A new framework on how to position a new product or service outlines strategies for capturing both the high end and low end of the market.
“Should a new product or service start at the high end of the market and then move downward? Or is it wiser to launch a new offering at the low end, and then move up?”
Those are the questions posed by Glen Schmidt (University of Utah’s David Eccles School of Business) and Bo van der Rhee (Nyenrode Business Universiteit) in their article “How to Position Your Innovation in the Marketplace” in the Winter 2014 issue of MIT Sloan Management Review.
The questions are a bit of a straw man, with Schmidt and van der Rhee conceding that there isn’t a one-size-fits-all approach to bringing a new product or service to the market. But their investigation led them to a new framework for thinking about how to position a new offering.
“There are two key questions to ask,” they write. Those questions:
(1) Is the basic functionality of our new offering better or worse than that of existing competitive products?
(2) How groundbreaking are the novel attributes of the new product?
Schmidt and van der Rhee divide the strategies for approaching a market into six categories. Where a product falls depends on how strong the new attribute’s performance is (strong, moderate or weak) and how the attribute compares to existing competition (lower or higher).
Take, for example, the development of the Nintendo Wii video game console, which was released in 2006. The authors rank this product as having moderate new attributes — “some new features or interesting tweaks on existing features” — and a position at the borderline low-end price of the video game system market. As the authors write: “The Wii attracted a new type of customer to the video game market; Nintendo decided not to compete head-on with Microsoft’s high-performance Xbox 360 and Sony’s high-performance PlayStation 3. Both of these competitors had much faster processing power and high-end graphics, traditionally the ‘core attributes’ of product performance in the video game industry. Instead of competing on those core attributes, where the Wii offered less functionality, the Wii instead included a somewhat novel ‘new attribute’ — its easy-to-use motion-sensitive controller.”
The Wii came at the market from a lower price point and then encroached upward. This positioning, which the authors call “Fringe Market Low-End Approach,” is, they write, “the best choice for new products that sacrifice core performance in return for something novel — something like the Wii gaming system’s motion-sensitive controller.” The authors note, too, the potentials for these kinds of products to bring in new audiences: “This type of new product can greatly expand a market because it sells to previous nonbuyers on the ‘fringe’ of the existing market. The Wii, for example, greatly expanded the market for gaming systems.”
When should companies pursue this positioning? This kind of positioning makes sense when the target audience consists of people not currently in the category at all. The authors write that “Successful fringe market low-end new products must attract new customers who previously were not interested in purchasing this type of product because of the high price. The existence of this type of customer is usually related not only to a comparatively high sticker price, but also to a lack of need for the high core attribute performance offered by the original products. The video game industry discovered that some people were not interested in games requiring complicated multibutton controllers. Nintendo listened and came up with the Wii. For this approach, listening to non-customers is key.”
For details on all six types of new product positioning, as well as the authors’ top lessons for innovation managers, see the full story.
This article draws from “How to Position Your Innovation in the Marketplace,” by Glen Schmidt (University of Utah’s David Eccles School of Business) and Bo van der Rhee (Nyenrode Business Universiteit), which appeared in the Winter 2014 issue of MIT Sloan Management Review .