6 Business Horizons / May-June 2002

C reating and dominating a new market is always adifficult task, but you can raise the odds of suc-cess if you approach it systematically. You will

probably have barely enough resources to run your exist-ing business while you look at new markets, so any timeyou can avoid unnecessary expenditures of time, people,or money, you will improve your chances of creatingsomething new.

Looking at systematic success, we have identified fourpaths or strategies for creating a new market. One way tosave your resources is to select one of them. The paths are:

1. Unknown products and unknown customers. Youhave a great idea, but have never tried it before. Youthink there must be customers there, but you do notyet recognize them.

2. Unknown products and known customers. You knowthe customers well. You have a great product or serviceidea, but have never done it before.

3. A known product and unknown customers. You arefamiliar with the product but not the customers.

4. Known products and customers. You know both wellbut have a new way of combining them to create amarket that no one has tried before.

(In this article, products include services and intangiblesas well as material products.)

The lower left pane in Figure 1 shows the most difficultpath to follow. When you take this path, you do it with-out real-world knowledge of potential customers or prod-ucts. The risk of failure is higher, the work to avoid thatfailure more difficult.

However, if you know either your products or your poten-tial customers, you can make the task easier and reduceuncertainty. Working from the upper left or lower rightpanes means working from a position of greater strength.Working from the upper right pane may seem safer, butexperience shows that it usually results in line extensions

Can you systematically createand master new markets? Yes. Choosing one of these four key strategies and leveraging it to your own strengths will raise your chances of success. Practical examples from FedEx, AT&T, 3M, GlaxoSmithKline, and other companies demonstrate the pitfalls andadvantages of each of these new-marketstrategies, helping you choose which is the bestone for you.

Peter MeyerPrincipal, The Meyer Group, a management consulting firmbased in Scotts Valley, California (Peter@MeyerGrp.com)

This article is derived from the author’s book Creating and domi-nating new markets (AMACOM, 2002).

Proven strategies for new market mastery

instead of new markets. Let’s look at each pathin greater detail.

Path 1: Unknowncustomers, unknownproducts

F or many executives, the most excitingprospect is to go after both new customersand new products. Starting from the equiv-

alent of a blank slate allows the most creativity,and that can be rewarding.

When you do not know your prospective cus-tomers well, you have the satisfaction and chal-lenge of learning about them. You may be ableto define them and their expectations as you go,showing them the traits that outline their futureneeds and problems. With that, perhaps you candictate the solutions.

The same excitement can come from being ableto create new products. You can decide what theproduct should do, how it should look, andhow it should go about resolving the problemyou’re after. Creating a product from scratch canbe immensely satisfying.

That was the case for the team at Netscape Com-munications. When Netscape started out asMosaic Communications in 1994, it was one of two com-panies that hoped to take advantage of the Mosaic WWWbrowser. To succeed, it would have to accomplish twotasks. First, it would have to convert millions of users whonever saw a need for the product—people who did noteven know what the Web was, much less why they shouldcare to take the trouble to install and use a browser. Sec-ond, it would have to start over from scratch with a newproduct. This was not a trivial task, but Netscape’s teamsucceeded. They created a new market, which the com-pany dominated for years.

In many ways, the success of Netscape was totally improb-able. Its team created a product that had no history. It tar-geted a group of prospective customers who did not see aproblem to solve. To make the market work, Netscapegave the user product away free.

Many other companies have followed a similar path, creat-ing a new product for consumers and business customerswho did not know they had a problem. The result of pro-viding a solution that has no problem is predictable—many more failures than successes.

The examples of attempts to create new markets from thelower left pane are not all recent. The Post-it Notes prod-

uct line at 3M is an example of success. Electric cars in the1990s and pet food Web sites are both examples of failureto create a market.

Building a product from scratch is hard enough. To definea customer set that never existed, and convince its mem-bers that they are potential customers, is a considerableeffort. Doing both at once is exponentially difficult. Thepath of new products and new customers has the highestrisk for your business.

Path 2: Unknown products,known customers

T he advantage of knowing your customers is that,with a reasonable investment in time and money,you can find out what problems matter the most to

them. Then, as you develop your new products, you knowwhat solutions you need to provide. Working with existingcustomers makes for a significant reduction in risk.

While Netscape sought potential customers, FrederickSmith tried to build his first product plans on known cus-tomers: the US Federal Reserve Banks. These banks com-

7Proven strategies for new market mastery

Figure 1The paths to new markets

PRO

DU

CTS

Un

kno

wn

K

no

wn

Unknown Known

CUSTOMERS

Creating and dominating new markets is easier when you start with either products or customers that you know, but not both. Despite

several positive examples here, the failures far outnumber the successes.

Path 1Hardest

Examples: Netscape, Post-It Notes,

electric cars, pet food Web sites

Path 3Easier

Examples: Cellphones in Asia,

AZT

Path 2Easier

Examples: Fedex, Land Camera, Picturephones

Path 4Harder

Usually results in line extensions

prised a set of customers that were easy to identify—there were just a few of them, in locations that were wellknown. But Smith’s initial plan to carry their checks didnot work. The reason was not that the customer set was amystery, but that he did not approach the customersbefore he built his product plans. Smith learned from thatexperience. His team invested considerable time to under-stand and get close to its prospective customers before itlaunched the business we now know familiarly as FedEx.

Edwin Land was a little more systematic about using aknown set of customers. Although the inventor’s idea of asingle-step photographic process came through serendip-ity (while on vacation in Santa Fe in 1944 his daughterasked why no one could have instant photography, andhe worked out the answer, bringing the technology tomarket in three years), he developed the Polaroid instantcamera product for a specific set of prospects—he targetedhobbyist photographers, a small but familiar group ofcustomers. With great success there, his company movedinto other consumer markets. Throughout the first twodecades of instant photography, Land dominated the newmarket he had created.

Such a path does not always lead to success. AmericanTelephone and Telegraph created Picturephones with theintent of providing a visual phone call to every home inthe United States. It built the first units in 1956, but didnot begin to test them with consumers until 1964. As itstarted, the design team was working with a new productand known customers. A single national company then,AT&T knew its customers well. Nearly every home in theUS was listed in its records, and it had near-perfect knowl-edge of the details of each phone renter. In 1964, it couldpredict how many customers would buy Picturephoneservice and at about what price. The design team knewwhat it had to do to make the product attractive to theseknown customers. What it could not do was make thetechnology workable.

The risk is always high with new technologies and un-known products. You may be able to identify a great setof customers who are ready to buy, but you still have todeliver. Polaroid did so, Federal Express eventually did so.AT&T’s Picturephone group did not.

Path 3: Known products,unknown customers

O ne way to avoid the risk of new products is tofind new markets for your existing products. Cellphones provide a good example. As the market

for analog cellular phones shrank in the 1980s and ’90s,moving to new handset technology was not an easy deci-sion. To create a handset is expensive, and to base it on astill unaccepted technology—digital cellular—was risky.Nor did the risk stop there. The major cellular equipmentproviders had either built or tied themselves to a variety ofinfrastructure products that would also require change. Fordigital handsets to work in a previously analog network, amassive investment was necessary. New equipment had tobe placed on each tower. The vendor had to refresh thesales channels to handle the new product sets. The changerequired new software and testing just to place calls. Some-one had to write and test new software to transfer calls toand from the other parts of the network, or even other net-works. Production teams had to test and install new com-puters to run the new software. You can see why a com-pany that already knew and made analog cellular phonesand infrastructures might want to find ways to keep lever-aging that knowledge.

In the 1990s, while Nortel built a new digital infrastruc-ture and Nokia, Ericsson, and others built new handsets,Motorola took a different direction. It chose to take aknown product to unknown customer sets. The companywanted to leverage its investment in known products,including the infrastructure. Some of those new customerswere in developing countries, which seemed a naturalpath to take. At the time, however, many of these coun-tries had millions—even billions—of residents but no rea-sonable way for the national telephone utilities to providewired service to homes. Using wireless technology, thegovernment-owned utilities could avoid the time andexpense of putting in a copper or fiber-optic network. Thiswas a very attractive solution.

Supplying phones in a new country has not been easy forMotorola or any other supplier. Different dial tones, tech-nical specifications, power systems, and political issueshave made the provision of cellular service abroad anongoing operational challenge. Gaining approval for aphone system in another country requires a great deal ofwork. Creating a product and service distribution system

8 Business Horizons / May-June 2002

You may be able to identify agreat set of customers who areready to buy, but you still haveto deliver. Polaroid did so; FedExeventually did so. AT&T’sPicturephone group did not.

is difficult. Providing technical support is excruciating.Even so, these are known problems that will yield to anexperienced and dedicated team.

Motorola’s strategy of using a known product with an un-known group of customers was a way to speed the cre-ation of new markets. The same is true of the adoption ofAZT as a treatment for HIV disease. On the customer side,it was unclear which patients might use AZT. Althoughthe first sufferers were gay men, no one could projectwhether they were typical patients or simply the firstgroup of many. From a market development perspective,no one could forecast what income levels customerswould have, if they would be in a few cities or nation-wide, or even how many customers there would be. Thecustomer set was a mystery.

Choosing AZT as a product considerably eased the riskfor the company that bought the rights to the drug, Bur-roughsWellcome (now known as GlaxoSmithKline after aseries of mergers). In the early 1980s, AZT was a knownproduct with proven abilities to fight retroviruses likeHIV. Researchers had already explored the side effects,which, although severe, were a known quantity. For thispharmaceutical firm, initial development was completeand paid for.

On the company side, knowing the compound wasimportant because it let BurroughsWellcome focus on themarket. Even with a known product, the customers pre-sented many unanswered questions. No one knew whichpatients could tolerate the strong side effects. Most of thepatients would have damaged immune systems. It was notclear what would happen to those patients over time. Asdifficult as such unknowns were, however, the problemsof understanding these customers were familiar to anexperienced operation. Having a known product made itmuch easier to get quick results as BurroughsWellcomelearned about the customers.

Knowing a product does not guarantee that you can use itthe way you have in the past. You may need to investtime, people, and money in extensive changes. Localizinga phone system requires extensive changes in hardware,software, and support. A chemical compound may notneed much adaptation, but the product is more than thecompound. The product includes all the go-to-marketstrategies as well. For AZT, the process of testing, ap-proval, and marketing was incredibly expensive in time,people, and money. But the investment paid off. The com-pany brought AZT to market quickly in the 1980s, creat-ing and dominating a new market for anti-retroviraldrugs. AZT is still the “gold standard” by which manydoctors measure new anti-retroviral drugs. It still has adominant market share today.

Path 4: Known customers,known products

M any operational managers believe that the mostobvious strategy is to try to create a marketfrom customers and products with which the

company is familiar. Intuitively, it seems that if you knowboth you can reduce your risks commensurately. The ob-ject is to apply a new combination of product and cus-tomer that has not been tried before, creating somethingnew. The idea is tempting—but it usually does not work.

Rarely does a company successfully use known productswith known customers to create a new market. The prob-lem is the tendency to reduce the risks too far and producea line extension instead of a new market. For example,there are more than a dozen versions of Tide on the mar-ket today, but none are creating new markets. It is far eas-ier, and safer, to extend into new versions of a laundrydetergent than it is to try and create a new market forcleansing agents. Extending a line of products is very usefulfor funding new market efforts, but it is not a new market.

In the pharmaceutical business, the knowledge of thetreatments that sell and the customers who buy themmakes it very easy to focus on past successes. The rate ofproduct failure is already high. Companies can spend tensor hundreds of millions of dollars to develop a drug thatfails to make it to stores and pharmacies. For many man-agement teams, line extensions and new markets competefor the same resources. They see it as a question of re-source and opportunity costs—and new markets cost too

much. If you run a pharmaceutical firm, you can saveyears and millions of dollars by simply working theknown. New markets may seem like a luxury.

Creating a new market with known customers and productsis hard. The risk is that you will become defined by yourknowledge. Relying on it could lead you into a highly com-petitive environment when you had hoped to wind up cre-ating and dominating a niche. The best solution is to forget

9Proven strategies for new market mastery

Creating a new market withknown customers and productsis difficult. The risk is that youwill become defined by yourknowledge.

10 Business Horizons / May-June 2002

what you know temporarily and approach your prospectivecustomers as though you do not know them yet. Ask themto tell you about problems that no one has solved forthem, irrespective of your core competencies. Then, whenyou find a critical problem, see if you can bring yourknowledge to bear. If not, start in another of the panes ofFigure 1. The key is not to be defined by the past.

C reating and then dominating new markets is a bigchallenge, and the risk of failure is directly pro-portional to two seemingly contradictory factors.

One is the lack of knowledge about the products andmarkets being addressed. The other is the tendency todefine the business or market by the knowledge youalready possess.

Part of the solution is a management decision to leverageyour team’s knowledge. If you know your product well,the path with a lower risk is to go find markets that havenever considered such an idea. However, as your teamexplores these new customer sets, you must remain opento changing the product to meet new needs. Rememberthat the product is not just the device or service. It alsoincludes the delivery process, all the customer interfacesfor your company, support systems, accounting processes,and more.

Knowing your customers does not guarantee successeither. You will need to put concerted effort into discover-ing the right problem to solve. Often your prospectivecustomer does not know how to state the problem, andyou must be artful in how you ask. As difficult as these

efforts are, remaining unbound by your previous knowl-edge can be harder still. You may find that the teams ofmanagers and executives who excel at operational issuesare unable to move beyond their comfort and into creativ-ity. Asking one person or team to handle both operationsand new market development will usually create a com-promise that is less than effective at both. The best solu-tion may be to follow the path of IBM, Lockheed, andcountless business “incubators” and charter market cre-ation teams that are separate from the rest of the firm.

Considering such difficulties, it may seem safer to staywith line extensions and in known markets. So whatmakes the risk worthwhile? What is the reward? Theopportunity to create and dominate a market, as did Bur-roughsWellcome with AZT and Federal Express withovernight delivery. Success offers a chance to work with-out competition, to increase your margins while reducingyour vulnerability to operational errors. New marketsoffer you a chance to create something from nothing, andprofit from that creation.

When you overcome the challenges, you will numberamong the firms that are ready to attempt the creation ofnew markets. Your attempts may fail more often than not,but the successes will be well worth your effort. ❍

References and selected bibliographyTrimble, Vance H. 1993. Overnight success: Federal Express and

Frederick Smith, its renegade creator. New York: Crown.Meyer, Peter. 2002. Creating and dominating new markets (Chap-

ter 3). New York: AMACOM.