How to Create a Brand-new Market
Whenever a new business launches a product or a service, it can either enter an existing market or create a new one. The conventional and perhaps easier option is to develop products for an existing market, but there are plenty of lucrative benefits to creating a brand-new market instead.
This guide will examine 1) the benefits of creating a new market. We’ll also discuss the 2) six different ways of finding new market spaces and provide you 3) tips on launching a product in a new market.
WHY SHOULD YOU CREATE A NEW MARKET?
Before we start looking at ways to create a new market, it’s important to analyze the advantage of this approach for businesses.
Creating a completely new market means you are the first mover, the world is yours. That can have its benefits to a business. Thinking outside the box shouldn’t be something a business should shy away from.
The potential benefits of being able to create a brand-new market are impressive. Your business would be the first one to enter the market, which can provide it with a competitive advantage for years to come. Customers will learn to trust you as the “industry’s first”.
You can understand the pay off through the example of companies such as Netflix. The company, which started out, as a service to rent DVDs for a monthly fee, has been able to maintain its leadership position, even as the service it provides has changed from the original concept.
If you manage to respond to a clear customer need with the product or service, while creating market entry barriers for potential competitors, you can dominate the market well into the future. It’s hard to see Netflix could lose its position to a competitor, without the competitor operating in a completely new market.
In addition, the strategic thinking is different when it comes to breaking into an existing market vs. creating a new one.
If you are establishing a new market, you aren’t focused on competing with existing players. Instead, your strategy is focusing on dominating the entire market from the early beginnings.
On the other hand, if you are trying to enter an existing market, the focus is often simply on improving the product or service either through quality or functional improvements, or by targeting the cost aspect of the product. In other words, you are relying on pre-existing conventional wisdom of the market and the industry. Unfortunately, this can lead to competitive convergence.
But when you are creating a new market, you are completely focused on creating a product or a service that provides real value to a customer. You aren’t developing the business idea within existing boundaries, but instead look to pursue real value innovation.
Innovation can help in attracting consumers and exciting them with a new way of doing things. Consider the example of Home Depot in North America. The company managed to create a new market for DIY enthusiasts simply by looking outside of the traditional hardware store model.
A great lecture on how to create a new market for your business.
6 KEY AREAS TO FOCUS ON WHEN TRYING TO CREATE A NEW MARKET
You should keep in mind six focus areas that can give you an idea how to create a new market.
Examine substitute industries
One of the quickest ways to create a new market is by examining substitute industries. This means creating a product within an existing industry, but which acts as a substitute of the main product.
There are plenty of examples in the world of substitute industries.
Think about butter and margarine, for example. Although the use of the product is the same, margarine created a completely new market. It substituted the use of butter, without destroying the butter market. Both groups still exist and there are different reasons for buying either product. When a buyer enters the shop to get spread for bread, they’ll make decisions based on the benefits and downsides of either option.
Businesses tend to have a vertical mindset, where one industry is separate from another. But you can easily disrupt this thinking by examining substitute industries.
Examine strategic groups within an industry
You can also find new market space by examining strategic groups within an industry.
A strategic group is a collection of companies within any specific industry, which use a similar strategy. Most industries have these strategic groups and they are typically ranked in a hierarchical nature. The hierarchy is often based on two dimensions: price and performance.
Companies are generally focused on improving their position within a strategic group, either by focusing on price or performance. But if you want to create a new market space across existing strategic groups, you can do so by analyzing buyer decisions. What are the factors that make a buyer trade up or down within these groups?
The fashion industry is a great example of an industry with strategic groups. You often have the higher priced haute couture brands grouped at the top, with lower-priced, yet higher volume brands below them. If you’d like to create a new market, you would have to look at the consumer trade off from moving from the haute couture market to the mass-produced fashion market.
In the case of fashion, the answer is often based on the emotional value of the haute couture item. Consumers want an exclusive piece of clothing to stand out from the crowd.
Hence, if a company wants to create a new market, it will have to analyze if there is a niche for a product that is not yet offered within the strategic group. That might be a product of superior quality compared to the competitors, or a product at a lower price.
Identify a new buyer group
Products and services tend to be designed with the target consumer in mind, but there are many products where there is no direct link from seller to buyer. Instead, there tends to be a chain of buyer groups, each making decision in a different way.
Consider you are selling printers to offices. The end user of the product might be the corporate worker, but the product is not bought directly by the user. Instead, corporate buyers or the middle management is in charge. But the quality corporate buyers are looking for can differ from what the worker wants. The company is most likely looking for a long-lasting and affordable supplier, whereas the worker wants an easy to use and quick printer. The buyer groups have therefore different definitions of value.
This typically leads to companies targeting a specific buyer group and targeting their value definition of the product. By challenging the industry’s conventional wisdom of the target group within a chain, you can create a new market. You’ll redefine the value proposition of the product.
For example, pharmaceutical companies tend to focus on the influencer group, i.e. the doctors. They design products that appeal to doctors, instead of focusing on the user of the drugs. By turning the focus from doctors to patients, you could change the product or service design and open a door to a new market.
Add complementary products or services
Quite a few services and products in this world are not used on their own – they don’t exist in a vacuum. In order to use a specific product or service, you often need to take advantage of another one.
For example, consider going on a holiday as a pet owner. In order to enjoy your weekend in the sun, you’ll also need a service to look after the cat. The ease of finding someone to look after your cat, not to mention the cost of it, can influence the value you place on going on the holiday.
But the tourism industry doesn’t think about this – you don’t get a free pet care when you buy a holiday. But perhaps the industry should consider this, as the demand for the holiday might be less because people can’t find good and affordable care for their pets.
There is plenty of value to be found by including a complementary product or a service to a service or product that is already being provided. In fact, it can create a completely new market space within the industry.
Take for example French Fries and tomato ketchup. Would you want to eat French Fries without ketchup?
Rethink the functional-emotional orientation
When it comes to competition, different industries compete on different types of appeal.
You have the conventional industries that often base competition on price and function. The calculations are based on the utility of the product, with products and services appealing to people because of rational reasoning.
On the other hand, certain industries compete on consumer feelings. The competition is based on the emotional value of the product or service.
But in reality, consumers don’t necessarily feel compelled to go after a certain product or service solely because of either type of reasoning.
Decisions aren’t intrinsically rational or emotional. Yet, because companies are focused on treating customer expectations in either two ways, consumers tend to start thinking this way.
But you could re-think this orientation and instead of focusing simply on the emotional appeal, provide functionality in a different manner or vice versa.
Consider the example of Starbucks. The company turned a functional product, coffee, into an emotional experience. The coffee shops turned into chic places to hang out before, during and after work. Instead of considering the price rationally, consumers are prepared to pay more for a simple cup of coffee, as long as they can enjoy it in a Starbucks cafe.
Leverage external trends
Each industry is subject to external trends, which are constantly changing. Companies have to adapt to these changes and they’ve begun focusing on ways to protect the product or service. They are trying to predict the trends and develop the products in a way that keeps up with these shifting moods.
But instead of trying to keep up with the trends, you can find new markets by looking across these trends. Instead of adapting to trends, you should try to participate in shaping these trends over time.
This type of consideration can take place across different industries and it’s especially important in today’s high-technology world. For example, instead of waiting where the 3D printing will eventually evolve, you could look deeper into what shapes consumer valuations in this field and adopt products and services that support these coming consumer needs.
Finally, check out the video by Damir Perge, the founder of entrepreneurdex, on building a new market:
5 ESSENTIAL POINTS TO KEEP IN MIND WHEN LAUNCHING A NEW PRODUCT
The above six examples highlight the different ways companies can figure out new markets.
Whilst the opportunities in creating new markets tend to be fruitful, you still need to be mindful about the dangers that could lie ahead.
Before you launch a new product with the mindset of creating a new market, consider these five points.
Organize a unique team
If you hope to create a brand-new market, you need a solid and supportive team behind you. Creating a market is much harder than launching a product into an existing market – you need a team that understands the challenges.
But instead of going after a team of “innovative wildlings”, you should create a balance between thinking outside the box and rational, consumer-focused thinking.
The team should be able to innovate and consider an approach no one has thought of before, but keep a cool head whilst doing so. Not all ideas are worth the time and effort. After all, consumers are looking for value – whatever it turns out to be.
Communicate your message clearly
The key to cracking a new market is finding the right message. You are creating something new and consumers must be able to understand the “why” behind this idea. Essentially, you are trying to sell a product or service to solve a problem people didn’t know they had. If they did, there’d already be a market for it.
Therefore, communication of this message is key to success. You need to make people understand that they have a certain problem and how your product or service is the solution.
You aren’t necessarily selling an idea, but educating people over an issue. But you can’t do it in a patronizing or forceful manner. You need to make a problem seem essentially appealing in order to sell the solution.
Understand your future competition
You are entering the market as the first player, but if you are successful, other businesses will try to follow. Although you don’t need to worry about competition immediately, you need to understand the competition you are going to face in the future.
What are the companies that might follow you into the new market? You can understand it by examining your product or service and asking yourself:
- What are customers looking for with the product or service?
- What are some of the weaknesses your company has, which potential competitors can use as an advantage?
- What are the market entry barriers?
Consider the way you can control or prevent new entrants to the market. Perhaps you can limit their impact by patenting your products. You might be able to limit the available market space by scaling up your products from the start.
It’s important to understand future competition. You can’t be naive about it; first movers don’t always maintain a competitive advantage. Google, for example, wasn’t the first search engine, yet it became the dominant one by offering a better product than others.
Leverage investor support
As mentioned above, you shouldn’t be naive about the success you’ll have, especially when it comes to investor support. You shouldn’t approach investors with the mindset that you’re about to create a huge market and millions are going to pour in to buy your products. Obtaining a large budget isn’t necessarily going to guarantee success.
This doesn’t mean you should turn down potential investors. You do need investment and you shouldn’t shy away from explaining your vision and goal. But you need to ensure you find the right investors and innovators.
Creating a network of support is important and the main focus should be on attracting people who trust you as the industry leader, but who also keep your feet on the ground.
Create unique marketing channels
Since the focus should be on getting the message across to consumers, marketing plays a crucial role behind the success. Companies looking to create a new market should understand the value of flexible and unique marketing channels.
Don’t rely solely on traditional channels, as these can be expensive and difficult for outlining the message. For instance, mobile and online marketing are cost effective ways to reach audiences and to explain the vision clearly.
You should embrace and target channels and people who are interested in your message. This means targeting:
- Retailers which are excited (whether it is chains or boutiques)
- Influencers such as bloggers – identify the people who could as the influencers within the market.
- Customers who are passionate about the product – encourage social media sharing and allow consumers to share the message.
Creating a new market will take time. Therefore, you must be focused on building up the movement from the bottom up. This means priming the market even before you have started to create the buzz around the product.