Get a Slice of the Pie!
I’ve been looking at Porter’s Five Forces while thinking of recommendations for my group project, and I found myself wondering how it was possible to penetrate an existing, mature market. How could new start-ups possibly gain market share by competing with giant multinational corporations with a huge amounts of capital, economies of scale, and established brands? I thought the biggest advantage these new firms could have is innovation, taking advantage of advances in technology. I was curious, so I decided to research a little more in depth on my own.
I was wrong. Innovation is important, but in mature market it’s often not the biggest factor. In this London Business School article, the author states that it’s not enough to only innovate and come out with new products. The firms need to create disruptive products that are able to gain market share because they have a price advantage over existing firms and reached a similar level of product performance as existing brands. One of the most famous examples is how Japanese car manufacturers penetrated the western car market over time by offering high quality products at lower prices. However, firms have to take into consideration that improving quality often causes costs to increase. In addition, incumbent firms may cut costs or invest in creating a subsidiary brand that is lower priced in order to compete. For example, Swiss company SMH created the brand Swatch to compete witih Timex and Seiko. Learning this made me really respect the Sauder alumni who are successful entrepreneurs!