In my last article I explored Clayton Christensen’s Disruption Theory as a viable market entry strategy. Recall that disruption theory predicts that for an upstart to compete successfully in the market, their best play is to focus their efforts on capturing non-consumers of a particular product or service by offering a “good enough” solution that overcomes consumption barriers.
The theory predicts that the incumbents typically will not respond with a competitive and defensive play because the so called “non-consumers” of their products are of very little economic value. From a business perspective, incumbents believe their best play is to continue to focus on existing customers (and the competitors’ to achieve more market share) by creating more value through incremental improvements.
After all, the market is still attractive, and the odds of launching products based along the established vectors of performance (attributes the market wants and what Christensen calls sustaining innovations), are very high. At least over the perceivable future, which might be as short as 3 months for some companies.
Unfortunately for the incumbent, time horizons are far greater than a year let alone 3 months. And over time, the inferior technology can become “good enough” to compete for the incumbent’s traditional customer along established vectors of performance.
Sadly for many incumbents, the newer technology often provides new vectors of performance the incumbents can’t replicate. All else being said, the new upstart’s technology net/net – provides a better value proposition and traditional customers will switch.
But is a disruption play the best play in the book?
Competing for non-consumers by overcoming consumption barriers (i.e. convenience, cost, complexity and time) is just one of several strategies to enter new markets. What if an upstart company can muster up a superior solution using new novel technology?
It is possible, and often a fantastic strategy, to focus a market entry on higher end customers. Existing consumers (they currently hire solutions to get an important job done), who have the means to upgrade, will if the new offering can address underserved-desired outcomes in a meaningful way. Perhaps at a price greater than the current solutions they hire.
This is what marketers have traditionally called “Price skimming.” It’s a high end market strategy focusing on providing a superior product (and experience) for the high-end buyers in a given market category – or a new category that is being created but solves an fundamental job people want to get done.
Tesla Motors provides a good case and point
By all accounts, Tesla Motors has achieved a successful market entry into what can be considered a “red-ocean” market – the luxury segment of automobiles. They did this with a set of innovative new technologies – the electric power train being the most radical of the set.
Yet their electric motor technology has limitations, at least along traditional vectors of performance. Tesla can only go for 350 miles (or so) before needing a charge. And requires 30 minutes to charge at special charging stations. Charging stations aren’t exactly everywhere to be found along the highway. Evidently though, enough charging stations were in place at the time of launch.
Owners of the Tesla I have spoken with, do not perceive the range, nor 30 minutes or charging time to be that big of a hassle. Nor do they perceive limited charging stations a big problem. They just plan their trips around charging stations. Many of which are located at restaurants and hotels.
Why would these sophisticated customers accept these limitations?
Because Tesla has more to offer than just being another luxury car. Rather, Tesla addresses a set of underserved desired outcomes that defines a unique niche market they can dominate. The differentiating job-to-be-done characteristics that defines Tesla’s niche primarily address “the emotional jobs,” both personal and social, that Tesla customers want to hire.
For example, people who “hire” Tesla for their transportation also enjoy the status of being an “early adopter.” This is an emotional job of wanting to be known as a trend setter to build on their social status). They also like the style which address personal and social emotional jobs to be done.
Perhaps they love the performance (functional and emotional jobs). I have been told by Tesla owners, it’s a blast to drive – even more so than high performing conventional sports car. And for many Tesla buyers, being environmentally conscious (i.e. smaller carbon footprint) is very important for their social status.
Has Tesla disrupted the market?
Not in the traditional sense of the disruption theory. Tesla is not entering the market with an inferior product targeted at non-traditional car consumers. Rather they entered the market at the very high end (sophisticated luxury car buyers), with a superior (relative term of course) and novel new product.
You can make the argument that their strategy does address non-consumers of electric cars. But I believe the diffusion of innovation (a.k.a. technology adoption lifecycle), is a better model to understand Tesla’s market strategy.
According todifussion theory, new innovations (especially new paradigms) follow a predictable adoption process starting with technology enthusiast (innovators), early adopters (visionaries), early majority market (pragmatist), and eventually the late majority (conservatives).
Tesla’s strategy was to focus on the early adopters within the luxury segment of the market. The target market has the desire to try a new promising technology, and the means to hire the product at a premium price.
Will electric cars eventual diffuse into the majority market?
I do believe as electric cars become better and more affordable, they will displace the internal combustion car. This assumes of course that they are as convenient, if not more convenient than the current technology.
Again according to diffusion theory – the new electric car technology will diffuse into the majority market if it provides a relative advantage over the existing technology. Quite possibly, regulators will help accelerate the adoption as well.
There is no reason for me to believe this won’t happen. What I don’t know is if there will be another technology, or fusion of technologies (i.e. hybrid cars), that will become the dominate technology for future automobiles.
The salient point about disruption and adoption
New innovations can diffuse from either the bottom of the market (addressing non-consumers of a basic job-to-get-done) or from upper end – existing consumers who already are getting their job done – but are looking to get it done better.
There are multiple plays an innovator can make to successfully create and launch great new business models and products. This is all about knowing the playing field you plan to win on.
• What important jobs are people trying to get done? • What are the specific outcomes they are trying to achieve? Of these outcomes, which are underserved and overserved? • And how can you cluster these outcomes to define a unique playing field where you can compete and win? (Creating a blue ocean.)
Maybe someday I will hire a Tesla electric car as my main mode of transportation. But for now, my internal composition car gets me to where I want to go while addressing my functional jobs and emotional jobs I need to get done.
And who know for sure what clever technologies and innovative business models will be available in the not so distant future to get my important job done better, faster and cheaper?
Make the right play based on the playing field you define to win on.
Kevin