Disruptive innovations often originate in low-end markets, where existing players tend to prioritize the highest-paying and most-demanding customers, while ignoring the less-demanding ones. As a result, their offerings often overshoot the performance requirements of lower-end customers, creating an opportunity for a disruptive innovator to enter the low-end market.
Disruptive innovations originate in low-end or new-market footholds
To be considered disruptive, a product must first target a low-end or new-market foothold. Low-end footholds are usually ignored by large companies, and are a prime opportunity for disruptive innovations. These new products and services will address consumer demands not met by the incumbents. Disruptive innovations are often characterized by improvements in technology and service quality.
A disruptive innovation can come in three different forms. They can be low-end, new-market, or mid-range. As long as the company is able to offer a better product at a lower price, they can gain a foothold in a new market. While these innovations are often disruptive, they may fail to reach the mainstream.
Uber and Netflix are two examples of low-end footholds that have fueled their success. Uber began by targeting a market that was already served by taxis. The company also launched a product that served high-end customers. UberSELECT is an example of a disruptive innovation because it provides luxurious cars at a low price.
Disruptive innovation typically involves a product or service that is more easily used and less expensive than the competition’s product. Traditional companies tend to focus on improving their products to appeal to their most profitable customers and ignore the needs of untapped segments. However, because the established companies are not paying attention to these segments, smaller companies and new entrants can target them by offering simpler products and services.
It is important for a business to develop a proactive strategy for countering disruptive innovations. In some cases, these innovations will affect the incumbents’ market performance. The business must develop a business model that can counteract these innovations while at the same time leveraging business continuity and sustainability.
Disruptive innovations often occur when the new entrants successfully capture a large portion of customers. When this happens, the incumbents have little time to retaliate. As a result, disruption is often followed by restructuring, downsizing, and disinvestment by the incumbents. This is why the incumbents must act in time and in a timely manner to protect their business. If they do not, it will likely result in the dismantling of their profitable business.
In contrast, sustaining innovations, on the other hand, are often better than the existing products and services. This type of innovation is less disruptive and often does not target untapped markets. Instead, it targets existing products and services in order to remain competitive. For example, CD makers are now making CDs that are scratch-resistant and large in capacity. Digital music downloads are another example of sustaining innovation.
Disruptors convert nonconsumers to consumers
Disruptors are those companies that create new products or services that are not yet available to the market. Typically, these new products or services target non-consumers – people who do not currently purchase the offerings of existing players. These non-consumers may include those who do not save, invest, or borrow. By targeting unmet needs, disruptive companies can convert these non-consumers into consumers.
Incentives don’t always guarantee success
Disruption theory can be used to determine whether an entrant is likely to succeed in new market footholds, but it says little about how to win one. It recommends that entrants avoid direct competition with incumbents. But this is not always possible, especially if the incumbent is already a dominant player in a niche.
Disruptive innovations often start in the low-end market. While incumbents focus on serving their most profitable and demanding customers, they overlook less demanding customers. As a result, their offerings often overshoot the performance requirements of lower-end customers.