Creating new market space is often the key to success in pursuing business growth and sustainability. The article “Creating New Market Space” by W. Chan Kim and Renée Mauborgne, published in the Harvard Business Review in January 1999, provides invaluable insights into this strategic endeavour.
Understanding the Concept
Creating new market space involves shifting from traditional competition-driven strategies to a more innovative and value-focused approach. Instead of battling for market share in an existing space, businesses seek to redefine their industry by discovering untapped customer needs and delivering unique value propositions.
Key Takeaways for Business Applications
1. Value Innovation:
Value innovation is at the heart of creating new market space. It involves simultaneously increasing value to customers while reducing costs. By pinpointing areas where your business can break the existing value-cost trade-off, you can offer a product or service that outshines the competition.
Application: Conduct a comprehensive analysis of your industry and identify areas where value can be enhanced without significantly increasing costs. This might involve rethinking your product design, distribution channels, or customer experience.
2. Four Actions Framework:
The Four Actions Framework provides a structured approach to challenging industry norms. It encourages businesses to ask four critical questions:
- Eliminate: What aspects of the industry can be eliminated?
- Reduce: What factors can be scaled back to a minimum acceptable level?
- Raise: Which elements should be elevated beyond industry standards?
- Create: What entirely new factors can be introduced to the market?
Application: Apply this framework to your business by thoroughly analysing your industry’s competitive factors. Focus on areas where you can deviate from industry norms to create new value for customers.
3. Strategic Canvas:
The strategic canvas is a visual representation of your industry’s competitive landscape. It helps businesses identify where they currently invest resources and how they can strategically reallocate them to stand out in the market.
Application: Create a strategic canvas for your industry. Compare your business’s current strategic focus with that of your competitors. Identify areas where you can shift your strategic priorities to offer a distinctive value proposition.
4. Blue Ocean vs. Red Ocean Strategy:
The blue ocean vs. red ocean strategy differentiates between competing in existing markets (red ocean) and creating uncontested market spaces (blue ocean). Blue ocean strategies allow businesses to chart new territories with reduced competition.
Application: Evaluate your business’s current market space. Identify opportunities to redefine your industry by exploring untapped customer segments, unmet needs, or innovative solutions.
Conclusion
Creating new market space is a transformative strategy that has propelled numerous businesses to unprecedented success. Businesses can chart a course towards uncontested market leadership by embracing value innovation, applying the Four Actions Framework, utilizing the strategic canvas, and distinguishing between red-ocean and blue-ocean strategies.
For a comprehensive understanding, refer to the original article here. Remember, the key lies in challenging industry norms and finding innovative ways to deliver exceptional customer value. This approach is not about competing harder; it’s about competing smarter.
The value innovation framework can be applied to any business in any industry. The framework is designed to help companies create new market space by simultaneously pursuing differentiation and low cost, creating a leap in value for both buyers and the company.
Here are some steps you can take to apply the framework to your business:
- Identify the factors the industry takes for granted: Look for factors considered essential in your industry but do not create much value for customers. For example, Southwest Airlines eliminated meals and assigned seats to reduce costs and increase efficiency 1.
- Reduce factors that are below industry standards: Identify factors that are important to customers but are not being met by existing offerings. For example, Cirque du Soleil reduced the number of acts and performers but increased the quality of the performances to create a new form of entertainment 1.
- Raise factors that are above industry standards: Identify factors that are important to customers but are not being offered by existing offerings. For example, NetJets raised the level of service and convenience for private jet travel by offering fractional ownership 1.
- Create factors that the industry has never offered: Identify factors that could create new demand and open up new market space. For example, Yellow Tail Wine created a new category of wine by providing a fun and approachable brand that appealed to younger consumers 1.
By applying these steps, you can create a value curve that differentiates your business from competitors and makes new market space. Remember that value innovation is not a one-time event but an ongoing continuous improvement and innovation process.
There are several metrics that can be used to measure the success of value innovation. According to a Gartner article, some of the criteria for measuring innovation success include the level of success of the delivered innovation after three years, the number of people who have adopted the innovation, financial benefits, and the achievement of operational efficiencies 1.
In addition, McKinsey suggests combining gross margin, R&D, and sales from new products to gain valuable insights into innovation performance 2.
It’s important to keep in mind that value innovation is not a one-time event but an ongoing process of continuous improvement and innovation 2. Therefore, it’s important to track and measure the impact of value innovation over time using relevant metrics.