More on Moore (cont.)
Mental Models in Strategic Marketing
Thus, in strategic marketing, Moore values leverage. As an abstraction, the power of action defines the term “leverage.” The Greeks derived the concept of leverage from principles of mechanical advantage: for instance, the use of a lever at one point to lift a heavy weight at another point. Yet, no mechanical force is more powerful than the skilled use of knowledge when adroitly applied. Just as science advances by explaining complex phenomena with theoretical abstractions, information advantage leverages the ratio of the power of an idea to the simplicity of a model.
A “mental model” abstracts significant features and relationships—the specific difference that makes all the difference¾from a complex world to leverage the individual’s power to predict, control, or understand a phenomenon of interest. Amidst an otherwise booming, buzzing confusion, mental models focus our attention on key features and relationships. Our minds can experiment with imaginary changes in the key variables to discover what happens with mental tinkering before we hazard the real effort.
First Principle: Segmentation Leverages The TALC as the Master Model.
The master model for the diffusion of innovations is the Technology Adoption Life Cycle (TALC). Moore applies the TALC to the evolution of markets following discontinuous innovations—an infrastructure swap-out that requires a new value chain to offer “new products or services that require the end user and the marketplace to dramatically change their past behavior, with the promise of gaining equally dramatic new benefits.” The discontinuity in infrastructure both changes everything and introduces great risk by creating residual uncertainties about who will become the market leader, which architectural standard will prevail, and precisely when to adopt it.
Moore leveraged the ideas embodied in the TALC by applying the marketing principle of segmentation to his version of this model. Market segmentation uses various methodologies to identify and characterize target customers along a number of dimensions that provide actionable insights. Remember that Moore defines “markets” as actionable segments that are self-referencing and, hence, leverage word-of-mouth chain-reaction to diffuse innovations.
As a mental model, the TALC divides the life cycle of a discontinuous innovation into six phases of technology market development: (1) the early market—a gestation period of excitement and uncertainty with visionary customers under the influence of technology enthusiasts; (2) the chasm—a pause in market development of indeterminate length because there is no natural customer among pragmatists, given the discontinuous innovation’s immaturity and lack of widespread acceptance; (3) the bowling alley—the product category reemerges, gaining acceptance by pragmatist customers within niche markets; (4) inside the tornado—the product category enjoys broad appeal across a wide variety of market segments, with a market leader emerging to establish a de facto standard; (5) on main street—the hypergrowth era is over as the market saturates and matures, with competition shifting to price and +1 offerings to niches; and (6) total assimilation—the final implementation of a mature technology, often in the form of a service, rather than as a product-based market.
Thus, at each inflection point in the TALC, Moore discovered that the developing high-tech market naturally segments as new psychographic groups, with different needs, values, and priorities, emerge that may not reference its predecessor.
To make the model of the TALC truly his own, Moore both relabeled the five constituencies with his psychographic preferences and introduced the concept of the chasm to explain why the straightforward continuous diffusion model of Rogers’ TALC did not work with high-risk discontinuous technology innovations.
Hence, Moore (for instance, ITT, pp. 15-18) relabeled each of the five constituencies:
1. Innovators = Technology Enthusiasts.
2. Early Adopters = Visionaries
3. Early Majority = Pragmatists
4. Late Majority = Conservatives
5. Laggards = Skeptics
Moore’s key original insight (ITT, p.10, his emphasis) is: “the winning strategy does not just change as we move from stage to stage, it actually reverses the prior strategy.”
Understanding a key insight is always a significant achievement because of its potential to illuminate. We begin with the obvious implication: you must change the marketing strategy at each inflection point that segments the TALC. Strategically, this is the crucial difference that makes all the difference.
The TALC models the response of a population to an option to adopt a discontinuous innovation¾an innovation that disrupts the old paradigm with the promise of a new one that is ten-times better¾by abstracting it in the form of a bell-shaped curve of cumulative adoption. What Moore added was a new abstraction that divided a normal distribution into six different segments differentiated by adoption strategies that explain when and why people, who are segmented by their motivation and shared value domains, decide whether to switch allegiance from the old to the new.
The strategy of the technology enthusiast is to adopt the new device, not for its benefits, but simply to explore its properties, discover if it is “cool,” and to enjoy feeling excited by the wonder of the new wave of technology.
The strategy of the visionary, mavericks who have broken with the herd, is to adopt the innovation to capture dramatic advantage over less imaginative competitors, and hence to leapfrog over pedestrian competitors, dramatically differentiating themselves as, well, “visionary.”
The opposite strategy of the pragmatist is to stay safely in the herd, use the wisdom of the marketplace to sort out which complete whole product solution is truly valuable, and then be a fast-follower once the winning platform emerges.
The strategy of the conservative is to stick with the tried, proven, and paid for infrastructure as long as possible, conserving cash and switching only when the transition requires little new learning, system integration, or debugging.
The strategy of the skeptic is to debunk the entire technology as an unnecessary field of dreams and refuse to adopt it at all.
Thus, Moore’s segmentation by prevalent strategies of adoption contrasts with the common normal curve assumptions implicit in the earlier approach to the diffusion of innovations. In the 1980s, Rogers TALC provided marketers with a model of continuous progress in the social process of diffusing innovation. That is, new products were seeded with technology enthusiasts who educated the visionaries who provided good references to pragmatists who contributed the bulk of revenue as the company became a market leader and set a de facto standard, which permitted the company to leverage its success with pragmatists that generated the scale and experience to produce cheap and reliable solutions to meet the needs of conservatives. Skeptics were left to their own devices.
However, Moore’s insight was: this apparently logical and attractive continuous-diffusion strategy did not work well in practice because visionaries and pragmatists, in particular, had such different underlying values that pragmatists would not reference visionaries. In CTC (p. 18), Moore provided a set of psychographic contrasts that results in an apparently unexpected, but foreseeable, Chasm between the Early Market segment and the Mainstream Market.
Visionaries Pragmatists
Intuitive Analytic
Support revolution Support evolution
Contrarian Conformist
Break away from the pack Stay with the herd
Follow their own dictates Consult with their colleagues
Take risks Manage risks
Motivated by future possibilities Motivated by present problems
Seek what is possible Pursue what is probable
“In short,” wrote Moore, “visionaries think pragmatists are pedestrian, and pragmatists think visionaries are dangerous.” This means pragmatists do not trust visionaries as credible references, trusting only those whom they perceive as like them. Thus, the Chasm develops between the early market and the mainstream market when: (a) discontinuous technologies offer incomplete products that require significant reengineering and new systems while providing only modest enhancements, and (b) early market customers do not serve as satisfactory references for the mainstream market.
Therefore, Moore believes that the principle of segmentation must be applied in new ways in high-tech markets. A high-tech market segment is any self-referencing group of people with common needs, wants, problems, and aspirations that may be met by a common solution or similar application. Although the consumer mass market can be segmented by demographics or psychographics to increase and diffuse demand, the high-tech markets are inherently high risk and segment by nature at each inflection point in the TALC.
Although Rogers had conceptually privileged individual differences in thresholds of innovativeness to account for the more-or-less continuous spreading of social diffusion, Moore prioritized the significance of social referencing in segmented high risk high-tech markets as the key difference that makes all the difference. In the systematic studies of the diffusion of influence, once the sociometric data accumulated to reveal the dynamics by which opinion leaders influenced local clusters in homophilous diffusion networks, the research evidence on social diffusion favored Moore: self-referencing social processes accounted for more variance than did individual differences.
Moore (Wiefels, p. 44) identifies four specific types of risk: (1) Adoption risk: because it is difficult to use, the adopted innovation may fail if it requires extensive behavioral change, or offers only insubstantial benefits or low returns on investment; (2) Solution risk: because it is hard to assemble, deploy, or integrate with existing systems, a chosen solution or application may not be complete or easily replicated, supported, and sustained; (3) Marketing risk: because it is difficult to source, purchase, or support, a chosen solution or application may be difficult to market; (4) Business risk: the risk that a chosen vendor may not remain viable economically and, hence, may be unable to sustain, enhance, and advance the innovation.
Because there is as yet no developed whole product that can be marketed as a generalized standard solution for a mainstream market today, this set of looming risks requires that high-tech markets be segmented, above all at the bowling alley’s inflection point. Although management should realize that a general-purpose whole product solution is not available at this stage, the bowling alley strategy strikes many companies as counterintuitive because every enterprise still wishes to dominate a mass, not a niche, market. The Siren of Immediate Gratification tantalizingly beckons. Moreover, niche markets require highly tailored applications that consume the vendor’s resources. Furthermore, niche customers evaluate competing offers on their completeness in meeting their specific needs and on their rapid ROI. The young aspiring company must supply the specificity needed to solve the niche’s compelling reason to buy because, although niche customers, they are still pragmatists who want a complete application solution.
The danger for a pretender who wants gorilla power NOW, after achieving some success with technology enthusiast and visionaries, is that a loss of strategic focus creates a Chasm Crisis of indeterminate length. The visionary market has dried up; yet there is no strategic focus on developing a whole product for self-referencing niche market segments. In a Chasm Crisis everyone loses because the dreamed of success in the mainstream market is not reached by a premature attempt to be everything to everyone when none reference the other. No one is satisfied with an incomplete set of products and services; and hit-or-miss marketing does not generate self-referencing. After recognizing the company is failing, too often management takes drastic, unfocused, and failing actions, like price-cutting to “increase demand.” Instead of a successful crossing that leverages word-of-mouth, management is discredited; equity is radically diluted; and key personnel become disillusioned.
The bowling alley strategy is required precisely because the mainstream pragmatist herd stalls, balks, and resists the pressure to swap-out the present infrastructure for a discontinuous one because they face a classic dilemma. On the one hand, if they move too soon, they become exposed to unacceptable levels of adoption and solution risk that are created respectively by technological complexity and immaturity or solution incompleteness and unsustainability. On the other hand, if they move too late, they face dangerous market and business risk—not in technology, but in their industry¾from scarcities within a tornadic market where demand now outstrips supply and from the rapidly scaling business successes of their faster moving competitors.
These risks demand that pragmatists stay with what works as long as possible, but no longer. These unavoidable risks are best managed by moving with the herd, picking the same common vendor, and then rushing as fast as you can to leave integration problems behind, gain competitive advantage, and avoid being trampled in the excess-demand stampede.
What does the pragmatist herd need to know in order to move? Credible evidence from the references of bowling alley pragmatists, given their successful experience, that adoption and solution risk have been reduced, from the herd that there is now a generalizable whole product, and from impartial third parties, including business and financial press or financial and industry analysts, that marketing and business risk are reduced because a dominant market-share leader has emerged.
How does the pragmatist herd know when to start moving? Every pragmatist watches while being watched. That is, the mass movement of the pragmatist herd is an emergent of increasingly synchronized local actions reaching critical mass within a self-referencing group.
Markets without a clear leader are an anathema to pragmatists, appearing unstable, unpredictable, and, hence, unattractive. To avoid taking unnecessary risks, pragmatists begin to move together at the same time, move through the transition as rapidly as possible, and select the generalized whole product solution of the emergent market leader. Thus, tornado markets stampede as self-referencing, self-selecting, and self-organizing systems.
Picking the same vendor at the same time reduces the transition time and smoothes the way toward a new de facto standard infrastructure that specifies the interfaces for complementary products, which, as the standard platform scales, will continue to generate ever-greater benefits at ever-lower prices. Because tornados are about the discontinuity introduced by complete infrastructure swap-outs, buyers choose the leading product at this inflection point for the life of the category. Everyone else’s entry in the category is marginalized.
The value chain, with the gorilla at its nexus, has forged a complete solution—the whole product—that adds such value that it creates its own high switching costs: once the solution is adopted by the pragmatist mainstream, a subsequent swap-out to a new infrastructure must overcome the 10-times-better barrier-to-entry.
Hence, leadership becomes rewarded via the principle of increasing returns. The difference in leadership in a bowling alley niche and in the tornado, however, is fundamental. It is the elemental difference between the leadership of a specific application market and the leadership of an entire product category. Because selecting the leader always reduces risk, and because becoming the selected and recognized leader, in turn, generates increasing returns, it is essential that leadership in bowling alley niche-markets must precede the possibility of successful leadership within a tornado market. |
