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business
growth
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New
Markets via the
Customer
Business & Economic Review
Many executives want to build a path to
higher margins and rapid growth by
creating new markets and then dominating
them . What stops us is the
unpredictability of the new markets. If
you go to create a new market, by
definition you do not know what will sell.
It's a new market, you cannot know exactly
who fits into it. You can't successfully
predict what will take you to dominance.
The temptation is to deal with not knowing
what to sell by returning to the known -
developing and selling the technology or
product that you control and
understand.
Moving beyond that is risky. Your best
people can bet your business, but that is
what it is - a gamble. So how do you hedge
your bet? One way is to spur each new
customer to redefine your product as they
use it. Encourage users to tailor the
product to their own use, even if you have
no idea what that use is.
This runs counter to most product and
technology development efforts, with good
reason. When you know a market, you can
use that knowledge to invest in long term
strategies to deploy technologies that
will not cover their costs for years or
decades. However, when you do this, you
become defined by your previous expertise,
a limitation in a new market. Working from
core competencies is useful when you want
to expand your position in competitive
markets, but the past may hamper your
growth into new businesses.
Looking at new markets often means
changing the management team's focus. The
internal focus is critical for sustainable
success in competitive markets, but the
external focus is what you need for new
ones.
Advancing technology does not create new
markets, they merely help deliver them. In
new markets you can do better by
downplaying technology and letting
individual customers define their
experience for themselves, and for you.
With that capability, you can emulate
America Online, Lego, Thalidomide, the
Polaroid instant camera, and other
products that have dominated new
markets.
2. Products that Let Consumers Define
the Experience
Involving customers to define their own
experience is not the only path to
creating and dominating markets. It has
one major advantage. It works.
There are many differences between an
instant camera and a single lens reflex
camera. Somewhere in that list is the
difference that allowed Edwin Land's
product to open a new market and then
dominate consumer photography for
decades.
There are many differences between a Palm
handheld PDA and the Microsoft-based CE
products made by Compaq, Hewlett-Packard,
and others. Somewhere in that list is the
difference that allows the Palm product
line to open a new market and then outsell
the Windows lines by eight to one .
The two common denominators for Palm
Computing and the instant camera are:
1 - The degree to which the suppliers have
encouraged the user to dictate the way the
product operates. The user can, in each
case, simply and easily adapt the product
to individual needs that the supplier
never considered. Just as important, that
adaptation delivers instant gratification.
You can make meaningful changes and see
them occur.
2 - The ease of use. These products used
advanced technologies, but did not ask the
users to master that sophistication.
Consider America Online (AOL) as an
example of the second point. Their behind
the scenes technology is very
sophisticated and complicated. That
complexity is invisible to the member.
Instead, the product presents an
easy-to-use interface that allows each
user to define how AOL works for him or
her self. AOL offers My AOL, My Files,
custom channels, "You've Got Pictures, "
control over what materials can be
downloaded from the Internet, and so on.
The member decides each change. Each
member can have his or her own
"appearance."
Land's camera introduced the ultimate in
self tailoring. You'd take a picture, and
if you did not like it, you could do it
again right away. The person holding the
camera had control and immediate
satisfaction. Today professional
photographers still use instant cameras to
show clients how the final shot will look.
They set up the expensive, slow, and
delayed gratification equipment and then
take a few instant shots. If the instant
shots show a problem, they adapt
immediately.
Land's Camera uses the same involvement
strategy as Lego's plastic bricks. When a
child (of any age) creates with Lego
blocks, he or she is self tailoring the
experience. And children of all ages do
so. Lego believes that half the sales of
Lego's Mindstorm products in 1999 were to
adults who used it themselves. The annual
Lego imagination contest was opened up to
adults in 1999. XXX adults entered . The
company boasts that it has made
thirty-three Lego bricks for each person
alive in the world. Much of that growth
comes from the ability of each user to
create his or her own experience with the
basic product. Lego has done quite well at
creating and dominating a market.
This ability to let the user define the
experience was intentionally built into
the instant camera and the Lego block, but
sometimes it appears by accident. After
the FDA refused to allow it's use in
pregnant women, Thalidomide sales
plummeted. In the 1990s, however, a group
of patients with HIV disease started
taking it to alleviate disabling symptoms.
This unauthorized use (called off-label)
eventually resulted in a new authorization
for an old pharmaceutical, a new market .
It came about because the consumers
adapted the compound to their needs. An
accident, but a very pleasant one for the
patients and Celgene. However, customer
involvement does not need to happen by
chance. You can build it in.
4. Building Involvement Into
Products
The right time to build customer
involvement into your plans is when you
are beginning to think about products for
a new market. Changing a product line to
add involvement tools is even very
expensive in time and people as well as
money. In existing markets, the tools are
hard to add.
However, involvement tools are both
inexpensive to supply and easy to manage
if you build them into the product from
the beginning. As you define your market,
you can define your product to be customer
involving like Lego or America Online.
The same kind of programmability can be
added to other markets. For example, today
car manufacturers will sell a model with
sound and electronics system designed to
meet the market requirements of a large
segment. The sound system offers minimal
adaptability, perhaps adding an equalizer.
The assumption remains that the consumer
chooses the car and then goes to
aftermarket suppliers to tailor the
electronics.
Today, however, we have the electronics
and software capability to let the user
participate in tailoring the car as he or
she drives it. If a user prefers to drink
coffee and listen to the news in the
morning and smoke and listen to soft jazz
in the afternoon, why not adapt? There is
no reason that a car could not have the
ability to tune the radio to National
Public Radio. The car could shunt power to
heat a coffee cup holder in the morning.
It is not a far stretch of imagination to
ask a car to learn how long the driver
takes to smoke a cigarette. With that
information, the car could shunt cooled
air to the cup holder for the soft drink,
tune into an Internet jazz station and
open the ashtray at an appropriate
time.
This scenario is not technologically
innovative. The difference is a
fundamental design decision to let the car
tailor itself to the user. Adding self
tailoring to products is not an
engineering or marketing decision. It is a
management choice.
The experiences that these products create
are not defined in advance by focus groups
or customer marketing. Customers define
them, at random, and then you can measure
the results. It is highly iterative, a
true benefit when you are trying to create
and dominate a market. The faster you
learn how people are using your product,
the faster you can react to an opportunity
like Thalidomide being used off label.
That allows you to adapt to the new
market, and gives you a better chance of
becoming the primary vendor.
One of the odd side effects we get from
the miniaturization of electronics is that
you can put a processor in almost any
product that sells for more than a dollar.
With the vastly reduced cost of chips (and
gates per chip) almost any product can add
customer involvement at an almost trivial
cost per unit for hardware.
If your product can use this processing
power to become adaptive to users, it will
have the opportunity to create its own
markets and applications. Dozens of VCRs
are on the market, but none (yet) use
processing to learn users' habits and
adapt to them. Electronic pill bottles are
a research item at this writing, but the
potential is there to offer a product that
will learn a patient's needs and help them
remember to take medicine.
Given how inventive users are, you can be
sure that some will find applications that
you did not consider. If people use Palm
devices to unlock cars, they will find
something you did not consider for a VCR.
Look at what you are considering for the
new market and then at the very low cost
of processing power. Ask if you could use
that power to make your product adaptive.
Can you let your customer create the
change that he or she wants, and get
instant gratification?
These tools also affect development and
support costs. When the customer
involvement tools are well-designed you
they can let the customer develop new
products and uses. Celgene did not invest
in the application of Thalidomide to HIV
until the patients proved the potential.
Lego's customers show the company many
product innovations that will sell.
When you build the experience defining
tools into your product, those changes can
replace some field maintenance changes.
You need not dispatch support for changes
if the customer makes the changes as he or
she sees fit.
For instance, when AOL's users decide that
they want to change their online channels,
it costs AOL nothing. No staff members
have to act, no one creates product
requirement documents, no analysis is
conducted, and AOL staff expends no
resources. The user changes the channels
that he or she wants to use from his or
her screen. Both the user and America
Online benefit.
Success in creating markets often comes
from making advanced technology invisible.
If the user has to invest time in learning
how to tailor the product, it will detract
from the experience of using it. The
creativity and learning that Lego blocks
engender does not come from reading the
instructions or learning how to use them.
It comes from letting each user use and
adapt them as he or she sees fit. In
creating new markets, elegance in
technology comes from how the user sees
it, not the designer.
Existing markets are easier to get into
than new ones - all the pioneering work
has been done by others. But entrance does
not mean growth. Resource constraints
apply; your business will never be enough
time, people, or money to grow rapidly and
sustainably without careful decisions.
This different emphasis (market over
product) means that customers will play a
different role in your growth. That role
starts with letting customers define the
experience that they get from your
product. In this model you don't generate
a great product and let them come. You
generate a good product and let them adapt
it.
Something else happens when your business
focuses on the customer experience. You
divert the customer's attention from price
to effect. If they like the effect, it can
drive sales independently of price. This
allows your margins to improve. Companies
that have recognized this have used it to
fund growth.
Designing user involvement into your
products is not hard. It can pay off in
eliminating price resistance and making
your product the one that everyone wants.
After all, who would not choose the option
created just for you?
6. Sidebar - Technology Isn't
Effect
The technology you use in your product is
not what creates a new market. You may
find it a distraction. While technology
may be very attractive to us and to the
financial markets, many companies that
have created and dominated new markets
lead with boring, safe technologies. AOL
is considered light years behind other
services by the digital cognoscenti. Palm
products are far from cutting edge
computers. Most Lego products do not
involve computers. The Land camera never
produced cutting edge pictures. However,
each used innovative technologies to
appear and operate simply. None are cool,
but all are highly successful at creating
and dominating markets.
The lesson is not that dumb downed
products are better. The key point to
remember is that simple and easy-to-use
interfaces will outsell creeping elegance
every time. When you invest your resources
into sophistication you don't have them
available to design ease of use. You are
making a choice, like the developers of
the Newton did. It was a great device, but
the Palm Pilot is the one that is growing.
With limited time, people, and money your
choice is to invest into features you want
the market to have versus investing into
features they will use each day. To build
new markets, choose the latter.
Products That Grew Through Customer
Involvement
|
Product
|
Involvement
Strategy
|
|
Lego
|
Promote
creative uses of the bricks with
demonstrations, contests, theme
parks, and software.
|
|
America
Online
|
Encourage
tailoring of ISP to individual
users with My AOL, Parental
Controls, Custom Channels,
Favorites Menus,
Communities.
|
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IBM
360/370 family
|
Promote
principle that corporations could
define each installation to meet
their own needs through tailored
programming.
|
|
Polaroid
Camera
|
Support
ability to design own picture and
revise it as often as wanted, and
still get instant
results.
|
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Palm
Handheld Computers
|
Make
it easy for users and third
parties to create thousands of
applications, making each Palm
product unique to the
user
|
|
Amazon.com,
Webvan.com
|
In
different ways, allow users to
define how the E-commerce vendor
works with them. Users can create
a different way of using the
site, and that view always shows
when they enter.
|
In each of these examples, the customer is
someone more than a person or business
with a checkbook. The customer becomes a
partner in the use of the product, and
perhaps the sale. This creates a unique
relationship
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