Monday, November 26, 2012

Crossing the chasm: Marketing and selling high tech products to mainstream customers - Geoffrey Moore

Crossing the chasm: Marketing and selling high tech products to mainstream customers - Geoffrey Moore, 1991, Revised 2002

Summary

This book discusses the difficulties that technology firms face in moving from use by early adopters to mass adoption by the  mainstream. The difficulties are discussed in the context of the technology adoption life cycle and the chasm between customer who are early adopters/innovators and those who are the early majority (pragmatists). Navigating this chasm is a period that is sufficiently different from both early growth and the later stages. Moore discusses this stage and how to manage it. The book defines the chasm, the nature of customers on either side of it, how the chasm is to be approached:
  •     Identifying a niche market to attack
  •     Defining the "whole" product
  •     Positioning the product in relation to its competition
  •     Execution of the attack through distribution and pricing
Finally he concludes with a discussion of how a company must evolve and some of the issues that must be addressed (personnel/compensation) post chasm

Chapter 1: Chasm defined

  • Four type of customers
    • Early adopter/Innovators, Early majority, Late majority, Laggards
    • The population is distributed in a bell curve
    • Each of the four categories one standard deviation way from the mean
    • Normal technology adoption life cycle (TALC) moves from one segment to the next, left to right
  • Innovations are continuous or discontinuous
    • Technology innovations are often discontinuous
    • This has the effect of disrupting the TALC
  • Gaps/cracks between each segment
    • Innovator to early adopter
    • Early adopter to Early majority: Early adopter wants a change agent, Early majority wants a productivity improvement
    • Moving from early adopter to early majority is a move from a market with no reference/support to one with a well defined reference/support model
  • The chasm is the gap between the early adopter/innovator and the early majority

Chapter 2: Chasm examined

  • Innovators: Demand extensive information, but will support the product even if the product is half baked
  • Visionaries (Early adopter): Derive value from the the strategic leap forward, not the technology itself
    • Expect breakthrough, not improvement
    • Highly demanding, expect the"dream"
  • Pragmatists (Early majority): The large revenues reside with the pragmatists
    • Slow to make decisions, move only when they sense the market is moving
  • Late majority/Laggards

Chapter 3: Overview: How to cross the chasm

  • Sell to visionaries <-chasm-> Sell to early adopters
  • How to handle the chasm:
    • Take over a niche market
    • Company must be market driven not sales driven
    • Being sales driven in the chasm period is fatal
    • Problem: Leader like sales driven companies, not market driven companies
    • Provide the "whole" product
  • Market leadership - big fish, small pond
    • Growth will need word of mouth - spreading the customers dilutes this: 10 customer in 10 segments is worse than 3-4 customers in 3 segments
    • Strategic niches
      • Commit to the niche
      • Act locally, not globally
      • Target closed communities
  • Platforms vs. Applications
    • Products must take a vertical approach to cross the chasm i.e must become an application
    • Platforms enable mass market adoption - will help once the chasm is crossed

Chapter 4: Identify the point of attack

  •  This is a High Risk, Low data decision
    • Informed intuition better than analytical reasoning
  • Define target customer characterizations
    • Use case scenarios
    • Market development strategy checklist
      • Target customer, reason to buy, whole producer, partners, distribution, pricing, competition, positioning, next target customer
  • Size of the market:
    • Pick on someone your own size
  • Steps:
    • List library of target customer scenarios
    • Analyze, rank and decide
    • Commit to the point of attack

Chapter 5: Define the product

  • Whole product marketing
    • Whole product can be categorized based on satisfaction of requirements:
      • Generic, Expected, Augmented, Potential
    • A seemingly inferior product may actually be inferior only in the "generic", it may be superior in the "whole"
    • A whole product may need support:
      • Third parties usually do not contribute during the chasm
      • Need to form tactical alliances
  • Markets are an ecology of interrelated interests
  • Steps:
    • Develop a whole product diagram (donut)
    • Develop needed alliances/relationships

Chapter 6: Define the battle

  • Any force can defeat any other if the battle is defined
  • Create the competition:
    • Locate the product in a buying category which has established credibility with pragmatist buyers
    • Focus on the needs of the pragmatists: Use a Competitive Positioning Compass
      • Opinion/knowledge about technology (Specialist/Generalist)
      • Opinion about proposition (Supporter/Skeptic)C
    • Crossing the chasm (Move sales from Supporters of technology/proposition ->  to skeptics of technology/proposition.
    • Move from product metrics (fastest, easiest) to market metric (largest base, cost)
  • Positioning
    • In people heads, not in words
    • Pragmatists are conservative about changes in positioning
    • Positioning is about making a product easier to buy, not easier to sell
  • Process: Claim, Evidence, Communications, Feedback/adjustments
    • Pass the elevator test
    • For A, Who are dissatisfied with B, Our product is C, That provides D, Unlike E, We have assembled F
  • Proof: Market share, Alliance
  • Steps:
  • Focus product by defining competition
  • Define position

 Chapter 7: Launch the attack

  • Objective: Secure a channel into mainstream market with which pragmatist will be comfortable
    • Prioritize above revenue, profits, customer satisfaction
    • Motivate the channel
  • Customer oriented distribution, Distributor oriented pricing
  • Distribution: Direct selling, Retail selling to OEMs to VARs, System integrators
    • Can the channel create a relationship to the mainstream customer?
    • Direct selling is the vest to create the relationship, crossing the chasm
    • Retail fulfills a demand, rather than create it
    • VARs provide support
    • Price point between $10K and $75K is the hardest to sell
    • Products needs marketing and end support
    • VARs do not expand a market
  • Start with direct selling, move to suitable channel after awareness is created
  • Pricing: Customer oriented, vendor oriented, distribution oriented
    • Customer oriented:
      • Visionaries: High cost: Value based pricing
      • Pragmatists: Competitive based pricing
      • Conservatives: Low cost: Cost based pricing
    • Vendor oriented:
      • Internal costs drive pricing decisions
  • Distribution:
    • Price based on  market
    • Price for market leadership
  • Steps:
    • Define the distribution channels
    • Define the pricing model

Chapter 8: Conclusion

  • Post chasm enterprise bound by the commitments of the  pre chasm enterprise
    • Avoid making wrong commitments in pre-chasm stage
    • Post chasm enterprise: Purpose is to make money
      • Stop custom development and roll out generic product
    • Pre chasm enterprise: Purpose is proof of concept of product and small early revenues
      • Typical mistake: Promise of hockey stick growth post chasm
      • Reality: Staircase: cycles of slow growth, stagnancy and then rapid growth, caused by repeatedly crossing chasms in different market segments
  • Venture capitalist concerns:
    • How long till chasm is crossed. How long before reasonable profit from mainstream market?
    • Chasm can be crossed only when the whole product is built, may need a long time
      • Technologist: Adopt discipline of profitably from day one
        • Except:  When high entry barrier exists
        • Rapid development needed (land grab)
  • Composition of company needs to be different before and after the chasm in Engineering/Sales
  • Navigating the chasm: May need reorgs with new job descriptions to handle the shift