Breaking barrier to entry

There are four likely ways of breaking down barriers to entry. Though it may seem simple, it may be very complex, as the incumbent may be playing on all the four different options by creating, investing, acquiring. or incubating a business. Let’s dig deep and understand them better: 

1.    Niche:This can be created based on a set of features, a combination of features or services that can be used to target a new segment of customers in the preferred geographic, demographic or psychographic that is open to trying out something new. The creation of the Red Bull drink and the Boost juice chain stores falls into this category.

2.    Fringe:Every business or product has a core set of customers with a high customer lifetime value. Then they have a long tail of customers who are occasional shoppers, switchers, or explorers. These are the customers who are on the fringes; at times these may simply be physically far away from the product or service, and hence underserved. Identifying this underserved market, where there can be one or multiple incumbents, remains the key to the success of this strategy.

3.   Innovate:Creating a completely new value proposition is much discussed in the book Blue Ocean Strategy, by Kim and Maubourgne. Creating a new value proposition sometimes makes it difficult for an entrenched incumbent to respond. That said, sometimes the incumbent may be complacent because of significant investment and high profits in an existing business. Kodak is the best example here, where the business rapidly eroded as it failed to take steps to move into digital technologies. Some recent interesting examples are flat wine bottles: Garçon Wines flat bottle, small format convenience stores in proximity which offer a wide range of services (including post shops in Australia), shops that combine multiple services (garden + café) fall into this group.

4.    Piggybacking and association: This is perhaps the next step to innovation: exposure to large markets where the incumbent benefits significantly from an innovator. This is a win-win for incumbents and new entrants in the market.