Many successful innovations work because they create a new market. This is, of course, hardly a new point. Chan Kim and Renée Mauborgne of INSEAD have written a whole book about Blue Ocean Strategy as they call it, in which successful companies innovate their value propositions to attract customers who have never engaged with their type of product or service before.
A classic example is the Australian Wine Yellow Tail in the USA market, a case that Kim and Mauborgne document fully in their book. But there's one aspect of that story that I'd like to pick out. Yellow Tail targeted a market of people who traditionally never drank wine.
Wine drinking in the US was regarded as a somewhat middle-class, affluent taste. Ordinary people drank beer or cheap cocktails (think screwdrivers). Yellow Tail, however, figured that these drinkers could like wine, if you made it accessible. And that's what Yellow Tail did, offering just two wines, a Chardonnay and Syrah, palatable for starter drinkers, with rich fruity flavors. The gamble worked and Yellow Tail successfully made wine a working class product.
There's an important lesson here. The best market opportunities are often to be found in the least likely customers. If you want a big profit, go for the marginal users, not the ones all your competitors are chasing as well.
There is a tendency to focus marketing efforts and budgets on the most attractive segments. Based on my consulting experience, many industries have standard attractiveness segmentation schemes, segment A, B, C ... and the "rest" left over. The A customers typically exhibit strong demand, are relatively insensitive to price, and are easy to serve.
By contrast, those left over or marginalized customers typically have limited access to the product or service of the market category due to barriers that inhibit the full expression of their demand. These barriers can be related to distribution, price, cash flow, ease of use/functionalities, education/knowledge, and they are often raised by the tendency of business leaders to focus their value proposition, products and budgets only on attractive, mainstream customer segments.
Here's another example. A few years ago a European leader in the consumer electronics industry was looking for new growth opportunities. Its marketing budget was mainly focused on affluent people who liked being early adopters. Unsurprisingly, its competitors were targeting the same segment, using the traditional tools of fidelity cards ad rice promotions, with the inevitable result that everyone's profit margins suffered.
So the company decided to do something different. It refocused management attention and resources on housewives. These were not typically regarded as sophisticated series, but they did spend a lot of time at home with access to consumer electronics such as DVD players and music centers.
To attract these buyers, the company invested in education. They spent money on providing more in-store information, education and in offering 24-hour post sale technical support and customer service. The change paid off handsomely with an increase of nearly 60% of the new target segment revenues.
The moral: if you want to find your Blue Ocean market, don't go where the pickings look richest. Chase the customers no-one wants instead.
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