Price and Disruption

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Most entrepreneurs still think that just because their technology is superior it will inevitably be widely adopted in the marketplace. But consumers don’t work like that. Next time you come across an engineer aiming to commercialize a superior new technology, ask if his industry meets the criteria described above. If not, he’d do much better to focus on low-end disruption by encapsulating the technology in a product that is in some way simpler, more convenient – and seriously more affordable— than anything currently on the market. After all, technologies don’t dictate how they must be commercialized, managers do.

In an HBR piece, Juan Pablo Vazquez Sampere details four criteria of when high-end disruptive products are more likely to succeed. They are:

  1. When the majority of consumers are dissatisfied with their current choices. (tends to occur most in highly regulated industries)
  2. The industry is fragmented – and therefore no single player has majority control over who can enter and compete.
  3. The new entrant is fully integrated from the beginning. They are focused on re-imagining the whole process, not just one component.
  4. The new entrant uses a completely different distribution model than its competitors, and therefore bypasses where legacy players tend to have the most competitive power.

Tesla is the obvious poster boy for meeting all four criteria.

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