
By the way, I think that the marketing research profession is at a strategic point of inflection as survey data quality becomes challenged and as other forms of insights are enabled via social media.
Market reinvention requires changing the rules, seeing opportunities from a human lens as no one has done your test marketing for you.  Instead of finding ways of appealing to people based on what is currently important, Wojtek Szumowski from Crispin, Porter+Bogusky urged us to change the rules, to change culture.  He then showed great examples of the work they did along these lines for Volkswagen and Pearl Izumi running shoes.
So, what type of innovator are you?