Whilst it may be nice to be a pioneer and the first to market with something entirely new, understand that being first is not necessarily the best place to be when it comes to new products. In general, one needs to be mindful of the risks in new enterprise and to understand the special risks involved in being the pioneer.
To begin to understand market risk, and drawing from my article Markets - The biggest risk to new products, we first need to look at the three board categories into which products or services may be segmented, and the issues in trying to understand the value proposition associated with each.
These categories being:
- Industrial/commercial - where the purchaser usually makes an informed purchase decision based on payback
- Consumer - where the purchase decision is made on convenience, or the special benefit of the product (usually communicated in expensive marketing campaigns) or lowest price, such as in the case of "Home Brand" products
- Fashion - where brand is every thing
To delve a little deeper into market risk it is important to consider the degree of novelty or newness represented by the enterprise, as market risk is inextricable linked to novelty, and higher risk is an unfortunate consequence of higher novelty.
It is interesting to represent market risk and novelty in a diagrammatic form as shown below in what may be referred to as a "Market Risk Map"©.
Note the products and the areas into which they fit.
Both the photocopier, and the fax machine for that matter, were great inventions, but both were so revolutionary they had a very slow market acceptance. In fact, the photocopiers took more than ten years to gain widespread market acceptance. As for the fax machine; can you imagine being a salesman trying to sell the first ever fax machine? How hard would that be? Who is the first purchaser of a fax machine actually going to "fax"? Indeed, the market for fax machines was first seeded by the companies making use of them internally in order to generate interest. Similarly, for the now all pervasive internet. Today the internet is an indispensable tool of business and life in general, but before it became popular it was nearly 20 years in gestation.
Even though the above products could be called industrial/commercial, in that they are a great assistance to business, their birth was a long and difficult process and their real value took years to be understood.
Look now at the compact disc, it is both an industrial/commercial as well as consumer product, and although the CD was a real novelty, it was one of the most rapidly taken-up technologies in history. The CD indeed represented a revolution and in some respects is what may be referred to as a "disruptive technology". It contained many inventions, like the laser and the digital signal processing, and was a watershed in the recording industry. So why was it accepted so quickly? The answer lies in marketing. Unlike many truly new ideas, the CD was not sold as a new product, but rather the CD was simply sold as a better vinyl record, or a better way to do something we were already doing. This is classic innovation, and thus to the users, the CD carried little real novelty.
Similarly for the shifting spanner, note where that fits in the Market Risk Map diagram. People can relate to simple tools like spanners. The shifting spanner was simply a much better and more versatile spanner, at a great price. Viola, this was an instant market success, with little or no market risk.
Looking at the top right hand quadrant of the diagram, note the presence of the Rubik's cube. What a great success that product was, but who would have thought so. Indeed if Mr Rubik had asked you for upfront investment money, would you have contributed? Not likely I suggest. However, if Mr Shifting Spanner came knocking at you door, I suggest most people would have correctly seen this as a great investment opportunity.
Change is easier to accept than newness
If you are introducing something new to the market, rather than presenting it as an entirely new contraption, or an entirely new way of doing business, instead see if you can link the launch of the product to something already in the market, and sell your initiative as a better way of doing that. Much like the CD did to the vinyl record, or colour television did for black and white televisions. Indeed, the market is very ready for improvements and innovations - people are always looking for a better way, especially in business.
Just to reinforce this point, ask yourself if you can think of a product or service that has not changed in the past five years. There are few, if any, that one can think of. Even water has undergone a complete rebirth in the past decade. Honey is another product people often cite as having not changed, but how wrong this is. Honey sales have sky-rocketed since honey was repackaged into non-messy squeeze packs. Indeed there are very few products and service that are not being constantly innovated.
Take any product or service and ask yourself, will this be identical in five, ten or maybe twenty years? Of course not, so why wait? Take the initiative and make the change now and be first there with a better widget. This is far less risky than being first with something that is unprecedented.
I believe the message is pretty clear. New unprecedented products and services carry a lot of risk, especially market risk, and good business is about mitigating risk. The best way to achieve this is to build your business by improving already well accepted products. This is classic innovation, a term best defined as "change that adds value".
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