Which market segments are most attractive to address during digital disruptions

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© Tweeter Linder 2017 – All rights reserved. Photo by iStock

Selecting markets and market segments to target is an early strategic decision. Guided by “market attractiveness” defined by a set of established metrics.  But how do you define market attractiveness when digital disruptions are in play? I would like to suggest 5 elements as a basis for your decision.

Size of Market & Profit Pool

Market size in as obvious element. Articulating how large the existing market is. And how profitable the market is. With a prediction on how large the disruption impact will be. And the pace of the disruption. Both share and pace are hard to predict, but a vital input to your market selection.

A great example for this element is Google’s choice of going after the huge global advertising market. And using search as the way to unlock the digital advertising part. and doing it in a way with good profit.

Market growth

The second element is market growth. Digital businesses are high growth businesses. But combinations of large size and high growth rates are rare. High growth is more likely to start with smaller initial markets.

Platform logic can accelerate the market growth.  Where the total market growth is a driven by growth in both supply and demand side.

A great example here is Mobile apps. A new market category. Starting small. With both customer growth and developer growth, fueling platform growth.

How the market is served today

The third element is about how the market is served today. The starting point for a market disruption can be any of three states. An over-served market where parts of the customer base prefer a simpler and cheaper offering. An un-served market where customers do not buy due to lack of options. Or an under-served market where customers prefer paying more for a better offering. Digital disruptions can be in play in all these market scenarios.

Great examples here are Nest introducing a superior thermostat in an under-served market. Google docs addressing an over-served market for document handling. Facebook, Instagram and Snapchat unlocking an un-served market.

Digital disruption size and timing

The fourth element come from the nature of the disruption itself. A strong disruption has potential to speed up both size and timing.  Timing is everything. Any offensive strategy to drive/leverage disruption need to come ahead of the wave.

A strong disruption builds up from many contributing forces. The more contributing forces the stronger disruption. Such as customer, technology, regulatory, operational or business model forces.

A great example here is Uber. Addressing a growing generation without a car. Using technology to simplify how we order, track our car and pay for the trip. And changing the business model by eliminating the switch board. Using a business model with demand driven tariff differentiation. Minimizing opex and risk exposure by not employing the drivers.

Business model

The fifth and perhaps most exciting part of your analysis is about the business model. Which business model is in play today. How well aligned is the business model with customers evolving preferences. Are there extra important customer points where the current model is weak in addressing.

A great example for this element is Netflix. Disrupting two different markets with one offering. Video rental replaced by a mail delivery and later streaming video offering. And broadcast TV channel packages disrupted with more flexible option. All under a single monthly fee.

Questions for you and your team

  1. How do we describe market attractiveness today – understand your starting point.
  2. What do we know about the 5 elements described here for candidate segments – expect all five to be in play.
  3. Which weight would you give each element when comparing segments – as base for a weighted total score.
  4. How accurate is your hypothesis – early stages of digital businesses are uncertain.
  5. How can your early stage activities confirm your predictions – attractiveness change with validated knowledge.

Additional reading suggestions

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