Disruptive Innovation and Market Strategies
1. Creating Disruptive Innovation
A disruptive innovation is an invention that significantly differentiates itself from existing products or services, creating a distinctive market presence. This can be achieved in two primary ways:
- Novelty: Like Apple, companies can introduce entirely new features and upgrades, creating a completely new product and attracting a new market segment.
- Simplification: Nokia, for example, focused on product innovation through simplification. They targeted a lower-end market seeking basic, affordable products. By simplifying their phones, they catered to older individuals and those in developing nations, avoiding unnecessary complexity and cost.
2. Creating a Blue Ocean Strategy
Creating a blue ocean depends on the specific business, but a key approach is to identify and target non-customers. Nintendo, for instance, successfully targeted females with the Nintendo DS, a platform designed to appeal to this demographic. They shifted their focus from existing customers to the unmet needs of potential customers, creating a new market segment.
3. Pros and Cons of Targeting a Niche Market
A niche market is a small, specialized segment of customers with shared characteristics and needs. This requires a high level of attention to detail and a customer-centric approach, tailoring products to specific demands. It’s not suitable for generic products.
Pros:
- Loyal Customer Base: Niche markets often foster strong customer loyalty, leading to repeat business.
- Premium Pricing: Customers in niche markets are often willing to pay a premium for specialized solutions.
- Low Competition: The specialized nature and customer loyalty create barriers to entry for competitors.
Cons:
- Requires a high level of attention to detail.
- The product must be adapted to the needs of the client.
4. Industry Attractiveness Analysis
An industry with low rivalry, low bargaining power of buyers and suppliers, no substitutes, and low barriers to entry *might* seem attractive initially. Let’s break it down:
- Low Rivalry: Allows for easier market leadership and initial growth.
- Low Bargaining Power: Enables the company to set favorable prices and margins.
- No Substitutes: Provides security and reduces the threat of customers switching.
- Low Barriers to Entry: This is a double-edged sword. While beneficial for initial entry, it’s detrimental in the long run as it invites competition.
Rapid market positioning and establishing strong brand loyalty could potentially overcome the threat of low entry barriers. However, this scenario is likely more appealing to a new entrant seeking to disrupt the market than to established companies.
5. Price Agreements and Cost Leadership
Price agreements *are* possible even when a company’s primary competitive strategy is cost leadership. While the focus is on minimizing costs, industry-wide price agreements can benefit all players by maintaining or increasing margins, preventing a destructive price war. For example, in the transportation sector, companies might collaborate on setting prices per kilometer while still internally striving for cost efficiency to maximize individual profits.
6. Price Wars and Differentiation
Price wars are *less likely* (though not impossible) when the competitive strategy is differentiation. A differentiated product offers unique value, attracting customers who prioritize quality and features over price. This added value increases customers’ willingness to pay, allowing for higher pricing. However, a competitor could still initiate a price war, attempting to gain market share even at the expense of profitability.
7. Rivalry in a Growing Industry
In a rapidly growing industry, there’s often *less direct rivalry* because each company can expand its customer base without directly stealing customers from competitors. The expanding market provides sufficient opportunities for multiple companies to thrive.
8. Cluster vs. Cartel
The key difference lies in collaboration:
- Cartel: Competing companies *collude* to fix prices, quantities, commercial terms, and market share (geographic or customer-based). This is typically illegal.
- Cluster: A geographic concentration of competing companies in the same industry that *do not* engage in the collusive practices of a cartel. They may benefit from shared resources, infrastructure, and a skilled labor pool, but they compete independently.
9. The Ultimate Purpose of Price Wars
The ultimate goal of a price war is to drive competitors out of the market by reducing prices to unsustainable levels. A historical example is Airborne Express, which was forced out of business due to intense price competition within the industry.
10. Key Success Factors (KSFs) and Industry
KSFs refer to an *industry* rather than a specific company because they represent the essential factors that *all* companies within that industry must achieve to be competitive and successful. For example, in the traditional automotive industry, low process costs are a KSF. All major players must achieve this to compete effectively. KSFs are the elements necessary for *any* company to thrive within a particular market.
11. Types of Rivalry (Beyond Price)
- Rivalry on Costs: Competing to have the lowest operational costs.
- Rivalry on Innovation: Competing to develop new products and technologies.
- Rivalry on Differentiation: Competing to offer unique product features and benefits.
- Rivalry on Quality: Competing to provide the highest quality products or services.
12. Monopoly vs. Blue Ocean
The core difference lies in market control and entry barriers:
- Monopoly: A single company dominates the market, controlling prices, supply, and often actively preventing new competitors from entering (through barriers to entry or aggressive tactics).
- Blue Ocean: A company creates a new, uncontested market space through differentiation. While there’s initially no competition, *other companies can enter* this new market. A blue ocean *doesn’t* have the power to prevent entry like a monopoly.