Disruptive innovation – creating new market categories

    Michel van Hove

    The best innovation stories often include examples of disruptive innovation, challenging the status quo, creating something that is truly new. This type of innovation creates whole new market categories or subcategories around customer needs that have been previously overlooked. In many cases new businesses are built around a single idea originating with an individual or founder of a start-up company. Where do these ideas come from, why are they so powerful and most importantly how can we recognise them?

    New category creation is dominated by new entrants, start-ups, individuals who identified an opportunity and built a business around it. That doesn’t mean established companies are unable to do this but often they view the opportunity as risky, do not believe the current model can be easily disrupted or have a vested interest in things to remain they are. But there are quite a few examples from large enterprises. Think of Nestle who developed the home market for good quality espresso coffee or Crest who created the market for their Whitestrips product. Regardless of size of company, taking a step back shows that most cases of disruptive innovation share a similar storyline that we can learn from.

    1. It starts with empathy

    Under armour

    Most ideas that result in new categories originate with the individual who personally experienced a problem or frustration and decided to do something about it. In 1995 when Kevin Plank, a college football player was frustrated with his sweat soaked shirt under his equipment he wondered why nobody had solved this problem before. Without any prior experience he developed a new undergarment that repelled moisture and offered it to his athlete friends. When they said they liked it and could he make more the start of a new business and a new category was made. Under Armour now sells over $2bn in sports clothing.

    2. It takes perseverance and believing in your idea

    Chobani yogurt

    It only took a comment from Hamdi’s father, who visited him in the US and commented on the poor quality of yogurt and an ad about an old yogurt factory for sale to come up with the idea for Chobani. Initially everybody around Hamdi thought he was nuts to buy a factory that Kraft had decided to divest and move into a very competitive market that was dominated by a few big players. But 18 months of experimentation with recipes later and Chobani hit the shelves with a Greek yogurt that turned this niche category into a mainstream market. Since its introduction in 2007  Chobani now holds a 50% market share in its category and has grown to a $1bn business.

    3. Size of the prize may not seem big at first

    Red bull

    When Red Bull launched it wasn’t exactly considered the mass market product is has become today. Created in 1987 Red Bull avoided mass market advertising and was targeted at people who fell into the “thrill seeker” lifestyle, e.g. snowboarders, surfers etc. Over the years Red Bull has become socially more acceptable and moved from a niche product into the mainstream. The size of the prize wasn’t in the same category as other energy drinks but today its market share in the US is 36%.

    4. It’s the business model that counts

    Nespresso

    Contrary to popular belief Nespresso wasn’t a quick hit. Invented as early as 1974 it took quite a while and a lot of experimentation before Nespresso became the success it is today. During those years Nestle decided the opportunity would be better served as a separate business with leadership that was brought in from the outside. A fresh perspective on which customer Nespresso should target shifted focus from the office environment and restaurants to creating a new household category in gourmet coffee. Combine that with direct selling, word of mouth marketing, partnerships for the coffee machine development and we can see that it took innovation at the business model level to make it work.

    It is true that new categories are mostly created by new entrants, start-ups and entrepreneurs who identify a pain point or specific need, something they can solve for the customer and build a business around through experimentation along the different elements of a business model. From these and other stories clear patterns emerge that can help others on their quest to identify the next big thing.