Do you have a new product you want to show off? Do you know how to introduce a product to the market?
Any market-entry strategy carries its own set of risks and rewards and requires careful planning and execution. Peter F. Drucker presents three options—you can corner a brand-new market, take advantage of another innovator’s mistake, or take over a narrow niche within an existing industry or marketplace.
Let’s explore all the options for introducing a new product to the market.
1. Corner the Market
Creating a new market and cornering it immediately is an audacious yet risky move for innovators who want to know how to introduce a product to the market. Drucker says that this technique, while widely publicized, leaves no room for error and demands flawless execution. This path is also narrow and unforgiving—success depends on careful planning and setting appropriate goals from the outset. Once your innovation yields returns, it’s essential to channel all your resources into sustaining its success, but staying ahead also requires constant innovation at a faster pace than the competitors who’ll be nipping at your heels. The high risk associated with this strategy leads some entrepreneurs to base their tactics around its potential failures.
(Shortform note: Though risky, the advantage of Drucker’s first strategy is that it moves your business into a market where you can operate without competition. In Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne call these markets “blue oceans,” as opposed to “red ocean” markets full of competitors in which every company’s success relies on other businesses’ failures. Kim and Mauborgne’s research shows that successful companies in uncontested markets consistently outperform companies that must actively fight off competition. However, Kim and Mauborgne admit that their numbers don’t show how many “blue ocean” companies fail completely as opposed to their “red ocean” counterparts.)
2. Outfox a Competitor
Drucker says that rather than trying to conquer the world, one savvy innovation strategy is to capitalize on another innovator’s missed opportunities by taking someone else’s innovation and introducing it into a different market, such as retooling a business product for the home use sector. The key to success lies in understanding what customers want better than the original innovator. Unlike trying to corner the market, this strategy is less risky because it operates within an existing market where you can conduct consumer research to find out what the market leader missed. Ultimately, you aren’t creating something new—your innovation is to refine what’s already there and position it correctly by viewing it from a consumer’s perspective.
(Shortform note: Outmaneuvering a competitor in this way can rely more on marketing savvy than technological know-how. The authors of Ten Types of Innovation classify these as perception-related innovations. The tricks to pull this off include finding a better distribution channel for a product, establishing a way to support customers as they use it, retooling the product so that consumers enjoy it more than before, or simply finding a better way to brand it. As Drucker points out, all of these require having a better understanding of the consumer experience than the original innovator that you’re copying.)
A notable example of “outfoxing a competitor” is when Steve Jobs’s Apple Computers usurped one of Xerox’s innovations, which the latter company failed to optimize for the market. Though Drucker praises Xerox’s successful innovations in the world of business products, they famously dropped the ball on their Graphical User Interface (GUI) through which a user can control a computer by pointing and clicking on a screen with a mouse. Xerox developed its GUI interface strictly for high-end, expensive business machines, but Jobs recognized its potential to revolutionize the home computer market, and he used it as the basis for Apple’s groundbreaking Macintosh computer. Xerox’s product, on the other hand, flopped.
(Shortform note: In a corollary to the example above, Bill Gates managed to outfox Apple with Microsoft’s Windows operating system the same way that Apple had done with Xerox. Gates was such a fan of the Macintosh GUI that he petitioned Apple to license it for use on other computer systems. Jobs rejected this idea, preferring to keep his GUI exclusive to the Macintosh, but Apple’s contract with Microsoft licensed Gates to incorporate Apple design elements into Microsoft’s future products. Microsoft came out with its first Windows GUI in 1985, and because it was compatible with virtually all non-Apple home computers, Microsoft Windows completely eclipsed Apple’s share of the home computer market by the mid-1990s.)
3. Monopolize a Niche
As opposed to making a big splash in the general market, Drucker highlights an alternate approach—to dominate a small, specific niche within a larger process or market in a way that renders competition impractical. By creating an innovation or providing a specialized skill that’s integral to another product or process, you effectively make your business indispensable. As long as the market is limited in size, potential competitors can only reduce prices at the expense of their own profits. These niches are rare and can only be discovered through dedicated research, and while they provide security, niche markets come with downsides, such as limited room for growth and a total dependence between your business and the larger market you serve.
(Shortform note: The niche markets Drucker describes are inherently static, but there are many that aren’t. In Crossing the Chasm, Geoffrey Moore recommends a strategy in which you start by occupying a narrow niche market and then building on your niche to reach different markets, growing outward from your original niche core. This approach uses the power of brand recognition and word-of-mouth within one market to open doors to another. In a sense, Moore’s strategy is a way to use Drucker’s “niche monopoly” tactic as a stepping stone to his earlier strategy of cornering a new market entirely.)
One such business that occupied a narrow niche was the Pullman Company that dominated the market for railcar sleeper services in the United States for decades. Pullman designed, built, and owned the sleeper cars that were then leased to railroads, and it also hired and managed the porters and attendants that provided customer service onboard the trains. Because it would have been too expensive for a rail company to provide all of Pullman’s services separately, they had little choice but to use Pullman cars and staff for their sleeper car operations.
(Shortform note: Drucker notes that if you secure a niche monopoly, it’s important not to abuse your position or else you’ll invite competition. Pullman suffered a blow to its public image as early as 1894, when a massive strike by Pullman workers over the issues of wages and living conditions tarnished the company’s reputation and set the stage for its slow decline. In 1943, the US government ended Pullman’s monopoly over the nation’s sleeper cars by forcing it to separate its rail car manufacturing and customer service divisions. Though Pullman had successfully created its own niche via careful innovation, its failure to recognize the fragility of its niche led to the company’s breakup and demise.)
