Strategizing Market Power | Human-Centered Change and Innovation

Target Market Initiatives

GUEST POST from Geoffrey A. Moore

Market power derives from addressing an urgent mission-critical use case in a particular vertical industry requiring a specialized solution that the incumbent vendors either cannot or will not provide. Power aggregates around a single vendor who is the first to provide an end-to-end solution (what Ted Levitt taught us to call the whole product), typically with the support of partners whom the vendor has recruited to the task. Once success has been verified, prospective customers rally around the new solution, making it the de facto standard for that market segment, effectively excluding all other competition. This dramatically lowers the cost of acquisition and maximizes the lifetime value of the addressable market.

The mechanism for obtaining market power is called a target market initiative. It begins with the selection of a target market segment. Here the criteria for selection are three:

Big enough to matter. The goal is to win well over 50% of the total segment within a three-year horizon, with the resulting revenue providing a material portion of the organization’s total revenue, and an even more meaningful portion of its profit contribution.
Small enough to lead. Again, if your organization is going to win over 50% of the segment within a three-year period, the segment must be small enough to make this feasible given your current size and funding.
Good fit with your crown jewels. To address an intractable problem requires breakthrough capability that others do not have, or what we like to call your “crown jewels.” These accelerate your path to success and provide a barrier to entry to protect your market segment leadership position once it is attained.

The playbook for running a target market initiative is described at length in Crossing the Chasm. It is organized around the following set of factors:

Target Customer. The bullseye target is the business process owner for the broken mission-critical process. They will provide the subject matter expertise. A secondary target is their executive sponsor. They will create budget to fund the effort.
Compelling Reason to Buy. The use case has to be both mission-critical and urgent, in order to overcome a pragmatist’s normal inertial resistance to embracing anything categorically new. Here pain, not gain, is the source of the trapped value that moves the customer to lean in and collaborate, and all your sales and marketing should be focused on the relevant pain points and their remedies.
Whole Product. This is the bill of materials for the complete solution, everything the customer needs to take the problem off the table, with nothing extra added. It is designed backward from the customer’s problem, not forward from your supply chain or your financial goals and objectives.
Partners and Allies. Whatever is on the whole product’s bill of materials that is not provided by your company must come from a partner. One of the functions of a target market initiative is to orchestrate the coming together of such partners to ensure timely delivery of the whole product. The focus is on completing the solution, not adding sales coverage.
Distribution. Target market initiatives require a direct sales channel to execute a consultative sales process, organized around a diagnostic/prescriptive approach, supported by marketing that speaks directly to the business process owner and their executive sponsor. This must not be outsourced, as it is through these direct interactions that you establish your company as the market segment leader.
Pricing. Pricing is value-based, calibrated by the consequences of the current as-yet-to-be-fixed broken mission-critical business process. Discounting is never appropriate as the customer is far more concerned about addressing their urgent needs than saving on the purchase price.
Competition. There are two classes of competitors in play. The first is the incumbent vendor who is not solving the problem satisfactorily at present but who could throw people at it in an attempt to get to “good enough.” The other is a vendor with breakthrough capabilities similar to yours who has not made the commitment to deliver the whole product but who has a partner that might try to do so.
Positioning. You are the breakthrough vendor who has made the whole product commitment, meaning you have demonstrated a deep understanding of the customer’s industry and its problem process, and you have developed a repeatable solution that will get better as each new instantiation leads to more useful features and a more engaged ecosystem of partners.
Next Target Customer. For start-ups, this will normally be an adjacent segment, either a new use case from the same customer base or the same use case from a different segment. For established enterprises whose size dictates that target market segments can never be material to total revenues, winning a target market segment creates a hook for M&A as well as makes you a lot more knowledgeable about which companies are worth acquiring.

Target market initiatives are the most reliable play in the B2B innovation playbook, as witnessed by the staying power of Crossing the Chasm, currently in its fourth decade of being in print, pushing two million copies in total sales worldwide. In closing, then, let me leave you with eight great reasons for building one into your next annual plan:

Gain market adoption for a disruptive technology. This is the classic chasm-crossing play.
Penetrate a new geography. Establish your reputation as a worthy vendor.
Get out from behind the market leader. Gorillas can never defend themselves against highly focused chimps. All they can do is try to isolate you from making any further progress.
Anchor a turnaround. When your enterprise has been on a losing streak, it is critical to “win one for the Gipper.” Target market initiatives are your best bet.
Solve for the “stuck in neutral” problem. When the macro economy is in the doldrums, and customers are slow to buy anything, a truly problematic use case overcomes their hesitancy.
Capitalize on a great niche opportunity. There are use cases where the size of the market is small, but the trapped value is enormous, and you can build a major franchise without ever leaving the segment, as has happened in CAD, Wall Street, health care, and aerospace.
Exploit the “granularity of growth.” In mature markets where average growth rates are in the low single digits, there are always pockets of double-digit growth around problematic use cases. You just need to target them directly.
Capitalize on a market in transition. As markets are working through long-lead transitions, short-term progress can be made locally rather than globally. The evolution of the hybrid workplace would be a current example.

That’s what I think. What do you think?

Image Credit: Pexels, Geoffrey Moore

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