Four ways to take on a changing market
During the good old days of technological stability, managers could get away with strategies aimed at predicting how markets develop. However, by 2018 technological disruption has crossed a threshold that makes predicting the future nearly impossible – but that simultaneously allows savvy firms to reconfigure their playing fields.
The consequence of this change is that your strategy playbook is likely to be outdated. What you need is a new approach to strategising, where markets are not viewed as given and where success is determined by your ability to influence how your market develops. But if “analyse-predict-compete” is no longer a winning approach to strategy, what should one do? What are the building blocks of market-shaping strategies?
Timing: shape when the market is already moving
In market-shaping as in comedy, timing is everything. Market ecosystems go through different phases. For long periods of time, nothing much seems to be happening – some gradual development, perhaps, but the basic structures and the rules of the game remain unchanged. Punctuating these periods of stability, however, are times of turbulence. Savvy market shapers seek to time their efforts to coincide with these latter periods of instability, rapid change or discontinuity. The reason for this is simple. Market ecosystems are like physical systems: the static co-efficient of friction is much larger than the kinetic one. Thus, you need less market shaping power to nudge an already-mobile market into your favoured direction than to stir a static one into motion in any direction.
Unleash value: eliminate bottlenecks
Market-shaping strategies are value-creating strategies: market-shaping efforts succeed or fail largely based on their ability to create more value to customers and other actors in the market ecosystem. Aspiring market-shapers should look for opportunities to eliminate bottlenecks that prevent the market from creating more value. Typically, these bottlenecks are hiding in plain sight. Sometimes re-defining what is being sold is enough to unleash more value. This is what happened when Bristol Siddeley introduced their 'Power-by-the-Hour' concept: instead of selling the jet engine, the company leased both engine and accessory replacement service, chargeable by the flying hour, and created a manifold increase in the market size. However, more often changes in the wider business network are needed as well. Les Mills International's success has been based on a systematic elimination of supply bottlenecks related to group exercise to music: creating standardised classes and a teacher-training system, as well as guaranteeing access to the latest music.
Choose your role in the system: keystone or complement?
Many entrepreneurs instinctively think that their product or business should be at the heart of the market ecosystem, the keystone that holds everything together. However, not all businesses can become the Amazons of their sectors – and that is good news. Whenever a company is making bold moves to reconfigure its market, there are always a plethora of opportunities for other companies to complement this movement. Parrot Analytics, a Kiwi start-up, is doing exactly this in the context of Netflix and other streaming services that are changing the familiar face of TV. For a long period of time, television networks and advertisers relied on Nielsen’s PeopleMeter to calculate the ratings for TV shows. However, Nielsen does not capture viewing on devices other than the TV set – something of a problem in a world where more and more content is consumed via computers, tablets or phones. Cue Parrot Analytics, which has developed an alternative system for measuring a television programme's popularity using available word-of-mouth data. By identifying a missing part in the new TV market ecosystem, and providing a reliable measurement system, Parrot Analytics is well positioned to become a global success story.
Collaborate: even – and particularly – with your competitors
The main downside of market-shaping is that it tends to take both time and resources. However, this strategy is not only for the big boys – smaller companies have also proved to be successful in market-shaping. The key to tackling the issue of resources is partnering: Who else would benefit from a new market system? How about inviting them to join the market-shaping process? When identifying suitable collaborators, you should fight your competitive instincts as your competitors are often your best partners in market shaping. In fact, academic research about this is unanimous: new markets take off always and only after there are several comparable competitors for customers to choose from. Which is probably why, in 2001, several New Zealand wineries came together, formed the New Zealand Screwcap Wine Seal Initiative, and achieved something that was previously considered impossible: educating consumers and wholesalers worldwide about the undeniable benefits of sealing wine under screwcaps.
Dr Nenonen, who is also Director of the Graduate School of Management, and Dr Storbacka is have written a new book on market-shaping strategies 'SMASH - Using Market Shaping to Design New Strategies for Innovation, Value Creation and Growth’, published by Emerald Publishing earlier this year.
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