‘Making a market’, or creating a need for something no-one has experienced before, is difficult enough for the most well-known sellers, but for entrepreneurs it is doubly so. To overcome the hurdle of succeeding with a new product, they need to work not only on the innovation itself but also on educating potential customers. This research sets out an approach to market-making for entrepreneurs in certain complex markets.
It is often assumed that customers are the best judges of whether or not they have a problem, but that is not always the case, especially when it comes to innovative complex products. As with almost any novel high-tech product, consumers are uncertain of their requirements, so producers engage in guesswork to try and identify what they desire but cannot articulate. It’s a difficult position for both parties, and exacerbated for those entrepreneurs who, unlike well-established brands, lack an existing ‘implicit contract’ based on trust. These innovators may be responsible for creating some of the most cutting-edge technologies of our times, but success in any market is often divorced from the quality of the product offering itself: good technologies often fail! Without the luxury of the implicit contract, entrepreneurs have to try harder to convince consumers. And when times are hard and uncertain, they are even less likely to realise these opportunities because people tend to go for the tried and trusted, those with whom the implicit contract already exists.
Take Dyson – the market was presented with a bagless vacuum cleaner, a product consumers did not realise they needed until they got it. James Dyson had more information than they did about the specification that would work and he satisfied an untapped need, offering a viable alternative in a competitive market. But it was important for him to convince the market he was not a ‘fly-by-night’, as evidenced by his company’s ongoing technological innovation into new products. Without the implicit contract he had to offer continuous innovation and invest heavily in the same to win his customers over, to gain that contract of trust.
Entrepreneurs working in certain complex markets need to accept that their innovation is not enough – how they get that innovation to market is equally important, the process by which they transform a brilliant design into a marketable commodity that people suddenly realise they need. Without the market, their good technology will fail.
How entrepreneurs can overcome market-making failure:
Get a good reputation and build trust
In markets where consumers are unsure about the problem they face, entrepreneurs must make a credible commitment to solve these problems repeatedly; it is the only way to make this market. Such a commitment tells consumers you are willing to invest in your reputation, and you realise that your reputation will be damaged if you make a mistake. Consumers will be more likely to trust the diagnoses of their problems by committed entrepreneurs, so do what you can to demonstrate that. Improve your customer service, invest in quality control, enhance your marketing and advertising, offer guarantees, provide IT upgrades…these and other actions will help entrepreneurs acquire the reputational capital they need to compete with the big brands.
When it comes to novel technologies, the goalposts keep moving, so entrepreneurial market-making in these complex sectors requires an understanding of that change and the willingness to adapt products to consumer needs.
Developing reputational capital is a long-term strategy, so what can entrepreneurs do in the short term? If, as the research indicates, we know that consumers will only engage in transactions if they believe the producer is committed/has a reputation, the solution for new entrants without that reputation is to partner with existing high reputation firms. There is a danger of technology leakage, but at least it gets new starters over the hurdle of convincing sceptical consumers who know nothing about them or their innovations.
Get your pricing right
In these sorts of markets, any entry strategy that tries to build market share through low-price entry runs the risk of losing a disproportionate amount of consumer goodwill when prices are subsequently raised. Consumers may interpret this as opportunistic and you run the risk of them withdrawing completely. A more sustainable route to making a market for such a product is to always charge premium prices initially, and then either reduce prices or increase product quality through increased market support services.
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