Creating New MarketsCreating New Markets

Prof. Markus Christen

INSEAD SingaporeMay/June 2007

Prof. Markus Christen

INSEAD SingaporeMay/June 2007

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 2

Case: Digital Video Recorders

Why have sales of DVRs in general and of TiVo in particular been well below forecasts in spite of the general excitement among industry experts and the raving reviews from users?

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 3

Change Process: Diffusion of Innovations

Adoption• Buying or using the innovative product/service (e.g., a portable land-line

telephone) for the first time.

Diffusion• Spread of adoption throughout market to a “ceiling” level (saturation), a

market limit.• Sales = diffusion (first purchases), followed by replacement sales (upgrades,

downgrades) and multiple purchases.

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 4

5

13

0

10

1950 1955 1960 1965 1970

U.S.A

U.K.Germany

0

50

100

150

1946 1950 1955 1960 1965 1970

U.S.A.U.K.

Germany

Percentage of households owning television sets

Source: Warren J. Keagan, Multinational Marketing Management, 2nd ed.

Example: Diffusion Curves for TV Sets

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 5

Rogers Model of New Product Diffusion

Source: Rogers, E M (1983). Diffusion of Innovations (3rd edition). London: The Free Press.

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 6

Bass Model of New Product Adoption

Number of new adopters per year (St) = p(m – N(t)) + q(N(t) – N(t)²/m)

• p = coefficient of innovation (buying without external influence); S0 = pm

• q = coefficient of imitation or contagion (buying because of interpersonal influence)• N(t) = number of adopters so far• m = number of ultimate adopters (market potential)

Source: Bass, F M (1969). A new product growth model for consumer durables. Management Science, 15, 5, 215-227.

Epidemiology principle:

- Imitation boosts adoption until it is

slowed by the reduction in the number

of non-adopters left.-Only for adoption of durable (no repeat

purchase)-p, q, m found by analogy or by fitting

initial sales (need to be after inflexion

point)

Years

Yearly number of adoptions

Adoptions due to imitation

Adoptions due to innovation

pm

Total number of adoptions

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 7

Example of Negative Imitation

Working-classfamilies

Upper-classfamilies

% o

f N

ewbo

rn C

hild

ren

Nam

ed A

ntho

ny in

Fra

nce

When too many working-class families adopted the name

“Anthony”, upper-class families stopped adopting it.

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 8

Benefits versus Costs of Innovations

BehavioralChange

ProductBenefits

Low

Low

High

High

† Long Haul

Tinkering Home Run

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 9

Positioning New Products: What Is It?

WHY?WHY?

Why should I buy your product rather than a competitor’s product?

value proposition

WHAT?WHAT?

What is it?

categorypositioning

WHEN?WHEN?When should it

be used?

applicationpositioning

WHO?WHO?

Who is using it?

userpositioning

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 10

Speed and Success of Adoption

A – Advantage over existing products

C – Compatible with existing ‘operations’

C – Complexity of product

O – Observability of product usage

R – Riskiness of product usage

D – Divisibility of product

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 11

What Can Go Wrong?

Nobody believes in innovation• “Heavier-than-air flying machines are impossible.”

(Lord Kelvin, 1895)

• “Everything that can be invented has been invented.” (Charles H. Duell, US Office of Patents, 1899)

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 12

What Can Go Wrong?

Firms do not see the market potential• “The wireless music box has no imaginable commercial value. Who would

pay for a message sent to nobody in particular?” (David Sarnoff’s associates, in response to his urgings for investment in the radio in the 1920’s)

• “I think there is a world market for maybe five computers.”(Tom Watson, IBM, 1943)

• “There is no reason for any individuals to have a computer in their home.” (Ken Olsen, Digital, 1977)

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 13

What Can Go Wrong?

Customers don’t understand the benefits• “Airplanes are interesting toys but of no military value.”

(Marshal Foch)

• “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” (Western Union, Internal Memo, 1876)

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 14

What Can Go Wrong?

Companies don’t understand what it takes to create a new market• Does the product have the right attributes and does it address a real need?• Can people easily understand what the product is and how it creates value?• Is the marketing effort targeted at the right people?• Who are the people for whom the product creates the most value and who

can readily understand the value?• Are the benefits big enough to compensate for the cost of change?• Can you benefit from your effort to create a new market?

Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 10 - 15

Rule 14: Market Creation

Successful market creationrequires

finding or creating innovators.