Spotting a potential “Disruptor” in your market & How to react?
Every market now is being disrupted by innovations in new technology and operating models all the time. New business models advanced by technology are disrupting markets from Consumer Technology Products to Financial Services by offering lower price and more relevant products to more people — often causing margin erosions for market incumbents.
In the face of “low-end” and “new market” disruptors, lifespans of businesses, brands and products have become much shorter than they were a generation ago. While it is imperative to keep innovating to sustain a profitable incumbent’s market share while competitors catch up, it is getting more and more difficult and stressful for Business Leaders, Marketing, Sales and Product Specialists to make Strategic and Operational Plans for new products, new markets, new businesses with less and less lead time.
So as Business Development Professionals, how can we address this issue?
A. First, it will be helpful to spot a potential disruptor in the market where you are a profitable incumbent before deciding how to react.
There are 2 types of disruptions:
- Low end — where disruptors spots the opportunity to enter the bottom end of the market with cheaper and more affordable products, because incumbents have improved products and services beyond the needs of those customers. Incumbents naturally ignore such low-end disruptors as their business model and operations are not set up to compete in the lowest end of the market, and competing at the lowest end of the market will generally hurt branding and cannibalize sales. Examples include Japanese Sony Xperia and Chinese Xiaomi Hongmi (Red Rice) smart phones, retailing at less than one-third of latest Apple iphones. As expected, Apple is not reacting to it by launching low-end iphones at this kind of pricing for fear for hurting its brand and sales cannibalization.
- New market — where disrupters create a new market through disruptive innovation and attracts first time customers who previously did not adopt the product as it was too difficult or expensive to use. Examples include supply and demand matching technology platforms where excess capacity is being matched with new demand at lower price than market price — attracting new customers who otherwise cannot afford the product or service or won’t buy, such as Just Eat (takeaways from restaurants), Task Rabbit (builders/decorators/handyman), Zipcars (owning a car/car rental in cities), AirBnB (hospitality industry). In Europe, they are providing cheaper alternatives that are more convenient, easier and cheaper to place order through mobile and internet platforms than existing service providers by matching under-utilized capacity with price-sensitive low-end demand. Incumbents in these markets generally regard these “New Market Disrupters” as amateurs and not professional enough, compared to the level of service and expertise they offer. These disruptors are usually ignored until a significant market is won over by these new entrants.
(Disruptive Strategy by Harvard Business School Professor Clayton Christensen)
There is, in fact, under-utilised resources such as labour in all kinds of market specialisation, from handymen to drivers, from Strategy and Marketing Consultants to Financial Advisors. As technology in mobile apps and websites make pricing and value proposition more transparent and demand and supply matching much easier, there is unmet demand amongst non-consumers to be catered for — as long as the “Price is Right”! In Business Consulting, for example, independent consultants taking projects free-lance from clients is increasingly common. For my Business Development Consultancy in particular, I am providing pricing on my website for the structured entry-level “Business Incubation” and “Coaching” programs for Small and Medium Businesses and Entrepreneurs, to attract non-consumers of Business Consulting and Coaching. In fact most SMBs can do with some mentoring and business advice as they scale their businesses for the simple reason that Entrepreneurs and Business Owners are having to manage everything by themselves!
“Small and Medium-sized enterprises (SMEs) around the world account for 95% of all businesses and 77% of employment on average, yet their contribution to GDP is a mere 54%. Clearly something is amiss” — W. Chan Kim and Renée Mauborgne of Blue Ocean Strategy.
B. How to react in rapidly evolving markets led by technology and new models:
1. If you are working in a profitable incumbent,
- Continue to improve your products and services’ performance to sustain your market share while competitors catch up.
- At the same time, watch out for “Disruptors” targeting the bottom end of the market and new market of “non-consumers”.
- Invest in “call-options” on the future by setting up new separate business units for disruption or invest in one — keeping them as separate operating units, while focusing your current core business and operations on “Sustaining innovations” to remain market share for as long as profitable.
2. If you are a disruptor,
- Explore opportunities in markets where premium products and services dominate and over-serve customers at high prices, and enter with low-end options to attract customers with more affordable options.
- Explore new markets for non-consumers by providing easier and cheaper alternatives to existing products and services which are too complicated and/or expensive for these “non-consumers”.
Try to get disruption to work in your favour by positioning for “low-end” and “new-market” disruptions through new ventures — and if you are a profitable incumbent, sustain your core business to retain market share for as long as profitable in the meantime.
Written and Published by Joyce KWONG in March 2016, participant in the Harvard Business School HBX Disruptive Strategy certificate course taught by Professor Clayton Christensen.
Joyce Kwong is a Professional Business Consultant specialising in:
1. Strategy and Business Development,
2. Transformation & Change,
3. Performance & Talent Management
4. International Expansion
Joyce graduated from the University of Oxford and has a MBA from INSEAD.