Wednesday, November 9, 2011

Creating new market spaces and identifying Indirect competition.

The goal of any firm should eventually be to create value for customers. If a company can manage to create greater value than its competitors, then it already has an edge over them and this would eventually reflect in its market share and revenues. However to do this effectively it is important that the company has a clear broad view of the market and the needs of its customers. This can be achieved by observing and analyzing the current trends in the market in order to identify hidden opportunities and hidden competition. A clear understanding of these basic consumer needs and market forces can help firms to create new market places in the existing competitive industry and provide higher value to the customers.

Let’s take the example of intuit which was in the business of creating software to manage personal finance. When intuit was about to be launched there were 46 such products that were already there in the market or were about to be launched .None of them took off or were even remotely as successful as ‘Quicken’ , the product from Intuit. The key to ‘Quickens’ success lies in how it was conceptualized. When Scott Cook the founder of Intuit was doing his homework before actually writing the code, he realized that the “manage my finance” software industry should be huge as everyone had finances to manage, but it was not. On further analysis he found that his competitors were not the 43 other similar software’s in the market, it was the pencil. People used the pencil to keep a track of their finances as it was much simpler to use. Many of the additional services that the software’s provided were never used by customers but on the contrary made the application bulky and difficult to use. Intuit was able to identify that its greatest competitor was not even in its industry. Scott had realized that people were essentially making tradeoffs by sticking to the pencil and not really buying into the “Manage your finance” software market. This was something the entire industry had overlooked. Intuit was thus able to marry the simplicity and ease of the pencil with its software and created a product which radically change how consumers managed their finances without forcing them to change their ingrained habbits or learning new tools. Intuits product ‘Quicken’ was successful while the other products were not because Intuit did not compete with its traditional competitors but increased value for the customers by creating a new market space, getting a deeper insights into the consumers’ needs and effectively identifying how substitute’s such as the pencil were indirect competitors in the industry.

Southwest airlines were also able to increase its consumer base as they looked at driving as the substitute and indirect competitor and not just competition from other airlines within the industry. They competed for consumers who drove instead of flying and hence created a market space in which they had little competition.It is hence important for firms to look beyond competing head to head either by lowering prices or improving quality. Significant strategic advantage cannot be gained by direct competition but by using innovation to create new market spaces, identifying indirect competition from other industries and increasing value for consumers.The creation of new market spaces is not a one time activity but a work in progress.Even large firms have to create and recreate market spaces in order to stay ahead of their competition.A case in point is sony's Walkman which created a new market space of personal audio player when it came out.The walk man was a huge success and Sony made huge profits from it.However it became complacent and did not gauge the change in consumer needs or technology and ultimately had to kill the Walkman with the advent of the iPod.

I think in this hugely competitive,demand starved market it is necessary for companies to innovate and create new market places. This in my opinion is what will help turn small companies into big enterprises and help big enterprises to maintain their dominance.

by Kailash Pande

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