A Strategy for Opening a New Market and Encroaching on the Lower End of the Existing Market

Abstract

We build on the frameworks of Schmidt and Porteus (2000) and Schmidt and Druehl (2005), which describe alternate ways in which a new product might open a new market and ultimately encroach on an existing market. In the current paper we identify and analyze the scenario where a firm first opens up what we call a "detached" market, by offering a new product that meets a customer need that is very different from (i.e., detached from) the need met by the old established product. For example, cell phones opened up a new market by meeting the customer need for mobility; a need very different from the traditional attribute of reception quality. By meeting an important detached need, a new product can sell at a high price, even though it might be woefully deficient with regard to the traditional performance dimension (the reception / coverage of early cell phones was sorely lacking). A person who is a high-end customer for the old product initially despises the new product as a replacement for the old one, but might simultaneously be one of the first customers for the new product because it fills the detached-market need. Over time, the new product improves along the traditional dimension (e.g., cell-phone reception / coverage has dramatically improved) and eventually it becomes a replacement for the old product, but encroaches from the lower end upward (the first customers to drop their land lines have been lower-end customers such as students and apartment dwellers, while higher-end business customers still have land lines in their offices). We call this the detached-market form of low-end encroachment, and show how it helps explain the conundrum of an expensive "disruptive" innovation. We go on to relate our results to the finding that "willingness to cannibalize" is a key factor in an incumbent firm's growth and survival, and to the "blue ocean strategy."

Context-Dependent Preferences and Innovation Strategy

“…However, unlike our paper, in their paper technological improvement is exogenous and firms only choose their output levels. Finally, by modeling the heterogeneity in consumers' preferences for different product attributes and using data from a phone market, Druehl and Schmidt (2008) paper, technology progress is exogenous and firms only make their pricing decisions.…”

Applying the Disruptive Innovation Framework to the Silver Market

“…In a way, this idea is similar to Schmidt's (2004) high-end encroachment with the difference being that the innovation is disruptive rather than sustaining. But Druehl and Schmidt (2008) show that disruptive innovations come in multiple forms, with the more conventional-low-price-form being described as fringemarket low-end encroachment and the other form-with an initially higher pricebeing described as detached-market low-end encroachment. This latter form is an important amendment to Christensen's (1997Christensen's ( , 2006 framework, which originally emphasized inexpensiveness as an important feature (see also Adner 2002) and thus could not account for empirically observed cases of disruptive innovations with a high price.…”

Fatores determinantes da inovação disruptiva

“…Mais importante é a cultura organizacional que torna os gestores favoráveis, ou não, à ID (CHRISTENSEN, RAYNOR, 2003). O mercado também é fundamental (YU, HANG, 2010), pois importam o baixo mercado, o novo mercado, o mercado destacado e o alto mercado (DRUEHL, SCHMIDT, 2008). Para atendê-los com disrupção, além de novos métodos de P&D (WAN et al, 2015), têm-se as estratégias tecnológicas e de negócio: miniaturização, simplificação, agregação de valor e exploração de outra aplicação (YU, HANG, 2011).…”

“…A confirmação é de que existem inovações disruptoras que diferem da definição clássica, como na invasão pelo mercado destacado (DRUEHL & SCHMIDT, 2008). Mas não está claro se ela ocorre somente com o completo desalojamento das firmas estabelecidas.…”