- What is a market?
- What is a new market?
- Dynamics of new markets
- Technology & new markets
- Colonisers & Consolidators
- Colonisation to consolidation
- When to enter new markets?
A market is a system, place, or environment where buyers & sellers interact to exchange goods, services, or information, typically in exchange for money. Markets can be categorised in several ways;
By Type of Product/Service
- Consumer market: Focuses on goods & services for individual consumers (e.g., retail, electronics)
- Business-to-Business (B2B) Market: Transactions between businesses (e.g., raw materials, software solutions)
- Financial market: Trading of assets like stocks, bonds, or currencies
- Local market: Limited to a specific city or region
- National market: Covers an entire country
- Global market: Operates across multiple countries & economies
- Monopoly: A single seller dominates the market
- Oligopoly: A few large firms control the market
- Perfect competition: Many sellers offering similar products
Markets evolve over time due to changes in consumer behaviour, technology, & regulations. A new market refers to an untapped or emerging segment of customers, industries, or geographic regions where a company can introduce its products or services. This can occur in several ways, including:
- Geographical expansion: Entering a new country, city, or region where a product or service was not previously available
- Innovation driven markets: Creating demand for a completely new product or service that did not exist before (e.g., the smartphone industry in the early 2000s)
- Repositioning existing/current products: Finding new use cases or customer segments for an existing product (e.g., baking soda being marketed as a cleaning agent)
- Disrupting established industries: Introducing a new business model or technology that changes consumer behaviour (e.g., streaming services replacing traditional cable TV)
The most important point to know about new radical markets is that these are rarely created because of demand or customer needs. Instead, they get created in a haphazard manner when a new technology gets pushed on to the market. This simple fact has serious implications for businesses
- For supply push markets, the initial competitive battlefield is as likely to be in a scientific laboratory as in any particular market; it is likely to take place among those who are more interested in the new technology than in the kinds of markets it may create & most of the action is likely to be missed by those who are thinking about markets but know little about the new technology
- When the new innovation emerges, it typically does so in a market niche somewhere. Most of the innovations created by supply push innovations either fail or stay forever as niches & thus in the eyes of their champions, fail!
- However a few of these niches suddenly begin to grow rapidly & ultimately come to form a mass market of their own, one that displaces one or more previously well established markets
- To label them radical or disruptive is to acknowledge both the destruction that they create, as well as the surprise that this destruction causes almost every sensible person on either side of the new market
From new technologies to new markets
A market is a place where a good or service is traded. One way to think about it is to say that a market is basically a profitable business design i.e. it is a production & distribution process that produces a product at a certain cost & a set of customers who are willing to buy the product at a price not too far above that cost
- At the base of such a business design is product design
- The product design that gains widespread acceptance among producers & consumers & comes to define the market is termed as a ‘dominant’ design
- The process by this which happens is complex & hard to predict but it has many of the features of a bandwagon: early success tends to build on later success, if only because consumers tend to convert others, spreading the ‘good news’ by word of mouth
- The dominant design typically emerges after a long period of experimentation & tends to persist for long periods of time
There are two major players in this process
- Colonisers, who arrive early in the market & help to explore & develop new innovation &
- Consolidators, whose championship of a dominant design establishes & grows the new nascent market
- Paradoxically enough, consolidators are the firms who typically enjoy first mover advantages
- More interestingly, very few firms ever manage to act, both a coloniser & also as a consolidator in the same market
Colonisers & Consolidators
Despite a wealth of ideas & advice on how big established companies could radically innovate in their businesses, it is very rare to find a big established company among the radical innovators. Most radical innovations that create new-to-the-world markets seem to originate from start-up firms
- The issue is not that established firms do not agree with these ideas or do not want to adopt them. On the contrary, they will find recommendations to change their culture & encourage experimentation or making their strategy process more democratic, constructive & useful
- But despite all these they will not succeed in adopting these attitudes & cultures. This is because they already have a set of skills & attitudes that they need to succeed in their existing businesses. This set of skills makes them good at exploitation & consolidation, which is exactly what they need to do in their mature businesses
- Therefore established businesses will find it difficult or rather impossible to adopt a set of skills & attitudes that will make them good colonisers
The skills & attitudes needed for colonisation are difficult to coexist with the skills & attitudes needed for consolidation – they often conflict with each other
- Attempting to bring on board the skills of colonisation will most likely create a reaction from the organisation. The organisations antibodies will go to work & the new skills & attitudes will be rejected as unwanted foreign organs
- However, they do possess skills, mindsets & attitudes which are ideal for taking the new market niches developed by colonisers & consolidate them by scaling them up in to mass markets
From Colonisation to Consolidation
Established firms do not have to consolidate all by themselves. They could do this in a variety of ways; acquire the pioneers, license their product designs & technology, have a joint venture etc. Once an established firm acquires the necessary technology or product design, they can put their existing skills to use to scale up the market
Even though these are viable options for an established firm, introducing their own version of the product or technology is probably the best strategy for two reasons
- 1st, it is simpler than an acquisition, joint venture or licensing &
- 2nd, they can design their product in such a way that it makes it easier & cheaper to scale up
Scaling up is partly about getting the product design right to exploit economies of scale. Whatever options are used to acquire the technology, established firms must focus their attention on the scaling up, as half of innovation
Scaling up a market is also an important activity that requires creativity & innovation. It is also the area where established firms have an advantage over early movers & pioneers because they happen to have the requisite skills & competences to convert niche markets into mass markets
It is important to emphasise that this is what consolidators do; such as entering the market at the right time, standardising the product, cutting prices, scaling up production, creating & exploiting networks, spending money on advertising & marketing etc are exactly the kinds of things what? is popularly known as ‘first mover advantages’
By doing these things, consolidators create buyer loyalty, get pre-emptive control of scarce assets, go down the learning curve, create brands & reputation & enjoy the benefits of economies of scale, all of which give them first over advantages over potential new entrants.
Thus even though pioneers are chronologically first in to the market, consolidators are the real first movers – they are first to the market that counts: the mass market!
When to enter new markets?
- Being first is always a smart strategy when the benefits far outweigh the cost
- However, being first is costly & also risky
- It is important to be sure that any value created can be captured
- It is rare that first movers are able to capture much in the way of first mover advantages in new markets
- This article is excerpted from my Master’s thesis; “Impact of digital technologies in the Media & Entertainment industry”, as a Sloan Fellow at the London Business School
- Most of my predictions about the M&E industry have turned out to be true. Some are yet to happen. However, given the way things are moving, it is just a matter of time before the rest fall in line
- One section in my thesis dealt with the concept of Reserving the right to play in disruptive environments, which is summarised here. Hope it is useful for those who are working on & investing in disruptive technologies & markets, as a coloniser or a consolidator
