The Innovators Prescription

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Mills thought about how much he hated to change diapers; it occurred to him that using cellulose fibers instead of paper would vastly improve the performance of the disposable diaper. That involved design and production challenges. The diaper had to be soft enough to be comfortable, yet strong enough not to disintegrate when wet; and the company needed to devise a manufacturing process that would allow it to produce the diaper cheaply enough to attract the average consumer.

The initial test was not successful. Although consumers said they liked the product, it was still too expensive for most. This meant reducing manufacturing costs to around 3 cents, a figure that entailed significant reductions in raw material costs and a more efficient manufacturing process. Pampers was rolled out nationally at a retail price of 5. The U. This is because colonizers, passionate about functionality, often overengineer a product or service, adding features that customers do not need, sinking costs into unnecessary research and development, and missing mass-market price targets.

The story of how Palm conquered the handheld computer market illustrates this point. Apple Computer Inc. Palm Inc. Both products flopped; they had poor handwriting-recognition software, and were expensive, heavy, and overburdened with PC functions such as spreadsheets that slowed their performance. In , Palm was acquired by U.

Robotics, a larger firm with financial and marketing clout. The following year, the company introduced the Palm Pilot. But that proved to be the foundation of its success; whereas the Newton was a sort of junior PC, the Pilot was conceived as an accessory to the PC — an organizer with connectivity.

The Innovator's Prescription: The Art of Scale

By , Palm controlled more than 70 percent of the market for what became known as personal digital assistants, which had subsumed the existing market for portable organizers that had been dominated by Philips, Casio, and others. Get a Bandwagon Rolling Achieving a price that makes the product attractive to the mass market is only part of the challenge. A second priority for consolidators looking to succeed at scaling a market is to create a consumer bandwagon effect that will establish their design as dominant.

Clayton Christensen, D.B.A. -- Transform 2009 - The Innovator's Prescription

There are at least three complementary strategies that history shows are used to bring this about. Alliance strategies can help a design become dominant. Co-opting rivals or potential entrants by licensing them to manufacture according to your specifications might limit short-term profits, but can accelerate the adoption of a common standard or design. As part of this process, JVC kept the product design fluid and provided extensive manufacturing and marketing support to its allies.

Consider the brutish six-year life of quadraphonic sound — the four-channel experience — which was designed to liberate long-suffering music lovers from the confines of stereo. By all accounts, it was clearly superior to stereo sound. Yet it failed to get established. Its first rival was the confusingly labeled QS system championed by Sansui. However, the two systems were incompatible. Forced to make a choice, consumers wisely decided to play it safe and stay with stereo; audio dealers refrained from promoting uncertain systems; and artists refused to record using the new technology.

By , quad was dead, although multichannel surround sound is today becoming dominant thanks to a new product, the DVD. A second way to speed up a consumer bandwagon is simply to engineer a merger with a major rival, and retire a competing design.

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A third way to generate a consumer bandwagon is to use marketing to create the illusion that a design has already become dominant. Hollywood studios do this all the time when they limit the number of screens on which a new release shows, generating crowds at a few theaters. Palm similarly limited the distribution of the original Pilots. Stores began to sell out, creating a reinforcing buzz in the business press about the new product. The story of how Henry Heinz built consumer confidence in canned foods and scaled up this market more than years ago provides a fine illustration of the importance of risk insurance to market consolidation.

To appreciate the challenge he faced, imagine life back in the middle of the 19th century. Most people lived on or near farms and consumed a steady diet of fresh food. Even urban dwellers were used to purchasing food in an unprocessed form in open markets.

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Henry Heinz confronted this challenge with unlikely ammunition: horseradish. In the s, most bottled horseradish was sold in green or brown bottles to disguise its generally low quality. Heinz started out by selling his horseradish in clear bottles, to signal his confidence in it. He also cultivated local grocers and hoteliers and used them to help certify the quality of his product. Soon, the public began to associate high quality with his name, creating a brand that was effectively an insurance policy for consumers. His deepest geographic penetration was in cities, where resistance to nonfresh food was already low and where housewives often had so many demands on their time that economizing food preparation time was a priority.

Moreover, the early products made by Heinz did not compete directly with fresh food but were complements to it. The Heinz saga highlights the importance of developing customer trust in a new product or service, and thus in the entire market segment itself. A brand is the result of this process, which can include broadcast communication, direct communication with the end consumer, and use of credible experts or allies to spread the word. Indeed, the list of tactics in building customer trust is always evolving. The online auction site eBay. Believing that democracy should be the core principle of the company, Mr.

The concept is simple: If we do business together on eBay and if I am happy with the merchandise that you sold me and you are happy with how rapidly I paid you and how I treated you in the e-mail discussion that we had, then we give good feedback on each other for everyone else to see. This serves to enhance our reputations as users.

Too many negative comments and you are banned as an eBay seller forever. The feedback forum is particularly critical for sellers, the vast majority of whom are small retailers or individuals who rely on eBay exclusively. Not every seller on eBay reaches that level; in fact, established companies appear to have the most difficulty meeting the feedback criterion.

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Although eBay relies mainly on buyers and sellers to police themselves, it does investigate fraud claims when required to ensure that confidence and trust in its service is maintained at all times. The company is aware that even a handful of unhappy users could damage its reputation. A fourth tactic by which consolidators scale up a market is to build the distribution that can reach the masses. This might require setting up a new distribution channel from scratch as the auto companies did in the early 20th century.

But most of the time it requires persuading existing channels to accept the new product.

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  8. Achieving acceptance by distributors can be extremely difficult. It usually means the would-be consolidator has to use market power or develop an innovative strategy. Golden Wonder, a Scotland-based division of Imperial Tobacco, used both methods to grow the potato chip market in the U. In the process, it increased its market share from near zero to 40 percent in only 10 years.

    Since more than 75 percent of total sales were made through pubs, all main competitors had set up their distribution systems to supply pubs around the country. Golden Wonder launched its assault on the market in by changing its target consumer, and promoting the potato chip as a nourishing snack for women and children. Heavy investments in advertising were made to transform the image of the product and position it for domestic consumption.

    The company developed competencies for the distribution channel most appropriate for its targeted customers — supermarkets and other retail outlets. The company also invested heavily in a new production technology to improve the quality of the product, drive down costs, and reduce prices.

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    In the period to , sales of potato chips in pubs went from 75 percent of the total to 25 percent; sales in supermarkets and other retail stores grew from 25 percent to 65 percent. Other channels accounted for the remainder. Building up distribution to the mass market is not cheap and becomes even more costly when a market is scaling up. During that period, a market figuratively explodes in size, as buying becomes frenzied and sales skyrocket. Companies aspiring to scale a market must be willing to invest financial and managerial resources in setting up the necessary distribution quickly, for a sale lost at this stage will go to a competitor, and a customer may be lost for life. Alliance strategies may be particularly effective for this task. Support Complementary Products A fifth strategy a firm can use to scale up markets for new products and services is to support the growth of complementary goods. Many goods and services are consumed with other goods and services. Indeed, some products have no value in the absence of such complements. Certainly, the development of an open platform encourages complementary products and services to enter the market. For example, by keeping its design open and encouraging other OEMs to produce that design, JVC quickly established a large customer base for its VCRs, reducing the risk Hollywood studios might have faced in adopting the VHS format for their tapes.