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Marketing Disruptive Innovation
Customers are not interested in disruptive products per se; they're interested in the outcomes those products provide.
"I just saw our software demo," I said to my company's VP of Sales. "I can see how its features will be valuable for our customers." "It's disruptive!" he replied proudly, without enlightening me about what that meant or why it mattered. In fact, any accolades were moot, because the company suffered sustained financial losses, and in the process it churned the VP of Sales, the majority of his sales force, and most of the senior management team. What went wrong? I'll get to that in a moment.
What makes an innovation disruptive, anyway?
An innovation is disruptive when it impacts the hegemony of the market-leading company, companies, or prevailing technologies for a specific market. Among the many examples of disruptive products are digital photography technologies, which replaced photographic film. Netflix upended complacent market leader Blockbuster through an innovative business and logistics model, and forced them to relinquish a significant source of profits from late fee charges. And UPromise offered a unique way of saving for college to a segment of consumers who lacked the resources or discipline to invest regularly in traditional securities.
The term disruptive innovation was introduced by Clayton Christensen in an article entitled Disruptive Technologies: Catching the Wave. Christensen expanded on his idea by describing low-end disruption, in which a technology or a business model enables a less-expensive product version for a price-sensitive segment of a market (e.g., desktop publishing), and new-market disruption, which creates demand in markets untapped by the dominant offerings (e.g., the opportunity UPromise identified).
The magnitude of the disruptive impact resulting from innovation can take many years to develop, and the influence of many of the variables involved is unknown at the time the innovation is introduced. The market consequences from nascent innovations such as iPhone, Linux, and digital media file sharing, are still unknown.
What conditions must be present to create disruption?
Because there are many variables over long timeframes that influence whether a product or service will be disruptive, is it useful or even accurate to proclaim disruption as the Sales VP did? How could he have known about the disruptive outcome before the company sold its first product outside its core market? Is market disruption by itself a worthwhile business or product development objective? Or, does disruption occur as a byproduct of the successful achievement of other business objectives? Are there more fundamental questions that need to be asked, such as do customers care whether a product is disruptive? What relationship do product innovation, market demand, and marketing strategy have with market disruption? Do products that have potential to create market disruption have unique characteristics that require specialized strategies and tactics?
- The market for the product or service is experiencing, or is likely to experience, an increased rate of demand. This demand might be created by social, business, or regulatory change.
- The economic outcomes in providing, acquiring, or adopting the product or service must be significantly better than the prevailing offerings.
- The business model or core technology used for the innovation must be both fundamentally different from the prevailing offerings and sustainable.
Whatever the answers, the Sales VP probably knows now that products and processes by themselves have little capacity for creating meaningful change because they are not disruptive. Strategies enable market disruption, and those strategies include product innovation. Skills play a role as well, and successful managers know that working with potentially disruptive innovations requires the economic insight of Alan Greenspan, the inspirational leadership skills of Martin Luther King, the communication skills of Ronald Reagan, the perseverance of Thomas A. Edison, and the entrepreneurial vision of Steve Jobs. If that sounds like a daunting combination, take solace in the fact that these individuals took risks and failed repeatedly before achieving success.
So what went wrong for the Sales VP and the rest of the company?
Despite its highly innovative supply chain software product and group of bright, seasoned developers and managers, the company couldn't generate enough sales to cover expenses. It had scant market presence or brand recognition. The partner strategy was formulated as an afterthought to the sales program (It's ironic that a company that espoused the concept of value chain had no value chain itself). The product's value to its prospective customers was poorly understood so it could not be communicated. (For example, management encouraged the sales force to forecast gains in the prospect company's stock price based on adopting the company's software!) Compound those problems with high adoption costs along with unproven financial and operational outcomes, and the result was a sure failure when it came to generating sustainable profits.
Most egregious was the company's miscalculation that the economic value achieved in their one successful market-electronics-would extend to other market verticals as well. The reason that assumption was proven wrong can be summed up with one word: Dell. The software company languished in every other market vertical because it incorrectly assumed that the do-or-die supply chain economics that Dell imposed on the electronics industry extended elsewhere.
What are the elements of a successful disruptive strategy?
What are the lessons learned?
- An understanding of the economics of the product innovation in the context of the prevailing competitive economics. Companies that have created market disruption have exhibited a keen understanding of the laws of supply and demand. They understand the connections among costs, pricing, adoption rates, and market growth. Questions to ask: Which competitive weaknesses do my business model and cost structure enable me to exploit? How does my prospective customer define economic value and how does my product or service align with the outcomes my customers require? How might the economic variables in my industry change over the planning horizon? What revenue growth rate is required to meet my financial objectives? What key economic assumptions am I making?
- Leadership for facilitating change. Displacement of entrenched competitors-whether they are loved, reviled, or something in between-requires the displacing organization to lead change. In the book Changing Minds (Harvard Business School Press, 2006), Howard Gardner outlines seven levers of change: reason, research, resonance, representational re-descriptions, resources and rewards, real world events, and resistances. These seven levers relate to different ways visions and ideas can be communicated in order for people to be inspired, motivated, and moved to action. Leading change requires appeals at multiple levels: emotional, factual, and symbolic. Questions to ask: What is the most compelling logic for adopting my product or service? What incontrovertible facts will best prove my case? What language or words will most clearly connect with those I want to reach? How do I visually or metaphorically convey my product's (or company's) ideals in a way that will be instantly understood? What tangible rewards and outcomes can I promise and provide in exchange for taking the desired action? What situations and events are taking place today that underscore the advantages of adopting my product? What opinions are contrary to the changes I champion, and how should they be addressed?
- Communication and process pathways that are congruent with how people acquire information and act on related ideas. Effective disruptive strategies are based on an outside-in view of the innovator's organization, which means that communications and sales processes are based on the perspective of how customers buy-not how sellers sell. Many companies struggle because they establish sales and marketing processes based on the resources and competencies they already have, or based on methods they have used-even if those processes don't work. In those scenarios, only serendipity would ensure compatible processes between provider and customer. Most often, however, the resulting sales pathways are disconnected or fragmented. Processes break down and opportunities are lost. Questions to ask: How do my prospective customers acquire, manage, and use information? What steps do they use in the buying process? At each step of the buying process, what conditions must be met for the process to continue? Are the opportunities for interactions I've created valuable to my prospects?
- Providing purchase motivators. Those motivators are based on managing two product attributes: 1) reduced price compared to current offerings, and 2) an expectation of increased benefits-or a combination of the two. Questions to ask: How does my customer perceive, define, and measure economic value? What benefits are most meaningful in the context of the outcomes he or she seeks?
- Reducing adoption barriers. Similar to purchase motivators, reducing adoption barriers has two components: 1) minimizing switching costs, and 2) ensuring availability (synchronizing supply with demand, for those who like buzzwords)-or a combination of the two. Many companies formulate compelling purchase motivators, but fail to consider the huge impact that adoption costs have on purchase decisions. Many great products have failed in markets because adoption economics have favored staying the course, or the new product simply wasn't available at the right time. Questions to ask: How has my company addressed the risk perceptions my prospective customers are likely to have when deciding whether to buy my product? Have we made it possible to provide the product within a timeframe that our customers will require? How easy is it to buy and use our product?
- Demonstrable thought leadership. Thought leadership involves being a champion for the change you wish to see in the world-however that might be defined. It's easier to be known as the market leader because you've said so from the beginning, rather than reminding customers of that fact when the market is saturated. Innovators who seize an early opportunity to become thought leaders can dominate the industry buzz for their product or service, elevate the value their prospects perceive for their product or service, and solidify their role as the innovation pioneer. This connection is valuable for creating brand equity as the market matures, because many innovations eventually become devalued by their ubiquity (the fax machine is a notable exception), particularly after competitors enter the marketplace. Thought leadership can be demonstrated in a variety of ways, including white papers, industry press, and speaking engagements at industry events. Questions to ask: What constitutes leadership in the minds of our target customers? What has my company developed that is meaningful to our universe of prospects? (Is it our technology? The outcomes we provide? The new market demand we've created?) How can we best package and describe what we've created? How does our proprietary advantage extend into new or related capabilities that we can promote over time?
First, market disruption does create value for customers. Before there was disruption in the music industry, consumers had to accept music in the form of complete albums-from artists that record companies wanted to record, in the order they recorded them, on the media they provided, from retail channels they controlled, and at the prices they wanted to charge. Digital technology changed the power in the industry so much that if you told a 16-year-old today what you had to do in 1980 to own (and play) the songs on the Beatles' Abbey Road, he wouldn't believe you. Describing how you managed to play just the songs you liked would make your account sound even more incredible!
But here's the second lesson: customers are not interested in disruptive products per se; they're interested in the outcomes those products provide. Chasing the objective of creating a disruptive technology will almost surely divert management's attention from achievement of more worthwhile goals. Why? Because market disruption is a byproduct of other strategies that are inherently more meaningful to define, measure, and control. Those goals could be achievement of a targeted return on investment, revenue milestones, or a specific customer adoption rate.
is the CEO of Outside Technologies, a sales mangement consultantcy. His
company helps clients generate more revenue through outsourced sales .
For more information on the services offered visit
. Andy can be reached at 703.371.1242
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