A Strategy for Opening a New Market and Encroaching on the Lower End of the Existing Market

We identify and analyze a scenario where a firm first opens up what we call a “detached” market, by offering a new product that meets a customer need that is very different from (i.e., detached from) the need met by the old established product. Our analysis builds on the previous studies that describe alternate ways in which a new product might open a new market and ultimately encroach on an existing market. Consider the example of cell phones: They opened up a new detached market by meeting the customer need for mobility, a need very different from the traditional attribute of reception quality. By meeting an important detached need, a new product can sell at a high price, even though it might be woefully deficient with regard to the traditional performance dimension (the reception/coverage of early cell phones was sorely lacking). A person who is a high-end customer for the old product initially despises the new product as a replacement for the old one but might simultaneously be one of the first customers for the new product because it fills the detached-market need. Over time, the new product improves along the traditional dimension (e.g., cell phone reception/coverage has dramatically improved), and eventually it becomes a replacement for the old product, encroaching from the lower end upward (the first customers to drop their landlines have been lower-end customers such as students and apartment dwellers, whereas higher-end business customers still have landlines in their offices). We call this the detached-market form of low-end encroachment and show how it helps explain the conundrum of an expensive “disruptive” innovation. We go on to relate our results to the finding that “willingness to cannibalize” is a key factor in an incumbent firm's growth and survival, and to the “blue ocean strategy.”