While disruption at the low-end is popular, it is rarely profitable. Our innovation strategy consulting team has recognized that established companies rarely find it attractive to enter a business at the low-end, targeting and accepting lower margins and profits. Competing at the low-end also requires operational advantages in order to succeed over the long term. Most companies who are on the hook to generate new growth prefer to do so by pursuing high-margin businesses. Finding a high-margin, high-profit market may not be as hard as it sounds. You may not have to look beyond the markets you are already in.
By effectively targeting the most profitable customers in a given market, a company is able to win over and keep customers, take the lion’s share of profits, turn the screws on the competition – and then eliminate it – thereby setting the stage for long-term growth. This is the power of the profit share innovation strategy.
Innovation strategies work in markets that are highly underserved. It’s quite literally the opposite of the low-end disruption strategy made popular by Harvard Business School professor Clayton Christensen. Low-end disruption opened up new markets by offering highly overserved customers a product or service much, much more cheaply than any other option on the field, sacrificing only features that the overserved population didn’t value in the first place. The profit share strategy, by contrast, addresses a highly underserved population that’s willing to pay much, much more to get a job done significantly better than is currently possible. Our innovation strategy consulting team is expert at discovering these hidden opportunities for growth.
We have discovered that a segment of highly underserved customers exists in nearly all markets. These customers, who may comprise as little as 10 percent of the market, are highly underserved because the products available today fail to consider their unique situation. While executing the same job (task) as others, these customers are different: they face complexities that others do not; they face unique obstacles; they are forced to push the envelope; failure is not an option; they seek perfection. Consequently, they struggle more than others to execute their job-to-be-done and will pay a lot more for a solution that delivers. Whole Foods shoppers pay significantly more because they are trying to manage their long-term health through diet. Buyers of the Nest thermostat pay significantly more because they struggle to achieve comfort in their home. Users of Dyson’s vacuum cleaners pay significantly more because they struggle to remove dirt and dust from carpets.
Our innovation strategy consulting team using our ODI-based market segmentation methodology which is specifically designed to discover and size the underserved segments that exist in a market. Knowing what segment of customers to target is the key to a profitable innovation strategy. This is innovation strategy consulting at its best.