Performance Provided, Market Demand, and the Product Life Cycle

Performance Oversupply and Changing Bases of Competition

Performance Oversupply and Market Dynamics

  • Performance oversupply occurs when technology advancements outpace market needs.
  • This phenomenon creates opportunities for disruptive technologies to emerge and capture market share by offering different valued attributes.
  • The shift in performance criteria leads to changes in the basis of competition.

The Disk Drive Industry Example

  • By 1988, 3.5-inch drives had sufficient capacity for desktop PCs despite being more expensive than 5.25-inch drives.
  • Customers began valuing smaller physical size over capacity, showing a shift in competition bases from capacity to size and later to reliability.
  • Once the performance of important attributes meets the market's needs, the focus often shifts to new attributes.

Product Commoditization

  • Commoditization occurs when repeated changes in the basis of competition lead to market saturation for all important attributes.
  • Products in such conditions see intense price competition and falling profit margins despite possible differentiation.

Product Evolution Models

  • Windermere's Buying Hierarchy: Competition shifts from functionality to reliability, convenience, and finally price as market needs are met.
  • Geoffrey Moore's Model: Products move from functionality (early adopters) to reliability (mainstream) and then to convenience (late majority).

Characteristics of Disruptive Technologies

  1. Weaknesses as Strengths: Disruptive technologies often start with features seen as weaknesses in the mainstream market but are valued in new markets.
  2. Simpler, Cheaper, Reliable: They tend to be simpler, cheaper, and more reliable than established technologies.

Case Studies

Disk Drives

  • Smaller drives like 3.5-inch conquered the market by offering valued smallness despite higher costs.

Accounting Software

  • Intuit's Quickbooks: Captured market by offering simplicity and convenience over traditional complex accounting software.

Insulin

  • Eli Lilly's Humulin: Faced tepid market response despite higher purity because market needs were already met by animal insulin.
  • Novo's Insulin Pens: Achieved success by offering a more convenient way to administer insulin.

Controlling Product Competition Evolution

  • Companies have three strategic options:
    1. Ascending Sustaining Technologies: Target higher market tiers and abandon lower ones.
    2. Catching Successive Waves: Align with particular market tier needs as they evolve.
    3. Steepening Market Trajectories: Increase demand for new attributes to outperform existing market needs.

Right and Wrong Strategies

  • No single strategy is universally best; success depends on understanding market and technology trajectories.
  • Strategies must consider customers’ evolving needs and technological advancements to avoid being displaced by disruptive innovations.

Notes

  • Discussions highlight the complexity and significance of correctly identifying and adapting to performance oversupply and changing competition bases.