By Philip Kotler and Fernando Trias de Bes
The Evolution of Markets and The Dynamics of CompetitionThe last decades of the twentieth century were prosperous for most companies in the developed world.
Population growth and longer life expectancy meant greater purchasing power. Increasingly sophisticated marketing efforts resulted in greater product trials, repeat purchases and brand loyalty. But you can’t expect to use 20th century marketing tactics in the 21st century to get the same result. Nowadays, a strikingly high percentage of new products are doomed to fail. Only 20 years ago, the proportion of failures to successes was much lower. Why is it so difficult to succeed now? Because of the breadth of what’s available and what it means. Take the cereal category, which features dozens of subcategories and varieties, each addressed to a very specific target market: those who watch their weight, who need fiber, who prefer cereal with fruit, who prefer cereal with chocolate and so on. In milk-based products there are over 50 yogurts competing for shelf space. In any developed country there are several dozen TV channels, leaving little room for one more.
Marketing today is not the same as it was in the 1960s and 1970s. Today there are products to satisfy almost every need. Customers’ needs are more than satisfied: They are hypersatisfied.
Companies can continue to segment the market more finely, but the end result is markets too small to serve profitably. Further complicating the picture is the fact that:
● Distribution of packaged goods is now largely in the hands of giant corporations and multinationals, such as Wal-Mart and Ikea. Distributors own shelf space and decide who gets it.
● There are more brands but fewer producers. Each segment and niche of the market got its own brand as producers discovered that by creating more brands it became more difficult for a competitor’s attacks to make headway.
● Product life cycles have been dramatically shortened. A brand arms race has developed in which competitors quickly launch new brands, competitors respond with their own new brands and the cycle repeats.
● It’s cheaper to replace than repair. It’s faster, easier and cheaper to buy new, and people have accepted that products are disposable, encouraging more new product launches.
● Digital technology has led to a new range of products and services, including the Internet,
global positioning systems and computer and consumer products.
● Trademark and Patent registrations are increasing.
● The number of varieties of products has increased radically.
● Markets are hyperfragmented. Companies, in their search for differentiation, have identified and created more and more segments and niches, resulting in highly fragmented markets.
● Advertising saturation is increasing and a fragmented media is complicating product launches,
making it harder to reach consumers.
● Claiming consumer mind space is harder.
Consumers have become selective, ignoring commercial communications. Novelty might be the only way to catch their attention.
The challenge in marking today is to fight against fragmentation, saturation and the storm of novelties that appear duly in the market. But recently new business concepts have appeared that are the result of a different creative process than the endless vertical segmentation of yesterday. This process is responsible for cereal bars that can be eaten as a snack or in the morning instead of with milk, grocery stores at gas stations, refrigerated pizza, and yogurt for busy women that can be carried in a purse. The new priority must be to find ways to create and launch more successful products. This is the main objective of lateral marketing.
Traditional Marketing Thinking To understand how lateral marketing will transform how you market, you must first understand the strength and weaknesses of the traditional approach to marketing.
Marketing starts by studying consumer needs and figuring out how to satisfy them. Yet many manufacturers forget to focus on needs and instead focus only on selling their products.
Once needs have been identified, the next step is determining who is the market. The market is defined as the persons or companies who buy or might buy the product or services you produce in a given situation to cover a given need. For example, the market for yogurt might be any person older than one who is in a breakfast, dessert or snacking occasion.
In turn, every product and service is included in a category and a subcategory. For example, the product “yogurt” belongs in the milk-based foods market and has subcategories such as fruit yogurt. Defining a category for your product is necessary if you want to develop a marketing strategy because you need to know where and against whom you are competing.
Defining needs and categories are important but can also cause problems. By defining needs and categories for your products, you necessarily exclude from consideration those you think don’t need your product or service.
Imagine that we are in the first years when yogurts started to be commercially produced. Normally, markets are born with a first brand that creates the category.
There is a current and potential market for the category. Competitors will appear if they sense an opportunity. The first two in the category typically capture 75 percent of the market, leaving just 25 percent for later arrivals.
If you are third or later, you typically choose a subgroup or persons/situations in the market and address your product directly to them. You usually do this by highlighting a concrete characteristic of the product to emphasize — this is your positioning. It allows you to divide and conquer. Instead of attacking the whole market and getting a tiny share, you segment the market and obtain a major share of that segment. And there is another benefit. By targeting specific needs, you fill the needs of a group of customers better and they may increase their consumption — they may eat more yogurt. Segmentation provokes a double effect: it fragments
the market and at the same time makes it bigger.
Of course, as companies continue to segment the market, it becomes fragmented and saturated. Market fragmentation leaves little room for new products — which are the key components for companies that want to grow. Another tactic you can use is “positioning.” Positioning is linked to segmenting. In the case of yogurt, there are brands positioned as healthier or cheaper or fresher or more natural. Choosing a characteristic and accentuating it gives personality to your brand and makes it more noticeable. It helps you stand out in a crowded field. On the other hand, it may also blind you to innovative new concepts.
Innovations Originated From Inside a Given Market Another way you can innovate is through modulation. Modulation-based innovations consist of variations in any basic characteristic of a given product or service by increasing or decreasing that characteristic. Examples include:
● Juices: with low sugar content, with more juice, not from concentrate, with vitamins.
● Detergents: with more bleach, with more soap concentration, fragrance free, with less foam, with more foam.
● Banking: with monthly interest payment, without usage charges, with more offices, with better trained staff.
● Couriers: faster delivery, higher maximum weight, better guarantee. You can also innovate by size — such as selling in large packs and individual serving size. In this case, you never change the product or service, just the volume, intensity or frequency of the offer.
Another possible innovation is through packaging such as chocolates marketed in an array of boxes from simple to extravagant.
Another variation is design-based. The product, container or package and size sold are the same, but the design or look is modified. A car company may launch the same product with a different exterior design or a ski maker may change the color of the skis. The changes keep the product fresh and appealing. There are also innovations based in complements such as adding complementary ingredients. Cookies can be sprinkled with sugar or chocolate or cinnamon, for example.
All these innovations have a common factor. They consist of continued variations on what the product or service is, but do not intend to modify its essence. The innovations occur within the category in which they compete, since the methodologies for creating them assume a fixed market. These innovations do not create new categories or new markets. The innovation always occurs within the category where the idea originated. The end result is still fragmentation and
a small share of the total market.
Lateral Marketing As Complement To Vertical MarketingLateral marketing involves taking a product and sufficiently transforming it in order to make it appropriate for satisfying new needs or new persons and situations not considered before. The big advantage is that instead of capturing part of a market, it creates an entirely new one.
Vertical marketing and lateral marketing work side by side — both are necessary and complementary. In fact, lateral marketing cannot be fully developed without vertical marketing since the latter will produce more variations after a new category is discovered. The vertical marketing process obliges you to first define the market. Vertical marketing uses the definition
of the market to create competitive advantages. The innovation is done inside the definition. Lateral marketing is based on seeking an expansion by approaching one or more needs, uses, targets or situation that we discarded earlier when we defined the market.
Lateral marketing requires you make an important transformation to your product. When you engage in lateral marketing, you restructure the product by adding needs, uses, situations or targets unreachable without the change. Put simply, lateral marketing uses a process that creates by opening up new directions, being provocative and making leaps.
The innovations that come from lateral marketing create new categories or subcategories. It does this in one of four ways:
1. A lateral product can restructure markets by creating new categories or subcategories. For example, the launch of Walkman by Sony radically restructured the market for electronic goods since it converted millions of young potential customers into personal audio products consumers.
2. It can reduce the volume of other products within the given market. For example, a lateral product like Barbie dolls has taken a huge percentage of the doll market. When Barbie was introduced, the doll market consisted of baby dolls, but a lateral thinker saw the potential for adult dolls to be played with by children.
The result — an entirely new category — the fashion doll. Barbie remains the leader in the category.
3. A lateral product can sometimes generate volume without hurting other volume. For example, cereal bars have not slowed the consumption of cereal but have instead expanded the occasions cereal is consumed.
4. A lateral product may take volume from several categories. The cereal bar has affected the chocolate, salty snacks and other snack categories by adding another alternative.
