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New Markets? Let Your Customers Help
Business & Economic Review - April 2000

Many executives want to build a path to higher margins and rapid growth by creating new markets and then dominating them . What stops us is the unpredictability of the new markets. If you go to create a new market, by definition you do not know what will sell. It's a new market, you cannot know exactly who fits into it. You can't successfully predict what will take you to dominance. The temptation is to deal with not knowing what to sell by returning to the known - developing and selling the technology or product that you control and understand.

Moving beyond that is risky. Your best people can bet your business, but that is what it is - a gamble. So how do you hedge your bet? One way is to spur each new customer to redefine your product as they use it. Encourage users to tailor the product to their own use, even if you have no idea what that use is.

This runs counter to most product and technology development efforts, with good reason. When you know a market, you can use that knowledge to invest in long term strategies to deploy technologies that will not cover their costs for years or decades. However, when you do this, you become defined by your previous expertise, a limitation in a new market. Working from core competencies is useful when you want to expand your position in competitive markets, but the past may hamper your growth into new businesses.

Looking at new markets often means changing the management team's focus. The internal focus is critical for sustainable success in competitive markets, but the external focus is what you need for new ones.

Advancing technology does not create new markets, they merely help deliver them. In new markets you can do better by downplaying technology and letting individual customers define their experience for themselves, and for you. With that capability, you can emulate America Online, Lego, Thalidomide, the Polaroid instant camera, and other products that have dominated new markets.

2. Products that Let Consumers Define the Experience

Involving customers to define their own experience is not the only path to creating and dominating markets. It has one major advantage. It works.

There are many differences between an instant camera and a single lens reflex camera. Somewhere in that list is the difference that allowed Edwin Land's product to open a new market and then dominate consumer photography for decades.

There are many differences between a Palm handheld PDA and the Microsoft-based CE products made by Compaq, Hewlett-Packard, and others. Somewhere in that list is the difference that allows the Palm product line to open a new market and then outsell the Windows lines by eight to one .

The two common denominators for Palm Computing and the instant camera are:

1 - The degree to which the suppliers have encouraged the user to dictate the way the product operates. The user can, in each case, simply and easily adapt the product to individual needs that the supplier never considered. Just as important, that adaptation delivers instant gratification. You can make meaningful changes and see them occur.

2 - The ease of use. These products used advanced technologies, but did not ask the users to master that sophistication.

Consider America Online (AOL) as an example of the second point. Their behind the scenes technology is very sophisticated and complicated. That complexity is invisible to the member. Instead, the product presents an easy-to-use interface that allows each user to define how AOL works for him or her self. AOL offers My AOL, My Files, custom channels, "You've Got Pictures, " control over what materials can be downloaded from the Internet, and so on. The member decides each change. Each member can have his or her own "appearance."

Land's camera introduced the ultimate in self tailoring. You'd take a picture, and if you did not like it, you could do it again right away. The person holding the camera had control and immediate satisfaction. Today professional photographers still use instant cameras to show clients how the final shot will look. They set up the expensive, slow, and delayed gratification equipment and then take a few instant shots. If the instant shots show a problem, they adapt immediately.

Land's Camera uses the same involvement strategy as Lego's plastic bricks. When a child (of any age) creates with Lego blocks, he or she is self tailoring the experience. And children of all ages do so. Lego believes that half the sales of Lego's Mindstorm products in 1999 were to adults who used it themselves. The annual Lego imagination contest was opened up to adults in 1999. XXX adults entered . The company boasts that it has made thirty-three Lego bricks for each person alive in the world. Much of that growth comes from the ability of each user to create his or her own experience with the basic product. Lego has done quite well at creating and dominating a market.

This ability to let the user define the experience was intentionally built into the instant camera and the Lego block, but sometimes it appears by accident. After the FDA refused to allow it's use in pregnant women, Thalidomide sales plummeted. In the 1990s, however, a group of patients with HIV disease started taking it to alleviate disabling symptoms. This unauthorized use (called off-label) eventually resulted in a new authorization for an old pharmaceutical, a new market . It came about because the consumers adapted the compound to their needs. An accident, but a very pleasant one for the patients and Celgene. However, customer involvement does not need to happen by chance. You can build it in.

4. Building Involvement Into Products

The right time to build customer involvement into your plans is when you are beginning to think about products for a new market. Changing a product line to add involvement tools is even very expensive in time and people as well as money. In existing markets, the tools are hard to add.

However, involvement tools are both inexpensive to supply and easy to manage if you build them into the product from the beginning. As you define your market, you can define your product to be customer involving like Lego or America Online.

The same kind of programmability can be added to other markets. For example, today car manufacturers will sell a model with sound and electronics system designed to meet the market requirements of a large segment. The sound system offers minimal adaptability, perhaps adding an equalizer. The assumption remains that the consumer chooses the car and then goes to aftermarket suppliers to tailor the electronics.

Today, however, we have the electronics and software capability to let the user participate in tailoring the car as he or she drives it. If a user prefers to drink coffee and listen to the news in the morning and smoke and listen to soft jazz in the afternoon, why not adapt? There is no reason that a car could not have the ability to tune the radio to National Public Radio. The car could shunt power to heat a coffee cup holder in the morning. It is not a far stretch of imagination to ask a car to learn how long the driver takes to smoke a cigarette. With that information, the car could shunt cooled air to the cup holder for the soft drink, tune into an Internet jazz station and open the ashtray at an appropriate time.

This scenario is not technologically innovative. The difference is a fundamental design decision to let the car tailor itself to the user. Adding self tailoring to products is not an engineering or marketing decision. It is a management choice.

The experiences that these products create are not defined in advance by focus groups or customer marketing. Customers define them, at random, and then you can measure the results. It is highly iterative, a true benefit when you are trying to create and dominate a market. The faster you learn how people are using your product, the faster you can react to an opportunity like Thalidomide being used off label. That allows you to adapt to the new market, and gives you a better chance of becoming the primary vendor.

One of the odd side effects we get from the miniaturization of electronics is that you can put a processor in almost any product that sells for more than a dollar. With the vastly reduced cost of chips (and gates per chip) almost any product can add customer involvement at an almost trivial cost per unit for hardware.

If your product can use this processing power to become adaptive to users, it will have the opportunity to create its own markets and applications. Dozens of VCRs are on the market, but none (yet) use processing to learn users' habits and adapt to them. Electronic pill bottles are a research item at this writing, but the potential is there to offer a product that will learn a patient's needs and help them remember to take medicine.

Given how inventive users are, you can be sure that some will find applications that you did not consider. If people use Palm devices to unlock cars, they will find something you did not consider for a VCR. Look at what you are considering for the new market and then at the very low cost of processing power. Ask if you could use that power to make your product adaptive. Can you let your customer create the change that he or she wants, and get instant gratification?

These tools also affect development and support costs. When the customer involvement tools are well-designed you they can let the customer develop new products and uses. Celgene did not invest in the application of Thalidomide to HIV until the patients proved the potential. Lego's customers show the company many product innovations that will sell.

When you build the experience defining tools into your product, those changes can replace some field maintenance changes. You need not dispatch support for changes if the customer makes the changes as he or she sees fit.

For instance, when AOL's users decide that they want to change their online channels, it costs AOL nothing. No staff members have to act, no one creates product requirement documents, no analysis is conducted, and AOL staff expends no resources. The user changes the channels that he or she wants to use from his or her screen. Both the user and America Online benefit.

Success in creating markets often comes from making advanced technology invisible. If the user has to invest time in learning how to tailor the product, it will detract from the experience of using it. The creativity and learning that Lego blocks engender does not come from reading the instructions or learning how to use them. It comes from letting each user use and adapt them as he or she sees fit. In creating new markets, elegance in technology comes from how the user sees it, not the designer.

Existing markets are easier to get into than new ones - all the pioneering work has been done by others. But entrance does not mean growth. Resource constraints apply; your business will never be enough time, people, or money to grow rapidly and sustainably without careful decisions. This different emphasis (market over product) means that customers will play a different role in your growth. That role starts with letting customers define the experience that they get from your product. In this model you don't generate a great product and let them come. You generate a good product and let them adapt it.

Something else happens when your business focuses on the customer experience. You divert the customer's attention from price to effect. If they like the effect, it can drive sales independently of price. This allows your margins to improve. Companies that have recognized this have used it to fund growth.

Designing user involvement into your products is not hard. It can pay off in eliminating price resistance and making your product the one that everyone wants. After all, who would not choose the option created just for you?

6. Sidebar - Technology Isn't Effect

The technology you use in your product is not what creates a new market. You may find it a distraction. While technology may be very attractive to us and to the financial markets, many companies that have created and dominated new markets lead with boring, safe technologies. AOL is considered light years behind other services by the digital cognoscenti. Palm products are far from cutting edge computers. Most Lego products do not involve computers. The Land camera never produced cutting edge pictures. However, each used innovative technologies to appear and operate simply. None are cool, but all are highly successful at creating and dominating markets.

The lesson is not that dumb downed products are better. The key point to remember is that simple and easy-to-use interfaces will outsell creeping elegance every time. When you invest your resources into sophistication you don't have them available to design ease of use. You are making a choice, like the developers of the Newton did. It was a great device, but the Palm Pilot is the one that is growing. With limited time, people, and money your choice is to invest into features you want the market to have versus investing into features they will use each day. To build new markets, choose the latter.

Products That Grew Through Customer Involvement

Product

Involvement Strategy

Lego

Promote creative uses of the bricks with demonstrations, contests, theme parks, and software.

America Online

Encourage tailoring of ISP to individual users with My AOL, Parental Controls, Custom Channels, Favorites Menus, Communities.

IBM 360/370 family

Promote principle that corporations could define each installation to meet their own needs through tailored programming.

Polaroid Camera

Support ability to design own picture and revise it as often as wanted, and still get instant results.

Palm Handheld Computers

Make it easy for users and third parties to create thousands of applications, making each Palm product unique to the user

Amazon.com, Webvan.com

In different ways, allow users to define how the E-commerce vendor works with them. Users can create a different way of using the site, and that view always shows when they enter.


In each of these examples, the customer is someone more than a person or business with a checkbook. The customer becomes a partner in the use of the product, and perhaps the sale. This creates a unique relationship



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