Diagnosing Dislocation
Don’t
assume the new entrant in your market is a disruption. Learn to recognize
different types of threats and design the best strategic response.
Imagine that you run a large company,
prominent in its industry, with a loyal customer base and strong profit
margins. Suddenly, a new product comes along that threatens your existence. It
could be a technological development that will render your main product
obsolete, just as streaming video is doing to cable television. It could be a
more user-friendly way to obtain a similar product or service: Think of the
sharing economy versus the traditional hospitality industry. Or it could be a
creative new approach to existing offerings, such as the use of mini-clinics
and telemedicine services instead of conventional physicians’ groups and
hospitals.
As the incumbent being threatened, you want
to preserve your business and compete effectively. You quickly confront
challenging questions: Should you rapidly emulate what the new entrant is
doing? Or would it be better to double down on your existing products and
services? All too often, when deciding how to respond, companies assume that
they are facing a disruption — following the term coined by Harvard Business
School professor Clayton M. Christensen. He defined a disruption as an
innovation that allows upstarts to build a new market from the bottom up by
initially offering simpler, cheaper products and services, often with fewer
features or reduced capabilities, but also with a much lower price that appeals
to a customer group the incumbents have ignored.
But
new products and services can enter your market from other directions, each
distinct in terms of how, where, and when it affects your business. These
are market dislocations — radical breakaways from the existing
market that occur when a company introduces a business model or a product that
sits apart from those of competitors. Some dislocations come from the top down:
They expand the market by giving high-end customers prestige and luxury at a
premium price at first. Then, as the new entrants gain prowess and
reputation, they add middle-range alternatives that compete with incumbents.
One recent example is Tesla’s move from high-end electric sports cars to sedans
with a US$35,000 list price. Elsewhere, as solar technology has become
cheaper, renewables have begun to threaten traditional energy
companies. Still other dislocations, such as the trend toward home- and
room-sharing through online rentals, threaten incumbents from the side. Here,
there may be no significant price difference. But the upstart provides
accessibility and features that incumbents cannot offer or have chosen not to
offer.
Then,
of course, there are bottom-up dislocations, or disruptions. In these cases, as
the new entrants gain market share and proficiency, they add features and
versatility. This combination of lower prices and innovation ultimately allows
them to replace the old market leaders entirely. For example, as Christensen
recounted in The Innovator’s Dilemma (Harvard Business School
Press, 1997), the first hydraulic earth movers, in the 1950s, were too small
and imprecise for the industry’s typical customers: large construction firms
that dug sewers and mines with expensive cable-based heavy equipment. The
hydraulic upstarts (companies such as Caterpillar, Deere & Company, and
Komatsu) sold instead to an emerging market — house builders. Gradually, they
improved their equipment and expanded their customer base. Similar dynamics
have been observed in personal computers, disk drives, steel, entertainment
retailing (bookstores, video stores, and record stores), home furnishings (for
example, from IKEA), digital photography, and many other industries.
Clearly, not all upstart threats are alike —
and misdiagnosing your new competition can lead you to respond in a way that
can bring further harm to your business. Incumbents often move early into new
technologies, even if it means undermining or cannibalizing their existing
businesses. Sometimes that’s the right thing to do. But other times it can
backfire in devastating ways. Instead of acting rashly, incumbents should take
a step back, determine what type of dislocation they are facing, and respond
with the appropriate tools and strategies. Not doing so can lead to lost
customers and slipping profits — or worse.
Anatomy of the Threat
The key to understanding any upstart threat
is to study the way its innovations alter the marketplace. This can be boiled
down to the curves shown in Exhibit 1: product/service price versus
functionality. The blue curve represents industry incumbents, which have a
range of potential price-versus-functionality variations that they profitably
offer. They can’t put forward all possible variations — they can’t fill in the
entire curve. But everything the incumbents offer will fall somewhere on that
blue curve, because that’s where the constraints of the incumbents’ technology
and capabilities will place all its products.
The orange curve represents the new
technological frontier. Each startup that changes the market enters with its
own point on this curve. And every combination of price and functionality will
expand the market in some way, drawing in customers. The challenge for the
incumbent is to identify where the upstart is breaking in. Is it capturing
previously overlooked or underserved customers at the bottom of the market,
with lower price and less functionality? Is it capturing customers at the top,
with highly valuable offerings that few can afford? Or is it coming in from the
side, luring some of the incumbent’s existing customers with extra
accessibility or features at similar prices?
Thus, for example, in a typical city, the
blue curve could represent the transportation offerings of an existing taxi
service or mass-transit agency. New offerings by an Internet-managed
ride-sharing service, such as Uber, Lyft, Sidecar, or Haxi, might come in at
the bottom, with lower-cost ride-sharing and carpooling apps; they might come
in at the top, with premium services as comfortable as limos; or they might
come in from the side, offering convenience in hailing, scheduling, and paying
for vehicles. Sooner or later, they might migrate to offer all three levels,
thus pressuring the existing taxi and mass transit providers to adapt or fail.
No matter where they enter, dislocations do
not simply extend the existing market. Rather, they establish a radically new
position with respect to price and functionality. Whereas price is defined
purely by the market, functionality is a matter of customer perception. Of
course, different customers prefer different options. Purchasers of
all-electric cars, for example, have about a dozen manufacturers to choose
from, and customers have their own reasons for preferring one over the others.
Similarly, solar power may be highly prized by some customers, and not at all
important to others. Therefore, functionality will always be partly subjective.
New
entrants develop their sustainable competitive functionality in several
different ways. For example, technological advances often lead to upstart
products with superior functionality. Customers defect en masse to the products
they perceive as having greater value. The smartphone gained its enormous
market share in this fashion. In other instances, the dislocation benefits
from being hard to
copy. Strong practical, legal, financial, or
other barriers make a response difficult. The apparel company Inditex (known
for its brand Zara) achieved success this way. Its seamless integration between
manufacturing and sales is very difficult for others to emulate, and makes it
possible to change clothing designs quickly, without resorting to money-losing
markdowns or inventory gluts. At other times, customer frustration or
dissatisfaction with existing products or services, whether widely recognized
or not, increases the demand for alternatives. Ride-share services have
thrived, in part, because customers find existing taxi services problematic.
Finally, social considerations can drive adoption. These considerations may be
rooted in regulations or cultural influence, but they help upstarts with
products and services perceived (for example) to help the environment or
improve people’s health.
As an
incumbent, you need to find a strategy that will improve your functionality and
price-competitiveness compared with those of the new entrants. You can do this
in several ways. Your choice should depend in part on your own capabilities and
in part on what type of upstart threat you face. In a recent in-depth analysis
of six industries currently undergoing dislocation, which included more than
two dozen interviews with executives, industry analysts, innovation experts,
and entrepreneurs, we studied the characteristics of each type of dislocation
and its growth phases; most important, we also studied how companies can
recognize and respond correctly to each threat before it eats away at their
core business.
The research revealed four strategies that
companies can adopt in the face of dislocation. Two of them, matching the
threat and absorbing the threat, can be effective when incumbents are facing
new entrants coming from any direction (from the top, side, or bottom). A
third, leapfrogging the threat, is most effective in dealing with dislocation
from the top and from the side. And finally, the strategy of ignoring the
innovation is most commonly associated with disruption from the bottom. Each
strategy has risks, especially when it is used at the wrong moment or
against the wrong threat. But when you understand where the threat is coming
from and how it is changing your market, you can choose a strategic response
that is likely to sustain your business.
Strategy 1: Match the Threat
The first strategy involves improving your
existing offerings to keep your existing customers, and expanding the market.
This is the most obvious response to dislocation and can be effective in
confronting threats from all directions. Taxi companies, for example, seek to
match the threat posed by ride-sharing companies when they create their own
ride-sharing apps and “frequent rider” cards, which they market by reminding
passengers that taxis don’t have surge pricing.
Of course, company leaders often resist the
idea of launching an inferior, lower-priced product to match a newcomer that
isn’t yet competing for its primary customers. Yet the strategy can work in a
bottom-up scenario. The incumbent needs to create a product or service line
distinct from its core line, often as part of a separate division, and have
that new product line compete with the core one. Basically, these companies
cannibalize themselves before the new entrant can. Consider HP’s moves to
create a separate division for inkjet printers, allowing it to compete with the
company’s established and highly profitable laser printer business.
When a
dislocation starts at the mid-market or higher, however, the incumbent must
change its core product line to stay competitive. The automobile industry, for
example, faces a dislocation from electric vehicles. Since 2009, according to
the fuel efficiency research firm Baum & Associates in West Bloomfield,
Mich., 2.7 million gas–electric hybrids, 217,000 plug-in hybrids, and 240,000
all-electric cars have been sold in the United States. Although this represents
only a small portion of overall sales, shifts in federal and state policies are
pushing electric vehicles into mass production. California will require
carmakers to show that zero-emission vehicles (ZEVs) account for 15.4 percent
of their sales within the state by 2026.
The regulatory pressure on carmakers is
reinforced by social sentiments among early adopters, who typically want to
increase their fuel efficiency in a way that helps the environment and
reduces dependency on offshore oil supplies. These trends are expected to
translate into 800,000 ZEVs sold annually by 2025 in the Golden State and in 10
other U.S. markets that are following its lead. This dislocation is essentially
a story of electric car buyers spending more than they would spend on an
equivalent gas-powered vehicle. The high price point of Tesla’s original
offerings, for example, has given other automakers time to develop a response.
To be sure, when Tesla started taking orders
for its Model 3 in 2016, with an announced price of $35,000, the company
received more than a quarter-million $1,000 deposits in the first weekend.
Tesla’s market value is now approaching that of General Motors. But it is
hardly alone in the field. Nissan, Honda, Kia, Fiat, Chevrolet, BMW, and Smart
are among companies offering electric cars in all price ranges.
Another
example of matching is the power utility industry facing solar energy. As
battery and solar panel technology come down in price, it becomes worthwhile
for many customers to install photovoltaic panels, which they often see as
either home improvements, ways to survive during power outages, or gestures
with environmental impact. By 2016, 784,000 homes and businesses in the U.S.
had solar panels in place; solar and wind energy provided a combined 5.3
percent of the electricity generated in the U.S. in 2015, up from only 2
percent in 2008, according to the U.S. Energy Information Administration. The
trend appears to be accelerating. “The integration of renewables, the reduction
of reliance on coal, and those sorts of things are changing our industry
dramatically,” said Ron DeGregorio, president of Exelon Power.
Finally,
matching is happening as the
healthcare industry faces dislocation from
the bottom up — people are seeking convenience and price breaks. Since the
early 2000s, new clinics have appeared by the thousands to serve patients. They
include basic consultation services in retail stores such as Walmart,
Walgreens, and CVS; walk-in urgent care centers that offer a cheaper and more
convenient alternative to a hospital emergency room; and virtual medical groups
that provide online consultations with doctors for as little as $40. The last
are particularly popular with working mothers; for example, the online service
Doctor on Demand claims that nearly 70 percent of its customers are women and
more than half of them have school-age kids. Having a sick child used to mean a
trip to the doctor, making the child’s mother late for work. “Now she fires up
the iPad [and] types in the symptoms, and within a few minutes she’s chatting
with one of our family practice doctors or pediatricians,” said Adam Jackson,
CEO and cofounder of Doctor on Demand. “Ten minutes later, if appropriate,
we’ve sent a prescription to her local pharmacy.”
Doctor on Demand is an upstart, but so is
retail giant Walmart in this case. Half of its 4,600 in-store health assessment
kiosks (from Pursuant Health) average 50 to 60 risk assessments each on a
typical day. “Within a few years, we will do more health risk assessments than
the entire existing health system,” predicted Marcus Osborne, Walmart’s vice
president of health and wellness transformation.
The incumbents are large hospital groups,
established healthcare providers, and payors. Many of them welcome dislocation;
it takes pressure off their emergency rooms and other beleaguered facilities.
Some incumbents are creating collaborative partnerships in order to match new
offerings. They are eagerly working with smaller innovative healthcare
providers to cut costs, widen profit margins on core services, and improve
patient service with referrals to local clinics. Through these efforts,
incumbents are developing some upstart-like attitudes of their own.
In the past, said Walmart’s Osborne,
“consumers have been characterized as not able to manage their own care. [New]
solutions and technologies are completely changing that.” These solutions, he
added, “basically assume that the consumer actually is very intelligent, very
rational, and will do the right things if you give them the right tools at the
right place at the right time to engage their care.” As this perspective takes
hold in incumbent hospitals, it makes them more nimble and effective as well.
Strategy 2: Absorb the Threat
With dislocation, one effective response is
to bring the upstart into your own system — through M&A or venture capital
funds that invest in upstarts directly. The absorption strategy can work for
dislocations that come from any direction. But it mandates a high level of
skill in all cases: Deal making requires postmerger integration capabilities,
partnerships require ongoing and often arduous collaboration, and venture
capital requires investment acumen. When making an acquisition, the incumbent
must enhance the new business and create conditions for its success. Acquiring
a company with an objective to kill the threat is a waste of money, and serves
only to invite more upstarts to enter.
Facebook has deftly managed absorption
through M&A — perhaps because it was an upstart itself not so long ago. The
company drew some Monday-morning quarterbacking in 2014 when it paid a
jaw-dropping $19 billion for WhatsApp. But the upstart messaging platform had
already attracted more than 400 million monthly users, including many Gen Z
customers who preferred messaging over writing Facebook-like posts. The bet has
paid off; Facebook’s share price has nearly doubled, and the number of WhatsApp
users has grown steadily since the deal was signed.
You
can find absorption in the digital marketing industry. Here, disruption is
happening, with the dislocation appearing at the bottom. Upstarts with
data-rich analytic software can scour thousands of attributes about potential
customers and send them exactly the right offer at the perfect time over the
best channel. This has dramatically altered the price and quality of marketing
efforts, triggering a highly complex dislocation involving thousands of new
companies.
Scott Brinker, an industry analyst who is
also CTO and cofounder of Ion Interactive, began tracking this area in 2011,
when there were about 100 vendors involved in digital marketing and the
technologies that support it, including mobile app development tools and
marketing databases. Based on his original criteria, he now estimates there are
about 4,000 upstart companies, ranging from tiny startups to giant global
software companies. That’s about a 40-fold increase in around five years.
Venture capital firms have been involved in
many of these marketing-firm absorptions. An example is Signpost, which targets
small businesses, a segment of the market typically ignored by larger players.
There are tens of millions of small businesses — mostly mom-and-pop retail
shops — that could use marketing automation to attract and retain new
customers. But they aren’t interested in costly enterprise-level technologies.
Signpost has built its business with this bottom-of-the-market group. For just
over $200 a month, the company collects phone numbers, email addresses, and
point-of-sale data from local customers, then uses that database to gather
feedback, generate reviews, drive social media awareness, and encourage return
customers through offers and promotions. Signpost can keep the price low
because it provides one automated service to all its customers. “We’re in the
automation box, and Salesforce is in the do-it-yourself box,” explained Brad
Kime, senior vice president of business development. Signpost has attracted
$35.6 million in venture funds in its quest to democratize the digital
marketing revolution.
The
continuing opportunities to compete in the new market thrill entrepreneurs such
as Adam Marchick, chairman of Kahuna. The mobile marketing automation company
started in 2012 with a relatively humble $300,000 investment from SoftTech VC.
A former venture capitalist himself, Marchick said he thinks Kahuna could make
acquisitions of its own to better compete with Salesforce and other giant
enterprise software companies. In 2015, Kahuna recruited Fayyaz Younas, a vice
president of engineering who was leading Salesforce’s analytics initiative.
“I’ve seen what it takes to build a billion-dollar company and I’ve learned a
ton,” Younas said in a Wall Street Journal article at
the time. “I see that in Kahuna.”
Some incumbent software companies have
augmented their internal innovation by acquiring “best-of-breed” startups.
Salesforce.com, for example, acquired the upstart digital marketing firm ExactTarget
for $2.5 billion in 2013 as the heart of a $4 billion acquisition spree.
Salesforce has also invested in well over 100 startups through its corporate
venture fund, which often leads to integration into its cloud. Salesforce’s
Marketing Cloud CEO Scott McCorkle, who joined the company as part of the
ExactTarget acquisition, notes that digital marketing lends itself to mass
experimentation. “I think you’re just seeing an explosion of innovation around
that,” he said, stressing that Salesforce also has a strong internal culture of
innovation. “I have never seen a company so driven to reinvent itself.”
Strategy 3: Leapfrog the Threat
To leapfrog is to expand your offerings,
enabling you to protect your core business while providing something better than
your new competitors can. To accomplish this, you develop a strategy and invest
in innovation that results in a major shift in your own business. The goal is
to offer higher-quality and more desirable products or services, ideally at a
somewhat lower cost, and thus to move rapidly past your threatening
competitors. Consider the trajectory of the smartphone, as the iPhone and
Android models have wrestled for dominance, or the moves by some carmakers to
design connected vehicles to stay ahead of potential competitors from outside
the traditional auto industry. Incumbents need to build the capabilities that
can sustain their new identity, because the new business might well become
their main source of revenue.
The leapfrogging strategy works best when the
threat comes from the side or from above. It is hard to leapfrog a disruptor
that has a much lower cost proposition and pursues the least profitable
customers. But customers who are defecting because of features you lack may
well be interested in what you can offer to draw them back. For example,
consider the struggle between home- and room-sharing companies such as Airbnb,
HomeAway, FlipKey, and HouseTrip, and conventional hotels. The rapid ascent of
shared-lodging services has dramatically affected the global hospitality
industry and may become even more of a factor. For example, Airbnb has an
inventory of more than 2 million rooms globally, whereas each of the eight
largest hotel chains in the U.S. has, on average, 500,000 rooms.
Shared-lodging
services are often described as a disruption, competing from the bottom. But
they are more accurately a dislocation from the side, competing effectively at
all price levels. Data from Priceonomics, using Airbnb as the example,
shows average rates in its 10 priciest cities ranging from $130 to $185
per night, which is below the average range of $180 to $245 for hotels.
However, data can be misleading. A CBRE Hotels study that included 59 cities
and 229 submarkets found the average rate paid for an Airbnb unit was $148
compared to $119 for hotels. Furthermore, both hotels and Airbnb offer options
at a below-average cost; we found basic rooms for both starting under $50 that
appeal to travelers on a tight budget.
Shared-lodging service providers offer
several functional differences as distinct advantages over hotels. These may
include a simple mobile app, comfort-of-home accommodations, and the personal
attention of a local host (the property owner). “They’ve taken a process that
was a social process — getting to know people and trust them — and transformed
it into a weightless and massless Internet process that can grow,” said Andy
Lippman, associate director of the MIT Media Lab.
Both social factors and technology have
bolstered the lodging industry. For instance, Airbnb’s low-overhead business
model is hard to match for traditional hotels; it has few employees, no
construction costs, and no furnishings. Those are provided by the property
owner, while the company collects a fee for the referral. The company’s mobile
app enables guests to choose a room by price, location, and features, and also
to gain detailed information about the hosts.
Given the vastness of the hospitality
industry — it accounts for close to 10 percent of worldwide GDP — there has
been little measurable reaction to the dislocation caused by new lodging
service providers. And, to be sure, the shared-lodging industry faces its own
risks as governments add taxes and regulations that bog down the sharing
economy model. Still, hotels cannot ignore the threat of sharing services much
longer, particularly if luxury and business travelers, the core customers of
the hotel trade, join in.
The solution is for major hotel chains to
develop models that would leapfrog lodging service providers, by creating
branded networks of private rentals as an option for core customers. Customers
might still stay in private homes, but they would have access to branded
amenities such as delivered breakfasts, gifts, or inclusion in
frequent-traveler programs. This blend of new and old, coupled with updated
apps, could offer traditional customers a broader range of options. It would
also leverage some of the cost-effective advantages that lodging providers hold
now, such as reducing the need to build and maintain facilities.
Traditional
cable is another industry for which leapfrogging can be a powerful strategy.
Cable television providers face a mounting threat from over-the-top video
streaming providers. Streaming offers convenience, and is often lower in cost
because viewers can either watch free programs or subscribe to specific
services such as Netflix, Amazon Prime, or Hulu for less than $10 a month —
much less than the typical cable subscription.(Of course, many consumers end up
subscribing to multiple streaming services, and the costs add up.) Although
most consumers have traditional subscriptions, millions are “cord shavers” who
now opt for low-cost basic cable while streaming premium shows on their own
schedule. This dislocation is changing the financial outlook for networks and cable
providers, and affecting the way people watch TV.
Incumbents are feeling the pressure acutely,
as conversations with industry analysts have revealed. But will cable go
the way of video rental stores? Hardly. The answer for traditional cable
providers may be to leapfrog their upstart competitors by rethinking their
business model. As reported in PwC’s Videoquake 3.0 study, some incumbents have
begun experimenting with “skinny bundles” — allowing consumers the option to
customize the specific channels they want, rather than having to purchase a
package of hundreds of channels (many of which they will never watch). That
trend, combined with providers’ ability to enable consumers to access
programming from any device, both at home and on the go, gives incumbents an
edge. They can provide consumers with the ideal viewing experience: the
broadband access they need, the channels they prefer, the flexibility they
want. It will require incumbents to think differently about how they provide
and sell services, but if they do so successfully, they could keep their
customers and attract new ones — for example, millennials who might never have
subscribed to traditional cable.
Strategy 4: Ignore the Threat
Although some bottom-up disruptions capture
the entire market and can drive incumbents out of business, many other
disruptions can capture only a portion of the market — leaving a significant
share for incumbents. In these latter situations, companies must decide whether
to react to the upstart using the match or absorb strategies, or to ignore the
upstart.
However, ignore in
this case does not mean do nothing. Incumbents may not need to
respond to the disruption by trying to re-create or improve on it themselves.
It may make more sense for them to pay greater attention to their core
customers in order to maximize their portion of the market. For instance,
consider Southwest Airlines, which was clearly a disruptive market entry. Some
airlines decided to fight Southwest by launching low-cost airlines as separate subsidiaries.
In most cases, that response was unsuccessful. Examples include Delta’s Song
and United’s Ted, both of which operated for just a few years before being
shuttered.
Many other incumbent airlines instead focused
on improving their services and making them more efficient for their core
customers. Today, we see a niche of budget airlines led by Southwest, but also
many full-price airlines that survived and emerged as stronger players. Those
incumbents who took no action at all — not even improving their core business —
fell victim to the consolidation that has swept the airline industry in recent
years.
The healthcare industry, discussed earlier as
an example of the matching strategy, may also benefit from using the ignore
strategy. Should providers (hospitals) directly respond to new entrants, and
fight for price-sensitive patients who can potentially migrate? Or should they
ignore them and concentrate on making services better for their core customers?
The answer may not be clear for several years to come.
Sometimes, multiple dislocations occur at
once, and thus the question becomes: Which dislocations require an action and
which don’t? A good example was when Betamax (Sony) and VHS (JVC) were
dislocating the television programming market in the late 1970s and early
1980s. Incumbents first tried to prevent the new technology, claiming that
recording infringed upon the programming ownership rights. But the time came
when they had to select which format to respond to. It was not an obvious
choice, given that Betamax had superior picture quality. Eventually, VHS gained
small business advantages that led to its victory: JVC’s early video players
were cheaper, and one of its tapes could hold an entire movie (Betamax could
only hold one hour of video). Both business and technology foresight are
essential for making the right bet.
Of course, many industries offer examples of
prominent companies whose failure was associated with ignoring their upstart
rivals too long; among them are Kodak in photography, Smith-Corona in
typewriters, and Nokia and Research in Motion in mobile devices. Ignoring a
threat is risky. But responding to the threat is also risky, especially when
the response involves a major up-front investment or a cannibalization of
existing sales.
The secret to ignoring a disruption is thus
not to ignore it at all. Every company needs to determine the appropriate
balance between waiting and responding. If and when the time comes to respond,
you should be prepared with an appropriate strategy. And in the meantime, you
have an opportunity to respond through incremental innovation, particularly in
your operations. If you can lower your own costs and expand the perceived
functionality of your products and services, bit by bit, you will make things
harder for upstarts.
The easiest way to ignore them is by having a
platform where the switching costs are difficult. Microsoft, Google, and
Facebook have been able to ignore many potential threats because their
customers are virtually locked into their systems. To change, core users would
have to transfer their systems and rework their practices.
Making Your Diagnosis
Companies facing a serious threat to their
market often first respond by trying to ban the innovation. Powerful incumbents
may lobby government and regulatory agencies, or use economic and social
arguments to slow or hinder the innovation in some way so that it becomes less
economically viable. Yet such knee-jerk reactions are rarely successful in the
long run, and they can slow progress and industry evolution.
Instead, incumbents need to recognize the
distinctions among the various types of dislocations they may face. Disruptors
typically first go after nonusers or the least profitable low-end customers.
Only later do the disruptors start capturing an incumbent’s core customers. In
response to disruption, the incumbent should create an offering or business
that is separate from its core product offering. You don’t want to change your
core business and risk losing existing profitable customers while competing
(initially) for low-end customers and nonusers. You can make your move through
matching or through absorption. Of course, on those occasions when your market
assessment reveals major flaws in the new technologies being offered, consider
whether you should ride it out, rather than jumping into competition too
hastily.
New
entrants coming from the side or from the top, meanwhile, go after an
incumbent’s core customers right away — thus presenting a more immediate
threat. In these cases, the incumbent should change its core
product offering. This can again be accomplished through matching, and also
through leapfrogging, both of which enable the incumbent to pursue new
customers while keeping the existing profitable customer base intact.
The choices are never easy, but with a
complete framework for analyzing new entrants, you, as an incumbent, can
feel confident that your response is appropriate for the threat at hand.
Market dislocations can come from anywhere, and knowing that is half the battle.
by Alexander Kandybin
http://www.strategy-business.com/feature/Diagnosing-Dislocation?gko=b4bb5&utm_source=itw&utm_medium=20160721&utm_campaign=resp
No comments:
Post a Comment