creating new market space

Creating New Market SpaceCreating New Market Space

Salman Ahmed (8519)

Fall 2011

Salman Ahmed (8519)

Fall 2011

Strategic Marketing & Planning (MKT501C)

Strategic Marketing & Planning (MKT501C)

Objective of the Article

Determining a systemic approach to value

innovation that can help companies to create

new market space via looking across six

boundaries of the existing competition

Shifting the Focus of StrategyThe Conventional

Boundaries of Competition

HEAD-TO-HEAD COMPETITION(Focus On)

CREATING NEW MARKET SPACE

(Looking Across)

Industry Industry rivalry Substitute industries

Strategic Group Competitive position within strategic group

Looks across strategic groups within industry

Buyer Group Better serving the buyer group

Redefines the buyer group of the industry

Scope of Product & Service Offerings

Maximizing the value of product and service offerings within the bounds of its industry

Complementary product and service offerings that go beyond the bounds of its industry

Functional-Emotional Orientation of Industry

Improving price-performance in line with the functional-emotional orientation

Rethinks the functional-emotional orientation of its industry

Time Adapting to external trends as they occur

Participates in shaping external trends over time

Looking Across Substitute Industries

• Companies compete with companies within their

own industry as well as with those companies that

offer substitute products

• The space between substitute industries provides

the opportunity for value innovation

1 2 3 4 5 6

Looking Across Substitute Industries…Cont.

Examples:

•Home Depot

•South-West Airline

•Intuit (financial and tax preparation software company)

Looking Across Substitute Industries…Cont.

Home Depot:

•Created a market of do-it-yourselfers in the space

between

– choosing contractors

– going to the hardware store, buy tools, work themselves

•Experienced sales team

•Self-service warehousing

•Economies of scale

•Minimum stock-outs

• Created a new value curve for managing personal

finances by combining:

– low price and ease of use of pencil with

– speed and accuracy of “Quicken” software

Looking Across Substitute Industries…Cont.

Intuit:

Looking Across Substitute Industries…Cont.

Intuit:

Intuit:

Looking Across Substitute Industries…Cont.

Looking Across Strategic Groups within Industries

Strategic Groups:

•Companies within the same industry that pursue a

similar strategy

•Compete on Price and Performance

•Value innovators create new market space by

understanding what causes buyers to trade up or down

from one group to another

1 2 3 4 5 6

Looking Across Strategic Groups within Industries….Cont.

Examples:

•Polo Ralph Lauren (Clothing Company)

•Toyota's Lexus

•Sony Walkman

Looking Across Strategic Groups within Industries….Cont.

Polo Ralph Lauren: •Fashion with no Fashion

•Compete with Haute Couture (High priced, Outdated fashion)

and Classic Lines (High priced, Long lasting Quality)

Lauren’s success factors:

•Designer name

•Elegance of stores

•Luxury of materials

•Updated price-captured classical look

Looking Across Strategic Groups within Industries….Cont.

Toyota's Lexus:

•Provided the high quality of a Mercedes, BMW, or

Jaguar at a price closer to the lower-end Cadillac or

Lincoln.

Sony Walkman:

•Provided low price and convenient size portable

stereo market

Looking Across the Chain of Buyers

Rather than looking at a target customer, value

innovators pursue the chain of customers:

•Purchasers

•End Users

•Influencers

1 2 3 4 5 6

Looking Across the Chain of Buyers….Cont.

Examples:

•Bloomberg (Financial software company)

•Philips (Lighting Company)

Looking Across the Chain of Buyers….Cont.

Bloomberg:

•Compete with Reuters and Telerate (online financial

information providers)

•Upstream focus from purchasers (IT managers) to end

users (Accountants and Financial Analysts)

Looking Across the Chain of Buyers….Cont.

Philips:

•Downstream focus from purchasers to influencers

•Produced Alto (environmentally friendly light bulb)

•Promoted Alto to CFO's and public relations people

•Rapid sales growth

– traditional fluorescent lamps containing toxic mercury

were replaced in schools, stores and office buildings

Looking Across Complementary Product and Service Offerings

Idea:

•What happens before, during and after your product

or service is purchased

Example:

•Borders Books & Music and Barnes & Noble book

superstores

1 2 3 4 5 6

Looking Across Complementary Product and Service Offerings….Cont.

Border and B&N Books Superstore:

Features & Benefits:

•Lifelong learning and discovery

•Pleasure of reading and Intellectual exploration

•Large selection of books

•Knowledgeable staff

•Armchairs, reading tables, sofas

•Coffee bars and Music

Looking Across Functional or Emotional Appeal to Buyers

Functionally Oriented Industries:

•Offer commodities or products with little emotions

Emotionally Oriented Industries:

•Offer extras that add price without enhancing

functionality of the product

1 2 3 4 5 6

Looking Across Functional or Emotional Appeal to Buyers….Cont.

Examples:

Companies used Emotional Appeal:

•Starbucks

•Swatch (watch manufacturing company)

Companies used Functional Appeal:

•Body Shop

•Direct Line Insurance

Looking Across Functional or Emotional Appeal to Buyers….Cont.

Starbucks:

•Introduced the concept of Coffee Bar

• Provide coffee drinkers with an emotional

experience:

– Gathering place

– Status

– Relaxation

– Conversation

Looking Across Functional or Emotional Appeal to Buyers….Cont.

Body Shop:

•Provide customers with functional appeal

•Focus on product’s ingredients

•Cost saving through little spending on advertising

Looking Across Time

Three critical principles….the trend must be:

•Decisive

•Irreversible

•Clear Trajectory

Example:

•Cisco Systems

1 2 3 4 5 6

Looking Across Time….Cont.

Cisco Systems:

Identified the trend of growing demand for high-speed

data exchange by producing:

•Routers

•Switches

•Other networking equipment

Conclusion

• Creating new market space and value curves is

critical in a demand-starved economy for both

small and large companies

• Maintaining profitable growth is only

sustainable by creating and recreating new

space, new markets and new value