Author: Geoffrey A Moore

ISBN: 978-0062353948

You've built an innovative product or plan to offer an innovative service. Whom do you start marketing it to? Read this book to help you determine the right customers (at each step along the way) and hence improve your chances of success. Even if you're acquainted with the “bell-curve theory”, the book is well worth the read. In fact, this is one of the very few start-up books that I recommend reading. Also to seasoned executives! If you're in a rush just read the Executive Summary below.

EXCERPTS

The High-Tech [B2B] Marketing Model model says that the way to develop a high-tech market is to work the curve left to right, focusing first on the innovators, growing that market segment, then moving on to the early adopters, growing that segment, and so on, to the early majority, late majority, and even to the laggards. In this effort, companies must use each “captured” group as a reference base for launching their marketing into the next group. Thus the endorsement of innovators becomes an important tool for developing a credible pitch to the early adopters, that of the early adopters to the early majority, and so on.

Innovators pursue new technology products aggressively. This is because technology is a central interest in their life, regardless of what function it is performing. At root they are intrigued with any fundamental advance and often make a technology purchase simply for the pleasure of exploring the new device’s properties. There are not very many innovators in any given market segment, but winning them over at the outset of a marketing campaign is important nonetheless, because their endorsement reassures the other players in the marketplace that the product could in fact work.

 

Early adopters (Visionaries), like innovators, buy into new product concepts very early in their life cycle, but unlike innovators, they are not technologists. Rather they are people who find it easy to imagine, understand, and appreciate the benefits of a new technology, and to relate these potential benefits to their other concerns. Whenever they find a strong match, early adopters are willing to base their buying decisions upon it. Because early adopters do not rely on well-established references in making these buying decisions, preferring instead to rely on their own intuition and vision, they are core to opening up any high-tech market segment.

What the early adopter is buying is some kind of change agent. By being the first to implement this change in their industry, the early adopters expect to get a jump on the competition, whether from lower product costs, faster time to market, more complete customer service, or some other comparable business advantage. Being the first, they also are prepared to bear with the inevitable bugs and glitches that accompany any innovation just coming to market.

The goal should be to offer a product, which can be implemented by mere mortals working in earth time, provides the vendor with a marketable product 3. provides the customer with a concrete return on investment that can be celebrated as a major step forward.

The early majority (Pragmatists) share some of the early adopter’s ability to relate to technology, but ultimately they are driven by a strong sense of practicality. They know that many of these newfangled inventions end up as passing fads, so they are content to wait and see how other people are making out before they buy in themselves. They want to see well-established references before investing substantially. Because there are so many people in this segment—roughly one-third of the whole adoption life cycle—winning their business is fundamental to any substantial profits and growth.

The early majority want to buy a productivity improvement for existing operations. They are looking to minimize the discontinuity with the old ways. They want evolution, not revolution. They want technology to enhance, not overthrow, the established ways of doing business. And above all, they do not want to debug somebody else’s product. By the time they adopt it, they want it to work properly and to integrate appropriately with their existing technology base.

When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get.

References and relationships are very important to these people, and there is a kind of catch-22 operating: Pragmatists won’t buy from you until you are established, yet you can’t get established until they buy from you. Pragmatists want to buy from proven market leaders because they know that third parties will design supporting products around a market-leading product.

Overall, to market to pragmatists, you must be patient. You need to be conversant with the issues that dominate their particular business. You need to show up at the industry-specific conferences and trade shows they attend. You need to be mentioned in articles that run in the newsletters and blogs they read. You need to be installed in other companies in their industry. You need to have developed applications for your product that are specific to their industry. You need to have partnerships and alliances with the other vendors who serve their industry. You need to have earned a reputation for quality and service.

The pragmatists drive the development of the mainstream market.

The late majority (Conservatives) shares all the concerns of the early majority, plus one major additional one: Whereas people in the early majority are comfortable with their ability to handle a technology product, should they finally decide to purchase it, members of the late majority are not. As a result, they wait until something has become an established standard, and even then they want to see lots of support and tend to buy, therefore, from large, well-established companies. Like the early majority, this group comprises about one-third of the total buying population in any given segment.

Conservatives are price sensitive, but that is largely because they cannot get full value from their user experience. If you give them something they can relate to, they are more than willing to pay up for it. The key is to focus on convenience rather than performance, user experience rather than feature sets.

 

Laggards. These people simply don’t want anything to do with new technology, for any of a variety of reasons, some personal and some economic. The only time they ever buy a technological product is when it is buried deep inside another product—the way, say, that a microprocessor is designed into the braking system of a new car—such that they don’t even know it is there. From a market development perspective laggards are generally regarded as not worth pursuing on any other basis.

The first (major) chasm

The deep and dividing chasm that separates the early adopters from the early majority is by far the most formidable and unforgiving transition in the Technology Adoption Life Cycle, and it is all the more dangerous because it typically goes unrecognized.

The fundamental principle for crossing the chasm is to target a specific niche market as your point of attack and focus all your resources on achieving the dominant leadership position in that segment as quickly as possible.

Most companies fail to cross the chasm because, confronted with the immensity of opportunity represented by a mainstream market, they lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a salable proposition to any true pragmatist buyer.

The size of the first pin is not the issue, but the economic value of the problem it fixes is. The more serious the problem, the faster the target niche will pull you out of the chasm. Once out, your opportunities to expand into other niches are immensely increased because now, having one set of pragmatist customers solidly behind you, you are much less risky for others to back as a new vendor.

In the end, it turned out that financial services was the biggest customer segment for the company—but importantly, it was not the right target segment for crossing the chasm because its needs, while more pervasive, were not as urgent as those of the pharmaceutical industry.

The place where most crossing-the-chasm marketing segmentation efforts get into trouble is at the beginning, when they focus on a target market or target segment instead of on a target customer. Markets as categories are impersonal, abstract things: the smartphone market, the gigabit router market, the office automation market, and so on. We need to work with something that gives more clues about how to proceed in the presence of real people with complex motives. However, since we do not have real live customers as yet—or at least, not very many of them—we are just going to have to make them up. Then, once we have their images in mind, we can let them guide us to developing a truly responsive approach to their needs.

It is extremely difficult to cross the chasm in a consumer market. Almost all successful crossings happen in business markets, where the economic and technical resources can absorb the challenges of an immature product and service offering. Alternatively, consumer markets can spin up with no chasms at all if the technology is already adopted and the disruption is coming from a new business model.

Don't even try crossing the chasm, if:

  • if there is no a single, identifiable economic buyer for this offer, readily accessible to the sales channel you intend to use, and sufficiently well funded to pay the price for the whole product,
  • if economic consequences are not sufficient to make any reasonable economic buyer fix the problem. If pragmatists can live with the problem for another year, they will,
  • if your company with the help of partners and allies field cannot offer a complete solution to the target customer’s compelling reason to buy in the next three months. The clock is ticking. We need to cross now, which means we need a problem we can solve now,
  • if the problem has already been addressed by another company (existing competition).

Small enough to lead means, in part, too small for the much bigger incumbent to spend a lot of time focusing on. Big fish have trouble competing in small niches.

You develop an early market by demonstrating a strong technology advantage and converting it to product credibility, and you develop a mainstream market by demonstrating a market leadership advantage (in an early market) and converting it to company credibility.

You only start comparing yourself with competitors (positioning) when you’re trying to cross the chasm, not before.

Positioning is the single largest influence on the buying decision. It serves as a kind of buyers’ shorthand, shaping not only their final choice but even the way they evaluate alternatives leading up to that choice.

When most people think of positioning in this way, they are thinking about how to make their products easier to sell. But the correct goal is to make them easier to buy;

  • Name it and frame it. Potential customers cannot buy what they cannot name, nor can they seek out the product unless they know what category to look under.
  • Who for and what for. Customers will not buy something until they know who is going to use it and for what purpose (important for visionaries),
  • Competition and differentiation. Customers cannot know what to expect or what to pay for a product until they can place it in some sort of comparative context (important for pragmatists),
  • Financials and futures. Customers cannot be completely secure in buying a product until they know it comes from a vendor with staying power who will continue to invest in this product category.

When positioning is thought of primarily as a verb, it refers to a communications process with four key components:

  1. The claim. The key here is to reduce the fundamental position statement—a claim of undisputable market leadership within a given target market segment—to a two-sentence format outlined later on in this chapter.
  2. The evidence. The claim to undisputed leadership is meaningless if it can, in fact, be disputed. The key here is to present sufficient evidence as to make any such disputation unreasonable.
  3. Communications. Armed with claim and evidence, the goal here is to identify and address the right audiences in the right sequence with the right versions of the message.
  4. Feedback and adjustment.

The key is to define your position based on the target segment you intend to dominate and the value proposition you intend to dominate it with. This is the who for and what for positioning statement that resonates with visionaries and kicks off the early market competition. At the same time, you also want to foreshadow your mainstream market future, leveraging the competition and differentiation positioning we discussed relative to market and product reference competitors.

Just fill in the blanks: • For (target customers—beachhead segment only) • Who are dissatisfied with (the current market alternative) • Our product is a (product category) • That provides (compelling reason to buy). • Unlike (the product alternative), • We have assembled (key whole product features for your specific application).

If you don’t make the choice to fill the space with a single attribute, then the market will do it for you. And since the market includes your competition trying to de-position you, don’t count on it to be kind.

The statement of position is not the tagline for the ad. Ad agencies come up with taglines, not marketing groups. The function of the statement of position is to control the ad campaign, to ensure that however “creative” it may become, it stays on strategy. If the point of the ad is not identical with the point of the claim, then it is the ad, not the claim, that must be changed—regardless of how great the ad is.

Companies crossing the chasm, coming from success in the early market with visionary customers, typically have their products priced too high.

The fundamental pricing goal should be as follows: Set pricing at the market leader price point, thereby reinforcing your claims to market leadership (or at least not undercutting them).

Moving over to the development side, there is one remaining compensation challenge—the pioneer technologists. These divide into two camps—true company founders and very early employees. The former have bet their lives on the equity gamble, and there is nothing further to discuss, except to hope that in reading this book they learn to conserve a large portion of that equity to fund crossing the chasm. The latter pose a real problem. They can point with accuracy to the notion that they created a large part of the core product. Thus, should that product become a mainstream market hit, they feel they should get a major share of the gains. The fact is, they don’t, and the truth is, bluntly, they don’t deserve it, either. Mainstream success, as we have argued at length, is a function of the whole product, not the core product, and that is a very large team effort indeed.

The second (major) chasm

There is another crack in the bell curve, of approximately equal magnitude, that falls between the early majority and the late majority. By this point in the Technology Adoption Life Cycle, the market is already well developed, and the technology product has been absorbed into the mainstream. The key issue now—transitioning from the early to the late majority—has to do with lingering residual demands on the end user to be technologically competent. Simply put, the early majority is willing and able to become technologically competent where necessary; the late majority is not. When a product reaches this point in the market development, it must be made increasingly easier to adopt in order to continue being successful. If this does not occur, the transition to the late majority will stall.

Digital Consumer Adoption

Online adoption is best characterized in terms of four fundamental activities:

  1. Acquire traffic
  2. Engage users
  3. Monetize their engagement
  4. Enlist the faithful

Engagement comes first. Can you create a digital (or digitally mediated) experience that is sufficiently compelling and differentiated that end users will want to repeat it, hopefully many times over? Such repetition establishes a pattern of consumption, the first key underpinning of a mass market.

Once the engagement gear begins to spin, then it is time to introduce the acquisition gear. These two interact with each other, each modifying the other, as you seek to answer the second big challenge facing your fledgling enterprise: Can your compelling experience scale? This means grow both on the demand side (onboarding new users, eventually those who want something more or different from your initial users) and on the supply side (onboarding new content or product features to broaden the offering from its initial footprint). Scaling always requires modifying the offer, and modifying the offer always has an impact on scaling (though not always a happy one). This is not for the faint of heart.

Enlisting the faithful involves “hyper-engaging” with a small but vocal minority of consumers who have already demonstrated a propensity to evangelize and proselytize on your behalf. They do this because they believe in you and what you are doing so much they have made it part of their own identity. You don’t pay them—indeed, to do so would be insulting; they are doing this because it has become part of who they are.

All this leads us to the fourth and final gear, monetization. Most of the great consumer Internet successes in the first decade of this century followed this approach, introducing the monetization gear very late in the game, in some cases not until after they had sold themselves to a monetization engine (YouTube to Google, Instagram to Facebook, Tumblr to Yahoo!). The key idea here is that monetization, regardless of when it is introduced, will slow down the other three gears. If you invoke too early or too swiftly, it is like popping the clutch on a manual transmission—you stall the engine.

 

Other remarks

It shall be noted that the product/ service and the story shall not be changed so much that existing users would cease buying it. User retention! (The only exception being if it's expected that pivoting will increase the no. of users - this usually in a dying market or if you lose pace with competition.)

Sales = marketing (indirect sales; user education, entertainment ipd. through storytelling) + sales (direct sales)

Branding = expectations of buyers in regards to interaction with the product/ service or you (the company). This means that your brand is established by the product/ service, interraction with customers, pricing, sales channels, customers, visuals of your website/ premises etc. In short - everything.

What is the difference between the market (trg) and category (kategorija)?

A Category (= market segment) designates products/ services sold (e.g. oil). A Market (trg) designates only those products/ services withing the same category, whose buyers communicate with each other; wholesale/ consumer market etc.

Seth Godin and Kevin Kelly would say that a whole market (ie. all 5 user segments) shall only amount to 1000 true fans (= Smallest Viable Audience).

Who are "core users"? I would define core users in regards to my product/ service. Core users are the one who experience the greatest benefit with using the product/ service. Core users shall still be categorised into above segments. It is crucial that only core users are categorised and targeted in each step. Later core users might share the product/ service with users in other markets not yet marketed to; e.g. from GPS routing from cycling to ski-mountaineering (spill-over effect).

EXECUTIVE SUMMARY

The book is based on experiences from the B2B high-tech market (and NOT B2C, non-tech markets). However, most lessons hold true also in other markets. Just make sure that's the case in each particular case!

The main premise is that one can only win the whole market by winning each of the 5 segments step-by-step in determined order. One should do that by commiting 100% to one user segment and winning it before moving to the next one.

The step #3 represents the great chasm; moving from early to mainstream market. It is called a chasm because it involves a big marketing shift; from communicating the product/ service as state of the art to communicating it as market standard.

If the Early adopter market won't be won before making such pivot the product/ service won't be successful in winning the mainstream market (Early majority and following markets).

User segments, categorised by the time of entrance to the market (of products/ services) are:

  1. Innovators (technologists, neofiliacs): people, who only buy because it's new. They are entertained by the nowelty per se. They are technologicaly adept and forgive buggs. They find you (and not the other way around).
  2. Early adopters (are not technologists!): They buy because they assume they will get a jump on the competition (change agent: lower product costs, faster time to market, more complete customer service etc.). They are technologically adept. They do not need assurance that the product/ service works - they actually don't want that assurance because it would indicate that the product/ service is already mainstream and hence won't bring any advantage vis-a-vis their competition. It is crucial to impress this user segment, because it is these users, who will convince early majority (a significant market) into making a purchase. They are convinced by the product/ service being "state of the art".
  3. [T H E G R E A T C H A S M]
  4. Early majority: They buy because they aim to simplify/ make their business more effective - practicality aspect. They do not aim to change the market (like early adopters). They are technologically adept. The only buy after they receive positive references from early adopters. They are persuaded by the "market standard, market leader" argument.
  5. Late majority: Like Early majority with the difference that they aren't technologically adept. They will only buy the product/ service once many Early majority users will have positive experiences. The product/ service need to be user friendly, because they aren't technologically adept. They are persuaded by the "market standard" argument (referencing established companies) + interoperability + customer support.
  6. Laggards: These users will only use the product/ service once they will be forced into doing so; when product/ service will be integrated into another product/ service they are using or when the product/ service will be their only solution to their problem.

Throughout the product/ service life it needs to be less and less complicated and more complete and marketing department has to increasingly emphasize reliability and positive references from other users.

There is another crack in the bell curve, of approximately equal magnitude, that falls between the Early majority and the Late majority. By this point in the Technology Adoption Life Cycle, the market is already well developed, and the technology product has been absorbed into the mainstream. The key issue now—transitioning from the early to the late majority—has to do with lingering residual demands on the end user to be technologically competent.

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