New-market disruption

Definition

New-market disruption refers to a type of innovation that creates a new market by targeting non-consumers or underserved consumers, offering them products or services that were previously inaccessible or unaffordable. This form of disruption often starts in low-end or niche markets and eventually moves upmarket, challenging established companies by transforming consumer behavior and expectations.

5 Must Know Facts For Your Next Test

1. New-market disruptions often start by appealing to consumers who were previously unable to afford existing products, thereby creating an entirely new customer base.
2. These disruptions can lead to significant shifts in industry dynamics as they grow and begin to attract mainstream customers from established competitors.
3. Established companies may fail to respond effectively to new-market disruptions due to their focus on existing high-end customers and reluctance to lower prices or alter their business models.
4. An example of new-market disruption is how personal computers created a new market for computing that was accessible to everyday consumers, unlike mainframe computers which were limited to large organizations.
5. New-market disruptions are not just about technology; they can also involve changes in business models, such as subscription services that target previously overlooked segments.

Review Questions

• How does new-market disruption differ from low-end disruption in terms of target consumers?
  • New-market disruption specifically targets non-consumers or underserved consumers who have not been served by existing products, while low-end disruption focuses on existing consumers who are looking for more affordable alternatives. This means that new-market disruptions create entirely new customer segments and demand, whereas low-end disruptions typically aim at capturing the existing market's least demanding customers. Both types of disruption ultimately challenge established firms but do so from different angles.
• Analyze the potential challenges established companies face when confronted with new-market disruptions.
  • Established companies often struggle with new-market disruptions because they are typically focused on serving their current high-end customers and maintaining profit margins. This focus can lead them to overlook emerging markets and new consumer needs that are being met by disruptors. Additionally, established firms may be hindered by their existing business models, making it difficult for them to adapt quickly to changing market dynamics. The unwillingness to innovate or invest in lower-margin products can cause these companies to lose market share as disruptors capture the attention of a new consumer base.
• Evaluate the long-term implications of new-market disruptions on industry leaders and consumer behavior.
  • New-market disruptions can significantly alter industry landscapes by forcing industry leaders to adapt or lose relevance. As these disruptions grow and attract more mainstream consumers, they challenge established norms and expectations regarding pricing, product features, and accessibility. This shift in consumer behavior can lead to a re-evaluation of value propositions across the industry, prompting incumbents to innovate or rethink their strategies. In the long run, the emergence of new-market disruptors encourages a more dynamic marketplace where consumer needs drive product development and industry evolution.

Related terms

disruptive innovation: A process where a smaller company with fewer resources successfully challenges established businesses by creating new markets and value networks.

low-end disruption: A type of disruptive innovation that occurs when a product or service is introduced at a lower price point, appealing to the least demanding customers in a market.

value network: The context within which a company creates value, including suppliers, customers, and competitors, which can be affected by disruptive innovations.