Crossing the Chasm
Second Edition
By Geoffrey A Moore
Part 1: Discovering the Chasm ...................................................................................... 4
INTRODUCTION: IF BILL GATES CAN BE A BILLIONAIRE .......................... 4
Chapter 1: High-Tech Marketing Illusion...................................................................... 4
THE HIGH-TECH MARKETING MODEL ............................................................. 5
TESTIMONIALS ...................................................................................................... 5
ILLUSION AND DISILLUSION: CRACKS IN THE BELL CURVE .................... 5
THE FIRST CRACK ................................................................................................. 5
THE OTHER CRACK ............................................................................................... 5
DISCOVERING THE CHASM ................................................................................ 6
BODIES IN THE CHASM ........................................................................................ 6
A HIGH-TECH PARABLE ....................................................................................... 6
Chapter 2: High-Tech Marketing Enlightenment .......................................................... 7
FIRST PRINCIPLES ................................................................................................. 7
EARLY MARKETS .................................................................................................. 7
INNOVATORS: THE TECHNICAL ENTHUSIASTS ............................................ 7
EARLY ADOPTERS: THE VISIONARIES............................................................. 8
THE DYNAMICS OF EARLY MARKETS ............................................................. 8
MAINSTREAM MARKETS..................................................................................... 9
EARLY MAJORITY: THE PRAGMATISTS .......................................................... 9
LATE MAJORITY: THE CONSERVATIVES ........................................................ 9
THE DYNAMICS OF MAINSTREAM MARKETS ............................................. 10
LAGGARDS: THE SKEPTICS .............................................................................. 10
BACK TO THE CHASM ........................................................................................ 11
Part 2: Crossing the Chasm .......................................................................................... 11
Chapter 3: The D-Day Analogy ................................................................................... 11
THE PERILS OF THE CHASM ............................................................................. 11
HOW TO START A FIRE ...................................................................................... 12
WHAT ABOUT MICROSOFT? ............................................................................. 13
BEYOND NICHES ................................................................................................. 13
SUCCESSFUL CHASM CROSSINGS .................................................................. 13
CLARIFY: A CUSTOMER SERVICE APPLICATION CROSSES THE CHASM
.................................................................................................................................. 13
DOCUMENTUM: A DOCUMENT MANAGEMENT APPLICATION CROSSES
THE CHASM........................................................................................................... 13
3COM PALMPILOT: A STANDALONE PLATFORM CROSSES THE CHASM
.................................................................................................................................. 14
SMART CARDS: A DISTRIBUTED PLATFORM CROSSES THE CHASM .... 14
APPLICATIONS VS PLATFORMS ...................................................................... 14
FROM IDEA TO IMPLEMENTATION................................................................. 14
Chapter 4: Target the point of attack ........................................................................... 15
HIGH-RISK, LOW-DATA DECISION .................................................................. 15
INFORMED INTUITION ....................................................................................... 15
TARGET-CUSTOMER CHARACHTERISATION: THE USE OF SCENARIOS
.................................................................................................................................. 15
ELECTRONIC BOOKS: AN ILLUSTRATIVE EXAMPLE ................................. 15
PROCESSING THE SCENARIO: THE MARKET DEVELOPMENT
STRATEGY CHECKLIST...................................................................................... 16
COMMITTING TO THE POINT OF ATTACK .................................................... 17
AND YES, SIZE MATTERS .................................................................................. 17
RECAP: THE TARGET MARKET SELECTION PROCESS ............................... 17
Chapter 5: Assemble the Invasion Force ..................................................................... 17
THE WHOLE PRODUCT CONCEPT ................................................................... 18
THE WHOLE PRODUCT AND THE TECHNOLOGY ADOPEITON LIFE
CYCLE .................................................................................................................... 18
WHOLE PRODUCT PLANNING .......................................................................... 19
SOME REAL-WORLD EXAMPLES – SEE PAGES 113 – 119 ........................... 19
PARTNERS AND ALLIES ..................................................................................... 19
TIPS ON WHOLE PRODUCT MANAGEMENT.................................................. 20
Chapter 6: Define the Battle ........................................................................................ 20
CREATING THE COMPETITION ........................................................................ 20
THE COMPETITIVE POSTIONING COMPASS ................................................. 21
THE EXAMPLE OF CILICON GRAPHICS .......................................................... 21
A SECOND EXAMPLE: QUICKEN ...................................................................... 22
IN CLOSING… ....................................................................................................... 22
POSITIONING ........................................................................................................ 22
THE POSITIONING PROCESS ............................................................................. 23
THE CLAIM: PASSING THE ELEVATOR TEST ................................................ 23
THE SHIFTING BURDEN OF PROOF ................................................................. 24
WHOLE PRODUCT LAUNCHES ......................................................................... 24
RECAP: THE COMPETITIVE-POSITIONING CHECKLIST ............................. 25
Chapter 7: Launch the Invasion ................................................................................... 25
THE STRUCTURE OF HIGH-TECH DISTRIBUTION........................................ 25
DIRECT SALES ...................................................................................................... 26
RETAIL SALES ...................................................................................................... 27
VAR-LAND OR NO-MAN’S-LAND? ................................................................... 27
ADAPTATIONS AND ALTERNATIVES ............................................................. 28
SYSTEM INTEGRATORS ..................................................................................... 28
SUPER VARs .......................................................................................................... 28
OEMs ....................................................................................................................... 28
SELLING PARTNERSHIPS ................................................................................... 29
OUTBOUND RETAIL ............................................................................................ 29
THE INTERNET ..................................................................................................... 29
SO WHAT IS THE RIGHT CHOICE? ................................................................... 29
DISTRIBUTION-ORIENTED PRICING ............................................................... 29
CUSTOMER ORIENTED PRICING ...................................................................... 30
VENDOR ORIENTED PRICING ........................................................................... 30
DISTRIBUTION ORIENTED PRICING................................................................ 30
RECAP: INVASION LAUNCHING ...................................................................... 30
Conclusion: Leaving the Chasm Behind...................................................................... 31
FINANCIAL DECISIONS: BREAKING THE HOCKEY STICK ........................ 31
THE ROLE OF THE VENTURE-FINANCING COMMUNITY .......................... 31
THE ROLE OF THE VENTURE-MANAGING COMMUNITY .......................... 32
ORGANISATIONAL DECISIONS: FROM PIONEERS TO SETTLERS ............ 32
TWO NEW JOB DESCRIPTIONS ......................................................................... 32
THE WHOLE PROJECT MANAGER ................................................................... 33
COPING WITH COMPENSATION ....................................................................... 33
COMPENSATION DEVELOPERS ........................................................................ 33
R&D DECISIONS: FORM PRODUCTS TO WHOLE PRODUCTS .................... 34
AN EMERGING DISCIPLINE ............................................................................... 34
LEAVING THIS BOOK BEHIND ......................................................................... 34
Part 1: Discovering the Chasm
INTRODUCTION: IF BILL GATES CAN BE A BILLIONAIRE
- While many are called, few are chosen
- High tech inventiveness and marketing expertise are two cornerstones of the US
strategy for global competitiveness
- The point of greatest peril in the development of a high-tech market lies in making
the transition from an early market dominated by a few visionary customers to a
mainstream market dominated by a large block of customers who are predominantly
pragmatists in orientation. This gap is the chasm.
- The chasm must be the focus of any long-term marketing plan
- You need to know if you are dealing with a fad or a trend
- The key is making the mainstream market emerge
- Crossing the chasm is a time for unprecedented company unity and careful plans and
cautiously rationed resources
Chapter 1: High-Tech Marketing Illusion
- The “Technology Adoption Lifecycle” is a model for understanding the acceptance
of new products:
= Laggard: “Not until hell freezes over”
= Early Majority: “When I have seen the product prove itself”
= Late Majority: “I’ll consider it when I see that most people have it”
= Early Adopter: “I want to be the first on my block with this product”
- Discontinuous innovation: innovations that require us to change our current mode of
behaviour or to modify other products and services we rely on (eg: digital TV)
- Continuous innovation: the normal upgrading of products that does not require us to
change behaviour (eg: touch-tone phone as opposed to a rotary dial phone)
- High-tech companies utilise discontinuous innovation on a regular basis.
- The bell-curve graphically represents the market penetration of any new technology
product in terms of progression in the types of consumers it attracts throughout its
useful life.
- The groups are distinguished from each other by their characteristic response to a
discontinuous innovation based on a new technology
- Each group represents a unique psychographic profile – a combination of
psychology and demographics that makes its marketing responses different from those
of the other groups.
= Innovators: pursue new technology products aggressively – sometimes even before
the formal marketing campaign begins (approx. first 14% of the market)
= Early Adopters: buy into the product early in their life cycle - because they don’t
rely on references in making these buying decisions but rely on their intuition, they
are key to opening up any high-tech market segment (approx second 14% of the
market)
= Early Majority: are driven by a strong sense of practicality. They wait and see how
others fare in using these products before buying into them (approx third 23% of the
market)
= Late Majority: wait until the technology has become standard and even then they
want to see lots of support and tend to buy from large established companies (approx
fourth 23% of the market)
= Laggards: are technologically “averse” – they do not purchase technology unless it
is embedded into another product (eg: microchips inside washing machines). This
market is generally not worth pursuing (approx fifth 26% of the market)
THE HIGH-TECH MARKETING MODEL
- the way to develop a high-tech market is to focus first on the innovators to grow the
market and then to move on to the early adopters, growing the market and so on – this
way the early adopters will become the references that the late adopters are looking
for
- If you can get into the market first, you can “catch the curve” and ride it up from the
innovators to the early majority etc and establish the de facto standard.
TESTIMONIALS
- Lotus 1-2-3 as an example:
= It was the first spreadsheet for the PC
= Innovators took it up because it was slick and fast
= Then the Early Adopters took it up because it allowed them to do something that
they couldn’t do previously on a PC ie: a “what if” analysis
= The Early Majority then took it up because it enabled them to undertake many
standard business operations (budgeting, sales forecasting etc)
= As more and more people began using it, it became harder and harder to use
anything else so the Late Majority gradually fell into line
ILLUSION AND DISILLUSION: CRACKS IN THE BELL CURVE
- A group may have difficulty accepting a new product if it is presented in the same
way as it was to the group to its immediate left on the bell curve
- Each of these gaps represents an opportunity for marketing to lose momentum, to
miss the transition to the next segment
THE FIRST CRACK
- The first crack is between innovators and early adopters when a hot technology
product cannot be readily translated into a major new benefit eg: the earlier days of
Linux (? – but less so now, I would think)
- The key to winning over the early adopters segment is to show some strategic leap
forward, something never before possible which has an intrinsic value and appeal to
the nontechnologist (a Killer App)
THE OTHER CRACK
- The other crack falls between the early majority and the late majority
- If the product isn’t made considerably easier to use at the stage between the early
majority and the late majority the transition to the late majority will stall or never
happen
- There are cracks between the innovators and the early majority and the early and late
majority
DISCOVERING THE CHASM
- The deep and dividing chasm is between the early adopters and the early majority –
it typically goes unrecognised
- The reason why it goes unrecognised is because the two groups can be easily
confused, but you have to market to both groups differently
- By being the first to implement change in their industry, the early adopters are
hoping to get a jump on the competition
- Being the first, they are also prepared to bear with the inevitable bugs and glitches
that accompany any innovation just coming to market
- The early majority want to buy a productivity improvement for existing operations –
they are looking to minimise the discontinuity with the old ways – they want
evolution not revolution
- By the time they adopt it, the early majority wants it to work properly and integrate
properly with their current infrastructure
- Early adopters do not make good references for the early majority because of initial
bugs in the early versions. But good references are essential before the early majority
would take up the new technology – so it is a catch 22 situation.
BODIES IN THE CHASM
- There are many technologies that have fallen into the chasm, despite the fact that
they work well, because of the high degree of discontinuity –ie: they require the early
majority to make significant changes to their current infrastructure. High volume sales
were therefore denied, despite the high uptake in the early adopter stage.
- An example of this is AI (Artificial Intelligence): this was the ‘technology of the
future” and many high-tech companies jumped on the bandwagon. Now AI is in the
“trash heap” because despite its great potential, there were too many obstacles to its
adoption and this put off the early majority from taking it on board. AI, though is now
coming back, but in a different form.
- When promoters of high-tech products try to make the transition from a market base
of visionaries (early adopters), they are operating without a reference base and a
support base for the early majority who thus refuse the technology.
A HIGH-TECH PARABLE
- A new high-tech company is created with a great new innovative product
=In the first year of a high-tech company’s product release the company expands its
customer base to include not only technology innovators but also early adopters.
=In the second year more visionary and early adopters become clients and some major
deals are struck
=Not to miss out on the wave of opportunity, the third year sees a significant increase
in marketing expenditure, the opening of district offices and the employment of a
number of support staff. But only a few companies have come on board after a
prolonged sales struggle. Sales are lower than expected and expenses are increasing.
R&D is bogged down. Third quarter results are dismal. The venture capitalists start
asking lots of questions, dissatisfaction filters down to the line workers who bear the
brunt of it and staff turnover follows. More financing is required.
=Six months pass and key staff leave for greener pastures. Consultants are hired.
More staff turnover. Eventually sales and investment dry up and another company
falls into the chasm.
- The initial sales high of the first year was a blip, not a climb. It is the “early market”
not the “mainstream market”.
- There is a difference between a sale to an early adopter and a sale to the early
majority.
- At a time of greatest peril, when the company was just entering the chasm, its
leaders held high expectations, rather than modest ones and spent heavily on
marketing rather than on resources
- The high-tech model does not unfold in a continuos and smooth way.
Chapter 2: High-Tech Marketing Enlightenment
- “First there is a market [of enthusiasm], then there is no market [which is the chasm
period], then there is [a market when your company emerges from the chasm period
intact]”
- The key to marketing success is to focus on the adoption type
FIRST PRINCIPLES
- Define “marketing”: taking actions to create, grow, maintain or defend markets – to
create and develop something real, not create illusions. “Market” in high-tech means:
~ a set of actual or potential customers
~ for a given set of products or services
~ who have a common set of needs or wants
~ who reference each other when making a buying decision
- The absolute key to successful high-tech marketing is the notion that part of what
defines a high-tech market is the tendency of its members to reference each other
when making buying decisions.
- If two people buy the same product for the same reason but have no way to
reference each other, they are not part of the same market
- “Market Segments” – define the natural market boundaries within an aggregate of
current and potential sales: important for identifying if and how markets can reference
each other
EARLY MARKETS
- This initial stage is made up of innovators (techies) and early adopters (visionaries).
INNOVATORS: THE TECHNICAL ENTHUSIASTS
- They appreciate the technology for its own sake
- They will spend hours in order to get products to work that, in all good conscience,
should have never been shipped in the first place
- They make great critics because they truly care
- They will be found anywhere that anyone is “pushing the edge of the envelope”
- Techies are the gatekeepers of new technology
- Techies are the first key to any high-tech marketing effort
- They pose fewer requirements but require top-level support
- They want to be the first to get new stuff
- They want everything cheap
- Direct response advertising works well with this group
- Don’t waste your time with fancy image advertising
- An ad in a magazine will reach them as they read it cover to cover
- They are a test bed for introducing modifications to the product or service until it is
thoroughly debugged
- Enthusiasts help start the fire
EARLY ADOPTERS: THE VISIONARIES
- They match an emerging technology to strategic opportunities
- They tend to be recent entrants to the executive ranks, highly motivated and driven
by a “dream” (a business goal, not a technology goal)
- They are looking to take a quantum leap forward in the way business is conducted in
their industry or by their customers
- Examples of visionaries are”
= Steve Jobs: took the Xerox PARC interface out of the lab and put it on a personal
computer
= Sheldon Laube at Price Waterhouse: took the as yet untested Lotus Notes and put it
on 10,000 computers
= Jim Barksdale of FedEx: opened up customer service systems to self-service via PC
and then via the web
- Visionaries are not looking for an improvement. They are looking for a fundamental
breakthrough
- The key point is: in contrast with the technology enthusiast, a visionary derives
value not from a system’s technology itself but from the strategic leap forward it
enables
- They take risks to pursue the goal of “an order of magnitude” ROI
- They accept the price you pay when you try to leapfrog the competition
- They are the least price-sensitive of any segment
- They are proficient at alerting the business community to significant technological
advances – they are highly visible references
- They are going where no one has gone before – and you are going with them
- They like to stay close to the development train to make sure that it is going in the
right direction and to be able to get off if they discover it is not going where they
thought.
- Visionaries are also always in a hurry – they see the future in terms of windows of
opportunity so they exert deadline pressures – this plays to the classic weakness of
entrepreneurs: the lust after the big score and overconfidence in their ability to
execute within any given time frame
- Getting closure with visionaries is next to impossible so you have to manage their
expectations
- Visionaries maintain links with the enthusiast, or the techie, so that once you have
captured the “innovator” market, the early adopter market will find you
- Visionaries are the ones that give high-tech companies their big break – it is hard to
plan for them in your marketing, but it is harder to plan without them.
THE DYNAMICS OF EARLY MARKETS
- Start with a revolutionary product
- Seed the technology enthusiast community with early copies of the product while at
the same time, sharing its vision with the visionary executives
- Invite the visionary executives to check with the technology enthusiast of their
choice to verify that the vision is indeed achievable
- A series of negotiations will ensue where the product is modified the way the
company never intended and the visionary has on paper what looks like an achievable
dream but is, in reality, highly unachievable
- A number of problems can arise:
= Not enough capital for R&D, staff, marketing etc so all is second rate.
= The company sells to the visionary before is has the product ie: “vapourware”
= The company fails to market properly to visionaries and doesn’t discover the orderof-magnitude ROI for visionaries and falls into the chasm
= The biggest problem is overly ambitious expectations combined with under
capitalization
- For the most part, the problems are solvable because there are always multiple
options at the outset of anything
MAINSTREAM MARKETS
- Dominated by the early majority (pragmatists or conservatives) who tend to be the
source of referrals for the late majority
EARLY MAJORITY: THE PRAGMATISTS
- Ultimately, the big bucks lie with the early majority
- They do not want to be pioneers
- They don’t draw attention to themselves and are not easily identifiable
- They aim to make a percentage improvement: incremental, measurable and
predictable progress
- The word “risk” is a negative word in their vocabulary
- They will undertake risks when required but only if there are sufficient backup and
safety net procedures and then only under close scrutiny
- Pragmatists are loyal once won, often enforcing the purchase of your company’s
product – and only your product – for a given requirement (this is pragmatic!)
- They care about the company they are buying from and the quality of the product
they are buying, the support infrastructure and reliability of service – they plan to live
with the decision for a long time
- The reward for building a relationship with a pragmatist is great because they are in
it for the long haul
- References and relationships are very important to these people
- Alliances are vital when trying to break into the pragmatists’ realm
- They like to see competition: to get costs down and to have an alternative to fall
back on
- They want to buy from market leaders
- They are price sensitive
- You must be patient when marketing to pragmatists
LATE MAJORITY: THE CONSERVATIVES
- For every pragmatist there is a conservative
- They are against discontinuous innovation
- They believe in tradition more than progress
- When they find something that works, they tend to stick with it
- They succumb to the new paradigm – eventually
- They often fear high-tech and tend to invest at the end of the technology life cycle
- They do not have high aspirations for their high-tech investments
- They can offer great rewards to companies that serve them properly due to their
sheer volume
- They like to buy pre-assembled packaged goods with everything bundled
- They want high-tech to be like a fridge: you open the door, the light goes on, the
food stays cold, you don’t have to think about it
- They like a whole solution so the opportunity is there to take older, but stable,
technology, repackage them into one do-everything bundle (low R&D costs as
everything is already debugged) and market it to the conservative segment
- They extend the life of a product that is no longer state of the art
- The conservative market is perceived as a burden
THE DYNAMICS OF MAINSTREAM MARKETS
- The pragmatists drive the development of the mainstream market
- Winning the support of the pragmatists is the key to long-term dominance
- Your product has to be competitive and you have to have the ability to adapt your
robust product to remain competitive in the face of tough competition
- Ways to lose mainstream business are:
= Stop investing in the market, cease funding R&D to match the competition and milk
it for money to invest elsewhere (eg: Novelle Netware was the undisputed market
leader and then it shifted focus to other areas and let Microsoft catch up. The result
was that Microsoft took over as market leader with a new database innovation in the
network market and Netware was left in the dust)
= Shoot yourself in the flagship product: by destroying your flagship product’s
reputation by releasing a buggy version, customers are guaranteed to stay away in
droves – but you can right the ship when it is about to capsize because even though
customers might stay away from that release, mainstream markets tend to avoid
discontinuous innovation and will return to your product once you have released
better versions
- Customer service is the key to maintaining mainstream business, as is the ability to
make add-on offers that incrementally upgrade capabilities without technological risk
- They key to transferring successfully from the early majority to the late majority is
to maintain a strong relationship with the former while still providing value to the
latter
- The longer your product is on the market, the more mature it becomes and the more
important the service element is to the customer
- We must use our experience with the pragmatist customer segment to identify all the
issues that require service and then design solutions to these problems directly into the
product
- The gradual incorporation into the product of all the little aids that people develop to
help them cope with its limitations is key
LAGGARDS: THE SKEPTICS
- They do not participate in the high-tech marketplace, except to block purchases.
Thus, the primary function of high-tech marketing in relation to skeptics is to
neutralize their influence.
- But skeptics can tell us a lot about what we do wrong and we can learn from them
- If high-tech marketers do not take responsibility for seeing that the whole product
solution is being delivered, then they are giving the skeptic an opening to block the
sale
- Often the version of the product that ships does not include all of the functionality
promised during the preceding marketing hype – it means that committing to a new
system can be an act of faith!
- Steamrolling skeptics may be a great sales tactic, but it is not a good marketing
tactic: skeptics don’t buy the marketing act and we ought to take advantage of that
fact
BACK TO THE CHASM
- Markets are made up of people who reference each other during the buying decision
- If we look deep into the chasm between the visionaries and the pragmatists (the
widest of all chasms) we see four fundamental characteristics of visionaries that
alienate pragmatists:
= Lack of respect for the value of colleagues’ experiences:
~ Visionaries are the first people in their industry to see the potential of the new
technology
~ It is their ability to foresee value in a product that gives them competitive advantage
– but only if no one else has discovered it – ie: it is not a well-tested solution.
~ Pragmatists deeply value the experience of others and seek their feedback on the
new technology ie: how did it go for you?
= Taking greater interest in technology than in their industry:
~ Visionaries are bored with the mundane details of their industry and want to talk
and think high-tech
~ Pragmatists don’t put a lot of stake in futuristic things. They see themselves in
present day terms and discuss industry specific issues
= Failing to recognise the importance of existing product infrastructure;
~ Visionaries expect to set new standards
~ Pragmatists expect standards, support services, users’ groups etc to have been
established
= Overall disruptiveness:
~ Visionaries see themselves on a fast track that has them leap-frogging up the
corporate ladder and across corporations
~ Pragmatists tend to be committed long-term to their projects
~ Visionaries are viewed by pragmatists as people who use up the budget for their pet
projects
- The upshot is that marketers need to change their sales pitch when crossing the
chasm between the visionaries and the pragmatists
- The vendor needs the pragmatist to buy now, but the pragmatist (by nature) needs to
wait
Part 2: Crossing the Chasm
Chapter 3: The D-Day Analogy
THE PERILS OF THE CHASM
- Let’s say that the company has had its wave of sales during the innovator and early
adopter stages. Customers are now few and far between and cash flow is slowing
dramatically but the pragmatists are ignoring the new company because it lacks the
references they require
- Managers won’t be able to find cash in existing customers because they are
visionaries who have signed up on the basis that you will make improvements – so
you are obligated to make those improvements but there is no cash coming in to the
business
- You are running out of time because if you stick with the early market, you will be
selling to those who want customisation (requiring more work and no cash) or a new
idea will come on to the market and take away those visionaries who are sustaining
your business
- Furthermore, investors have seen good growth in the early stages and expect you to
keep to your plan of increasing sales, despite the fact that you are teetering on the
edge of the chasm
- The only way to avoid falling into the chasm is to get into the mainstream market
soon.
- Entering the mainstream market is an act of aggression – the existing competition
will resent you and it will be very difficult to build a relationship with pragmatists
who are loyal to their existing suppliers
- This is a life-or-death situation and it is no time to be nice!
- The analogy with the Allied Invasion of Normandy of 1944 is a good comparison:
= The long term goal is to enter and take control of the mainstream market
(Eisenhower’s Europe) that is currently dominated by existing competition (the Axis)
= Assemble an invasion force comprising other products and services (the Allies)
= Short term goal is to transfer from the early market base (England) to the strategic
target market (Normandy), separated by the chasm (the English Channel).
= Cross the chasm as fast as you can with an invasion force focused on the point of
attack (D-Day)
= Once we force the competitor out of the targeted niche market (secure the
beachheads) move to take over additional market segments (districts of France) on the
way to market domination (liberation of Europe)
- Cross the chasm by targeting a very specific niche market where you can dominate
from the outset, force your competitors out of the market niche and then use it as a
base for further operations
- The D-Day strategy has the ability to galvanize an entire enterprise by focusing it on
a highly specific goal that is readily achievable and capable of being leveraged into
long-term success.
- Most companies fail to cross the chasm because they lose focus
HOW TO START A FIRE
- Trying to cross the chasm without taking a niche market approach is like trying to
light a fire without kindling
- You must have or adopt discipline that would require you to stop pursuing sales
during the chasm period: being sales driven during the chasm period is simply fatal
- Provide the whole product – they are expensive, but necessary to gain a foothold in
the pragmatist market niche
- Word of mouth spreads like wildfire – spread the word to one or two customers in
five or ten market segments and it will spread to the whole industry from there
- Pragmatists want to buy from the market leader
- To be the leader in any given market you need the largest market share, typically
over 50% at the beginning of a market although it may end up to be as little as 3035% later on
- Take the sales you expect to generate over, say, two years, double that number and
that’s the size of the market you expect to dominate – the maximum size of the market
because the calculation assumes that all sales come from one market segment
- This leads you directly to owning a market: an owned market can take on some of
the characteristics of an annuity – a building block in good times and a place of refuge
in bad
WHAT ABOUT MICROSOFT?
- Microsoft has never taken a niche approach. Rather, it has taken the “Evil Knievel
approach – it ignored the chasm
- Microsoft’s history is so unique that it makes it virtually unusable as a precedent for
strategy decisions in other companies
- Microsoft was acting from day one in the mindset of the de fact standard
- Microsoft co-opted new technologies rather than introduced them directly – it’s
success is based on being a fast follower
- Microsoft has built itself up to be the industry standard – the pragmatists’ paradise
- Microsoft can work both sides of the chasm and cross it with relative ease. The rest
of us cannot
- We need to pick our spots carefully, attack fiercely and then dig in and hold
BEYOND NICHES
- Major market dominance transcends niche and this is where the profits are made
- The marketing strategy must establish long-term visions to guide immediate tactical
choices
- Macintosh was able to dominate the graphic artists market quickly and easily – a
small target market but one in which they achieved supreme dominance as a prelude
to entering sales and marketing departments and so on
SUCCESSFUL CHASM CROSSINGS
CLARIFY: A CUSTOMER SERVICE APPLICATION CROSSES THE CHASM
- Clarify developed a tool called “Clear Support” that required a big change in the
way customer support was handled.
- Pragmatists were wary, visionaries saw in the system a chance to gain a competitive
advantage
- The take-up was slow, but soon became integrated with various departments within
companies. There was a huge problem in handling customer support as it was getting
more and more complex. Clarify brought a total solution to the problem (a whole
product)
- The problem is that visionaries wanted customisation – but you have to try to meet
everyone’s needs with whatever resources you have.
- Clarify made a total commitment to their niche and ended up selling to 3Com,
Synoptics and Cisco Systems, which gave them credibility
- Clarify has now moved into other related areas (such as call centre software etc)
DOCUMENTUM: A DOCUMENT MANAGEMENT APPLICATION CROSSES
THE CHASM
- After a superb start, revenues remained flat at $2m for three straight years – the
market was in the chasm
- They selected a specific thin market niche and trained it’s sites on it with absolute
focus and resolve
- Documentum made their clients reliant on their software, which saved the client big
bucks, even though it was a different approach to the standard method of managing
documents
- Sales increased to $8m and then soared to $25m – it became the standard in its niche
- Revenues increased to $100m because they had a solution to fix a major economic
problem in their niche and built up a number of solid references
- They used the bowling pin model: focus on the immediate market and market
development targeted, but keep a view on the rest of the market (pins) to win
3COM PALMPILOT: A STANDALONE PLATFORM CROSSES THE CHASM
- Restricting the field seemed counter-intuitive at first, but by targeting tech
executives who spent their time either in meetings or on the road, 3Com found the
perfect focal point that opened the door to the rest of the market.
- The Palm Pilots were built with executives in mind who wore suits and were very
mobile – ie: small form-factor, portable, intuitive etc
- The Palm Pilot “nailed” the problem that execs had
SMART CARDS: A DISTRIBUTED PLATFORM CROSSES THE CHASM
- Smart cards are like credit cards into which have been embedded chips and/or
microprocessors
- Visionaries see huge potential in smart cards (from public telephone cards to ID
cards etc)
- Smart cards are moving towards universal deployment – but the law of the chasm
says first act locally, then globally
- So smart cards could first be employed in a company and move on from there to the
wider community
- Don’t go straight to the wider community: you will not succeed
APPLICATIONS VS PLATFORMS
- For the actual chasm crossing, applications have an advantage: applications are what
the end-user sees and the user can readily gauge the benefits
- Platforms are multi-purpose by definition. They are infrastructure and are therefore
the domain of the IT community and not necessarily the person who is running the
applications on it
- Changing platforms is disruptive and IT professionals are not eager to cause
upheaval and discontinuity with their current systems that might work just fine
- To get around this, vendors must clothe the platforms in application’s clothing
- Any market that you have saturated, you are likely to remain the leader of that
market for a long time
- When markets go “mass”, platforms have the advantage – they can operate in many
“niches” simultaneously: when they become ubiquitous (like the mobile phone and
laser printer) they sell like hotcakes and this is where big money can be made – but
they can be the hardest type of technology to get across the chasm
FROM IDEA TO IMPLEMENTATION
- The critical attitude to maintain in all challenges is that chasm-crossing represents a
unique time in your enterprise’s history: between two stages is a singular moment of
transition
Chapter 4: Target the point of attack
- The fundamental principle for crossing the chasm is to target a specific niche market
as your point of attack and focus all your resources on achieving the dominant
leadership position in that segment.
HIGH-RISK, LOW-DATA DECISION
- Since we are trying to pick a market segment, which we have not penetrated yet, we
also lack experience in that arena
- Since we are introducing a discontinuous product into the new arena, nobody has
any experience to predict what will happen
- Because we don’t know how the target market will react, we are in a high-risk, lowdata state
- The biggest mistake is to turn to numeric information: “[Marketing statistics,] this
stuff is like sausage, your appetite for it lessens considerably once you know how it is
made”.
- Marketing statistics are full of assumptions
- As soon as the numbers have been put into a chart, or better, a graph, they become
the drivers in high-risk, low data situations because people are so anxious to have
data.
- The only way out of this problem is to acknowledge that lack of data as a condition
of the process
INFORMED INTUITION
- Informed intuition doesn’t freely on processing a statistically significant sample of
data in order to achieve a given level of confidence – it involves conclusions based on
isolating a few data fragments
- These data fragments stand out and are memorable for some reason
TARGET-CUSTOMER CHARACHTERISATION: THE USE OF SCENARIOS
- You must focus on the target-customer
- Target-customer characterisation is a formal process for making up images of what
the target customer might look like, think like and be like
- Build a basic library of possible target-customer profiles and apply techniques to
reduce these “data” into a prioritised list of desirable target market segment
opportunities
- These fictitious but realistic scenarios provide you with “data” from which to create
marketing strategies
ELECTRONIC BOOKS: AN ILLUSTRATIVE EXAMPLE
- This is an exercise in marketing an electronic book where content is downloaded
over the internet
- The advantage of an e-book is that you can carry as many books as you want in one
little device, download new books at any time and search books with the power of a
computer
= In the first year the e-books win over the early market of technology enthusiasts and
visionaries
= Amazon.com announces that they will sell e-book content from their web site
= A popular author announces that his next book will only appear in e-form
= The Pentagon buys 10,000 units but won’t say what for
= The e-book features in the next Tom Cruise movie
= Now it is time to launch into the mainstream market and take sales away from paper
books
- Create a sample scenario to determine which segment you want to market to – focus
the marketing and R&D teams on a specific instance of how the product would be
bought and used.
- Describe a situation in which the user is stuck with significant consequences for the
economic buyer
- Take the same situation and the same desired outcome but replay with the new
technology in place
PROCESSING THE SCENARIO: THE MARKET DEVELOPMENT STRATEGY
CHECKLIST
- Once you have built up a library of scenarios, each different to cover various
situations, you have to analyse them and develop a marketing strategy based on the
following points:
= Target Customer:
~ Is there a single identifiable economic buyer for this offer?
~ Are they readily accessible to the sales channel?
~ Can they afford the price we are asking for the whole product?
= Compelling Reason to Buy
~ Are the economic consequences sufficient to mandate any reasonable economic
buyer to fix the problem called out in the scenario?
= Whole Product
~ Can our company field a complete solution
~ Does our complete solution provide the target customer with a compelling reason to
buy in the next three months?
= Competition:
~ Has the problem already been addressed by someone else?
~ Has another company already crossed the chasm in the same market?
~ Never attack a fortified hill
= Partners and Allies
~ Do we already have relationships with other companies in order to be able to supply
a whole product?
~ Are our partners typically from the early market or are they “transportable” to other
markets?
= Distribution
~ Do we have a sales channel in place?
~ Do we understand and talk the language of the target market?
= Pricing
~ Is the price consistent with the target market’s budget range?
~ Is loyalty rewarded?
= Positioning
~ Is the company credible as a provider of products and services to the target niche?
= Next target customer
~ Does our success in one niche market have a bowling pin potential?
~ Will customers and partners facilitate our advance into other markets?
COMMITTING TO THE POINT OF ATTACK
- Tech enthusiast and visionary entrepreneurs don’t have the pragmatic outlook and
thus have trouble trusting in the market dynamics
- Get into the new flow and plan to course-correct as you go forward
- Go hard in the direction chosen
- You do not have to pick the optimal beachhead (target market) be successful, but
you must win the beachhead you have picked
- Focus your attention on the whole product – nail that and you win
- The enemy in the chasm is time – you must force the pace at all times , even when in
doubt, because standing still plays into the hands of the established vendors and the
status quo
AND YES, SIZE MATTERS
- It is almost never the case that the bigger the expected revenue from a target market,
the better:
= You need a customer base that is committed to you
= You need to win at least half, if not more, of new orders in the segment to become
the industry standard
= The crucial point is that if you are going to be a $10m company next year, you don’t
want to attack a segment larger than $10m. At the same time, it should be large
enough to generate your $5m
= The rule of thumb is: pick on somebody your own size
= If you find the segment too big, sub-segment it
= If the target segment is too small, then augment it
= The goal is to become the big fish in a small pond, not one flopping bout trying to
straddle a couple of mud puddles
RECAP: THE TARGET MARKET SELECTION PROCESS
- Develop a library of target customer scenarios
- Appoint a subcommittee to make the target market selection
- Number and publish the scenarios in typed form, one page per scenario
- Have each member of the subcommittee privately rate each scenario
- Rank order the results and set aside scenarios, which do not pass the first cut
- Repeat the private rating and public ranking process on the remaining scenarios
- Depending on the outcome, proceed as follows:
= Group agrees on a beachhead segment – go for that segment
= Group cannot decide among a final few: give the assignment to one person to build
a bowling pin model of market development incorporating as many of the final few as
is reasonable and then decide on a head-pin – go for that head pin
= No scenario survived: do not attempt to cross the chasm. Also, do not try to grow
Chapter 5: Assemble the Invasion Force
- If you are committing to an act of aggression, you had better have a force to back it
up: warfare not wordfare
- Wire the marketplace: for a given target customer and a given application, create a
marketplace in which your product is the only reasonable buying proposition
- To secure a monopoly:
= you have to know what your whole product consists of
= you have to understand how to organise a marketplace to provide a whole product
incorporating your company’s offering
THE WHOLE PRODUCT CONCEPT
- The concept is very simple:
= there is a gap between the marketing promise made to the customer and the ability
of the shipped product to fulfil that promise
= for the gap to be overcome the product must be augmented b a variety of services
and ancillary products to become the whole product
- There are four different perceptions of a product:
= Generic Product: this is what is shipped in the box and what is covered by the
purchasing contract
= Expected Product: this is the product that the consumer thought s/he was buying
when s/he bought the generic product
= Augmented Product: this is the product fleshed out to provide maximum chance of
achieving the buying objective (eg: in the case of a computer it would be software,
hard disk drive, printer, support hotline etc)
= Potential Product: this is the product’s room for growth as more and more ancillary
products come on to the market and as customer specific enhancements to the system
are made
- For the internet browser market:
= Generic product: set of functions made popular by the first browsers
= Expected product: portability to each of the different Oses
= Augmented product: various plugins, skins etc
= Potential product: changing the way the internet communicates with the client
(browser) so that it is not operating-system specific
- The main battle takes place over the generic product: the core product – the thing in
the centre
- The generic product is the key to the battle for the early market.
THE WHOLE PRODUCT AND THE TECHNOLOGY ADOPEITON LIFE CYCLE
- The customers least in need of the whole product support are the technology
enthusiasts – real techies don’t need whole products (they like working things through
themselves)
- The visionaries don’t like to puzzle things out but they realise that they need the
newest and latest to be first and maintain a strategic advantage so they have to take
responsibility for creating the whole product under their own steam
- Pragmatists require the whole product (eg: ms office – it is widely used, known by
all temp staff, there are lots of avenues for support and information etc)
- Once there are two or more comparable products on the market then investing in
additional R&D at the generic level has a decreasing return – there is an increasing
return from marketing investments at the levels of expected, augmented or potential
product
WHOLE PRODUCT PLANNING
- The single important difference between the early market and the mainstream
market is that the former are willing to take responsibility for piecing together the
whole product whereas the latter are not
- Whole product planning is the centrepiece for developing a market domination
strategy
- A good generic product is helpful but not a necessity nor a sufficient cause for
victory: Oracle didn’t have the best product, but it had portability, standardization and
an aggressive sales force to drive the product into the market more quickly
- Perception contributes to the reality: looking like you are winning the whole product
battle is a key weapon to winning the war
- Pretending that you are winning the whole product battle is a losing tactic – people
check up on each other too much in the tech marketplace
- To work out how much whole product you need as a minimum to cross the chasm,
you need to work within a simplified model:
= What we ship
= whatever else the customer need in order to achieve their compelling reason to buy
(the marketing promise)
- Failure to meet the marketing promise has extremely serious consequences
- Less than 100% delivery of marketing promises means that the customers will feel
cheated
- By solving the whole product equation for any given set of target customers, hightech has overcome its single greatest obstacle to market development
- Even a single target customer profile starts off a chain of issues that any product
manager serious about developing a particular market opportunity must pursue to a
satisfactory conclusion
- Every additional target customer will put additional new demands on the whole
product – this means that you cannot go after all markets at once: you have to
sequence and prioritise opportunities
- By thinking through your customers’ problems and solutions in their entirety you
can define and work to ensure that the customer gets the whole product
- Once the product is developed in the mainstream there is some hope that some third
party will see an opportunity for itself to make money fleshing out the whole product
- While you are crossing the chasm there is no hope of any external support that is not
specifically recruited by you for the purpose
SOME REAL-WORLD EXAMPLES – SEE PAGES 113 – 119
PARTNERS AND ALLIES
- Problems with “strategic partners” are”
= Company cultures are non-compatible
= Decision cycles are out of sync with each other
= Misrepresentations during negotiations lead to problems down the track
- Some strategic alliances have been successful (SAP, HP and Anderson Consulting
came together to displace IBM in client-server applications; Microsoft and Intel
(“Wintel”))
- Tactical alliances: have one and only one purpose – to accelerate the formation of
whole product infrastructure within a specific target market segment eg: Netscape and
Yahoo! who drive traffic to each other’s sites
- Explicitly partner with customers
- Get together at conferences and trade shows all the time
- Fostering initial partnerships to create the whole product is the equivalent of seeding
the value chain to get it started
- The whole product definition followed by a strong program of tactical alliances to
speed the development of the whole product infrastructure is the essence of
assembling an invasion force for crossing the chasm
- Any company that executes a whole product strategy competently has a high
probability of mainstream market success
TIPS ON WHOLE PRODUCT MANAGEMENT
- Define your whole product
- Review the whole product to ensure it has been reduced to its minimal set
- Review the whole product form the participants’ point of view
- Develop the whole product relationship program slowly
- Work as closely together as possible with the partner to ensure that you are where
the decisions will be made
- Use formalised relationships as openings formalised for communications only
- Watch out for large companies who waste your time and be sensitive to small
companies who have limited resources
- Do not be surprised to discover that the most difficult partner to manage is your own
company
- Look to your customers to be the truest and most powerful allies
Chapter 6: Define the Battle
- The major obstacle now is competition
- You need to understand who or what the competition is, what their current
relationship to our target customer consists of and how you can best position yourself
to force them out of your target market segment
- The fundamental rule of engagement is that any force can defeat any other force – if
it can define the battle
- If we set the turf, we get to set the conditions for winning – why would we ever
lose?
- The downfall is if you misunderstand either your own strengths and weaknesses or
those of your competitors – more often it is because we misinterpret what customers
really want or we are afraid of making sure that they get it
CREATING THE COMPETITION
- In the early stages, competition has come from alternatives rather than from direct
competitors so you are not likely to have any competitors when you cross the chasm
- In the pragmatist’s domain competition is defined by comparative evaluations of
products and vendors within a common category
- Pragmatists don’t like to buy until there is both established competition and an
established leader for that is a signal that the market has matured sufficiently to
support a reasonable whole product infrastructure around an identified centrepiece
- Competition becomes a fundamental condition for purchase by pragmatists
- Creating competition is the single most important marketing decision made in the
battle to enter the mainstream
- You have to locate your product within a buying category that already has some
established credibility with the pragmatist buyers
- You have to create a competitive set that you clearly dominate, but it may not be
credible or attractive to pragmatist buyers (eg: a claim that you have the best loss
reserving software and that you have a PhD in Renaissance English Literature – it
may be true, but not attractive)
- Focus in on the values and concerns of the pragmatist, not the visionaries
= Start with the right conceptual model
= Create a value profile of target customers
= Identify what would appear to be the most competitive set and rank them
= Build their positioning around the competitive rankings
THE COMPETITIVE POSTIONING COMPASS
- There are four domains of value in high-tech marketing: technology, product, market
and company
- In general the early market is dominated by specialists who are more interested in
technology and product issues than in market standing or company stature
- The mainstream market is dominated by generalists who are more interested in
market leadership and company stability than in the bits and bytes or speeds and feeds
of particular products
- Markets begin in a state of scepticism and evolve to a state of support. Once the
pragmatist has given its blessing, then conservatives buy in
- The model also points to the fact that people who are supportive of your value
proposition take an interest in your products and in your company. People who are
sceptical of you do not
- Even the most sceptical specialists are always on the lookout for new technology
breakthroughs
- Sceptical generalists may not take an interest in an unproven company but are
always interested in new market developments
- The two natural marketing rhythms in high tech: developing the early market and
developing the mainstream market
- The chasm transition represents an unnatural rhythm – moving form an environment
of support back into one of scepticism among the pragmatists
- It is the market-centric value system supplemented but not superseded by the
product centric one that must be the basis for the value profile of the target customers
when crossing the chasm
THE EXAMPLE OF CILICON GRAPHICS
- Creating the competition involves using two competitors as beacons so that the
market can locate your company’s unique value proposition.
- The first competitor is the market alternative: this is a company that the target
customer has been buying from for years
- The second reference competitor is the product alternative: this is a company that
has also harnessed a discontinuous innovation and is positioning itself as a technology
leader.
- The presence of these two competitors gives credibility to the notion that now is the
time to embrace a discontinuity
- Acknowledge their technology but differentiate from them by virtue of our niche
market focus
- The market Silicon Graphics targeted was Hollywood – post production film editing
- Silicon Graphics brought digital editing (if the image you want on the film is not
there, Silicon Graphics helped you to put it there)
- The traditional analogue methods made a perfect market alternative
- Sun and HP sold Unix machines and made a great product alternative to the Silicon
Graphics digital workstation (they gave them validity without actually being in the
Hollywood market)
- Your market alternative helps people identify your target customer (what you have
in common) and your compelling reason to buy (where you differentiate).
A SECOND EXAMPLE: QUICKEN
- There was a competitor in the market before Quicken called “Manage Your Money”
which had more functionality than Quicken
- Quicken’s advantage was that it made it easier to pay bills (a pragmatist’s dream –
an incremental breakthrough)
- Quicken then provided “cheques” that are printable from the computer and can be
used legally as real cheques
- The market alternative was paper/manual cheques
- The product alternative was “Manage Your Money”
- Rather than fight in a features war, they chose to use Manage Your Money as a
reference beacon and offer a new service that was an incremental innovation
IN CLOSING…
- Chasm crossing requires a single target beachhead segment and in that segment
there needs to exist already the budget dollars to buy your offer
- As soon as you call out your choice for your market alternative, you will be in for a
fight
- You need to make clear to the industry that old solutions can’t hope to keep up with
your technological innovation
POSITIONING
- Positioning is the most discussed and least well understood component of high-tech
marketing. Here are a few principles to help you understand positioning better:
= Positioning is a noun and not a verb: it is an attribute associated with a company or
product
= Positioning is the single largest influence on the buying decision
= Positioning exists in people’s heads, not in your words: people have to understand
the words you are using to position your product
= People are highly conservative about entertaining changes in positioning
- Positioning is about making your products easier to buy
- Throwing selling-hype and sales pitches at consumers turns them off
- You need to find out where the best place for the consumer to buy would be
= Name It and Frame It: Potential buyers will not buy what they can’t name
= Who and What For: Customers will not buy something if they don’t know what it is
for and who will be using it
= Competition and Differentiation: Customers need to place an item in comparative
context
= Financials and Futures: Customers want to buy from a vendor with experience in
the business who will stick around for a long time
- Put in place the sets of perceptions with the appropriate target customers in the
appropriate sequence and at the appropriate time in the development of a product’s
market
THE POSITIONING PROCESS
- Four key components of the marketing process:
= The claim: the key is to reduce the fundamental position statement to a 2-sentence
format
= The evidence: develop sufficient evidence to back up you claim of undisputed
market leadership
= Communications: identify and address the right audiences in the right sequence
with the right versions of the message
= Feedback and adjustment: competitors can be expected to poke holes in your
positioning tactics and marketing program so you will have to make adjustments –
this is a dynamic process and not merely a one-time event
THE CLAIM: PASSING THE ELEVATOR TEST
- Can you explain your product in the time it takes to ride up in an elevator? If not:
= Whatever your claim is, it cannot be transmitted by word of mouth if it is longer
than two sentences
= Your communications will not be consistent. Marketing brochures, advertising
campaigns etc will end up with different versions of your product description
= Your R&D will go all over the map – no clear vision
= You won’t be able to recruit partners and allies because they won’t be sure what
your goals are
= You are not likely to get financing from anybody because they won’t understand
what your product is or does
- They key to passing the elevator test is to define your position based on the target
segment you intend to dominate and the value proposition you intend to dominate it
with:
= For (target customers)
= who are dissatisfied with (the current market alternative)
= our product is a (new product category)
= that provides (key problem solving capabilities)
= unlike (product alternative)
= we have assembled (key whole product features for your specific application)
- The goal of positioning is to create and occupy a space inside the target customer’s
head
- The statement of position is not the tag line for the ad
- The position statement controls the ad campaign to ensure that however creative it
becomes it stays on strategy
- If the point of the ad is inconsistent with the point of the claim, then change the ad,
no matter how great the ad is
THE SHIFTING BURDEN OF PROOF
- The toughest thing about marketing high-tech is that just when you get the hang of
something it becomes obsolete!
- There is a time when trying to climb out of the chasm that major sources of desired
evidence (alternative products/markets) are not directly under control of the company
- To the pragmatist buyer, the most powerful evidence of leadership and likelihood of
competitive victory is the quality and number of partners and allies you have
assembled in your camp and their degree of demonstrable commitment to your cause
- You have to make sure that everyone hears about your product and the evidence
supporting it
WHOLE PRODUCT LAUNCHES
- Whenever a new high-tech product is introduced, it is customary to launch it by first
briefing the industry analysts and long-lead press editors well in advance of the
launch date (so they can serve as references)
- These launches are not appropriate for crossing the chasm: the product is not new, it
has been sold to the early market already and is not the time to sound your trumpet on
a “new” technology
- The story that should be told is “look at this hot new market” – look at the emerging
set of allies and partners and a new trend in the making – if you are part of our group
then you are in it to make it big
- There are two avenues to explore:
= Business Press:
~ Partnerships and alliances make great news stories.
~ Bring along as many other players in the story as possible to the press.
~ Communicating with the press has to be in the framework of the big idea – it has to
transcend high-tech and be a *business* story worthy of the business pages
~ The business story should be of a new opportunity or problem that has now been
addressed
~ The benefit of the business press medium is the inherent high degree of credibility
= Vertical Media:
~ Media specifically dedicated to a particular industry or a particular profession
~ Trade shows and conventions are all impressive forms of media for the pragmatist
~ The idea is to get in a room with a number of people in a given industry and outline
the current state of affairs in the vendor’s marketplace as it relates to their business
- The goal of a whole product launch overall is to develop relationships in support of a
positive word-of-mouth campaign for your company and products
- It takes time to develop these relationships
- Once the relationships are in place they represent a major barrier to entry for any
competitor – pragmatists and conservatives like to do business with people that they
know
RECAP: THE COMPETITIVE-POSITIONING CHECKLIST
- Focus the competition within the market segment established by your must-have
value proposition
- Create competition around what represents a reasonable and reasonably
comprehensive set of alternative ways of achieving the value proposition
- Focus your communication b reducing your fundamental competitive claim to a
two–sentence formula
- Demonstrate the validity of your competitive claim through the quality of your
whole product solution and the quality of your partners and allies
Chapter 7: Launch the Invasion
- Distribution is the vehicle to carry you out of the chasm, pricing is the fuel
- Decisions in both distribution and pricing have enormous strategic impact
- The number one corporate objective when crossing the chasm is to secure a channel
into the mainstream market with which the pragmatist customer will be comfortable
- Pricing is used to motivate the channel
THE STRUCTURE OF HIGH-TECH DISTRIBUTION
- There are a variety of distribution channels operating under the umbrella of the hightech market:
= Direct sales: Typically national in scope and focused on calling on major accounts
(eg: IBM)
= Two-tier retail: Vendors ship to the first tier, which stages inventory and manages
credit for the second tier. This structure is increasingly being displaced
= One-tier retail: Superstores that for the bulk of goods sold fulfil both the wholesale
and retail functions in a single entity
= Two-tier volume adding reselling: For products that are too complicated for retail,
the two tier model continues to work when the customer facing role is played by a
value added reseller (VAR) – these are typically no-name brands who specialise in a
particular technology
= National Roll Ups: from time to time the market makes a move to roll up the local
VARs into a nation wide chain
= OEMs (Original Equipment Manufacturer): This is at least a two tier transaction,
beginning with a direct sales force selling to manufacturers who then integrate the
purchased product into their own systems and sell the systems to the customer
= System Integrators: this is not a channel per se since it rarely ever sells the same
products twice. Rather, it is a project-oriented institution for managing very large or
very complex computer projects
- The greatest change to distribution methods is the Internet
- Planning on the Internet in the short term is a bad strategy. Just as important is the
opposite caveat: not planning for the internet as part of your long-term strategy will be
fatal
- There are three critical factors to consider when crossing the channel:
= Demand creators versus demand fulfillers: direct sales forces are optimised for
creating demand, while retail superstores are optimised for fulfilling it
= Role in providing the whole product: systems integrators and VARs are optimised
for playing a very large role in providing or developing the whole product and make
much of their profits from this service. Retail and internet channels take a low-cost
position based on the assumption that the whole product can be fully assembled form
off the shelf parts
= Potential for high volume: Channels optimised for the whole product development
are not effective for high volume delivery – low cost, low service channels are just the
opposite
- What we are looking for when we cross the channel is the following:
= Does the channel already have or is it optimised to create a relationship with our
target mainstream customer?
= If not, it is not a candidate for helping us cross the chasm
= If it is our customer’s ultimate preferred form of distribution then we are going to
have to look for a two step process where we have an intermediate distribution tactic
to create the relationship and a longer term one to reap maximum rewards
= How will this channel fit into our whole product mix – partners and allies? – the
less pressure we put on our channel to deliver the whole product, the more it can
focus on selling instead of supporting
= It is absolutely essential that our mainstream customer gets the whole product and
we should be willing to sacrifice some volume in order to prevent customer
dissatisfaction at getting less than the whole product
DIRECT SALES
- The direct sales force has been consistent in the high-tech industry
- The direct sales force is optimised for creating demand
- This is an expensive way to sell with the cost of sales built into the price
- For the customer, the key condition is that the vendor supply a broadly
comprehensive and reasonably competitive set of offerings
- For the vendor the key condition is both the volume and the predictability of
revenues
- You have to know what your base price point limit is (a $50,000 product cannot
have a base price point limit of $5,000)
- When functioning at its best, direct sales is the optimal channel for high tech. It is
also the best channel for crossing the chasm but there are a number of pitfalls:
= Some vendors might exploit their positions and good customer relations such that
they charge a lot more than necessary
= There was an initial increase of the price/performance ratio of technology and this
lead to a drop in prices by a significant amount
= As price points lower it becomes increasingly difficult to sell through a direct sales
force
= The complexity of total solutions has increased to the point where no single vendor
can cover a big piece of the pie
- Can we get our sales force entry into the pragmatists’ restricted domain?
= Do we have a partner or ally who already has a relationship with our target
customer and who can help open the door from the inside?
= A strong tactic to consider is hiring a senior executive out of the target community
to become your company’s ambassador back in – someone who has a deep
understanding of the business issues in the community and relationships of
longstanding that can be leveraged to introduce sales teams to appropriate prospects
- Do we have the capacity to recruit and grow a direct sales force appropriate to the
market opportunity?
= Field a direct sales force as a transition-oriented tactic with a long term goal to take
the product into a different channel through selling partnership
- All other things being equal, direct sales is the preferred alternative because it gives
us maximum control over our own destiny
RETAIL SALES
- Thousands of vendors can create and supply the parts of an industry standard whole
product and thereby institutionalise that whole product and opening up the
opportunity for retail
- In retail it is the choice that matters to consumers, not the brand, so brand-based
retail outlets (say, a Xerox store) does not do as well as a generalist retail outlet (say,
Photocopiers R Us)
- First and foremost, the retail system works optimally when its job is to fulfil demand
rather than to create it
- Retail sales are not consultative
- Retail distribution is structurally unsuited to solving the chasm problem – solidly
established brands get most of the sales because the pragmatists are comfortable with
them
- Retail sales cannot sponsor discontinuous innovations because they require the
channel to spend a disproportionate amount of time on something that gives too low a
rate of return
- However, once the product is established in the mainstream market, there are a
number of proven approaches that can be taken:
= Direct response advertising: develops demand for low-priced software where the
risk of trial is not too great
= Telesales: works better for higher priced products like Dell’s PCs
= Value Added Resellers: develops whole product support, although it is not
particularly motivated to package or institutionalise these solutions – it is dominated
by problem solvers and not salespeople
- Products in the retail market will have a price cap of a few thousand dollars for the
consumer and about $10,000 for small business – anything beyond this won’t sell in a
retail situation
VAR-LAND OR NO-MAN’S-LAND?
- Products in the range between $10,000 and $75,000 provide all the challenges of
high priced products and all margins of low priced products
- It is difficult to maintain proper ongoing support to the low end and high-end
products in this range because of the cost of servicing such small deals
- Value Added Resellers can help in this instance, but few VARs have either the
resources or the inclination to do any marketing
- The product vendors who are seeking to leverage the VAR channel need to provide
the channel with their marketing programs, even though the channel understand the
target market better than the vendor
- VARs will not develop markets for you
- VARs are mainly city based, so it will be difficult to build up a comprehensive cover
of the country
- VARs tend to make their money out of the service that they provide, rather than out
of selling your product
- VARs perceive selling as a necessary evil – something that they have to do, but not
their core business
- VARs are not normally appropriate as a mainstream marketing channel
ADAPTATIONS AND ALTERNATIVES
SYSTEM INTEGRATORS
- System integrators divide up their product decisions into three buckets:
= technology-critical components: sometimes these are early-market offers where the
integrator takes the greater risk, does major due diligence and seeks a partner
relationship with the provider
= systems-critical platform: elements must be robust and come with strong back-up
and support
= generic purchasing: the integrator is seeking the lowest hassle factor and they want
a really good supplier relationship
- Because system integrators can accelerate mainstream dramatically market
acceptance, it is critical to work in cooperation with them when crossing the chasm
- System integrators are best viewed as agents for the customer and they should be
served by a direct sales effort on a project specific basis by senior executives in the
vendor firm
- The most important marketing contribution to ensuring effective working
relationships with systems integrators is a communication task, not a selling one
SUPER VARs
- A channel that is proposed form time to time for markets, which need value added
services to be consistently provided across a broad geography into a cost sensitive
category
- The target customers for this channel are the pragmatist buyers in medium to largescale companies
- Most VARs cannot operate on a nationwide service basis
- No single VAR can except to cover the breadth of technologies at stake, but a
network of many VARS, each contributing its own distinctive expertise could
- The most effective way to run a VAR network is to take on all of the selling yourself
but leave the VAR to demand fulfilment and service roles for which they are so well
suited
OEMs
- Leverage the direct sales force of an established player in the market
- The difficulty is in winning the attention of the ORM with a product that requires
some creative selling
- OEM sales forces are likely to be focused on the big-ticket products that come out of
the company’s own R&D labs
- OEMS have no patience for the special demands of a chasm product and is therefore
not suited to solving the chasm distribution problem
SELLING PARTNERSHIPS
- The basic tactic is to co-sell sith a whole product partner, fielding a direct sales force
yourself, sharing leads with the partner, each bringing the other in to help develop
comprehensive whole product proposals
- The key is to simplify the selling arguments so that the partner’s sales force has one
or two key points to make, generating little subsequent debate from the customer,
enough to create an entry point but not enough to overburden or risk the sale
- Selling partnerships are a transitional strategy
- Selling partnerships are good for “priming the pump” but not good for the long term
OUTBOUND RETAIL
- How do you provide the benefits of retail to someone who doesn’t want to go to the
store?
- Outbound sales forces from retail outlets enable the pragmatist to purchase directly
from a sales executive, without the burden of the consultative selling process and
without having to forgo their contact in the business and deal with the vendor directly
- Outbound sales forces do not meet the chasm criteria
- Outbound sales forces are demand fulfillers, a chasm product is a nuisance to them
as it generates a disproportionately large amount of explanation to generate a
disproportionately small amount of revenue
THE INTERNET
- For early-market offers targeted technology enthusiasts, the Internet is a superb
channel for it gives visibility to no-name companies at a very low cost
- Crossing the chasm requires face-to-face meetings with the target customer to help
diagnose their problem and prescribe a previously unavailable solution: the Internet
doesn’t provide for that (and in fact, is built to avoid that)
- The net can give strong assistance to coordinating the whole product team and to
keeping in touch with the target segment
- For direct sales of chasm-crossing offers, you can ignore this channel entirely (if you
choose, but for a tech company not be involved in the internet is not a good selling
point!)
SO WHAT IS THE RIGHT CHOICE?
- The right choice of distribution channel for crossing the chasm is:
= to use direct sales and support as a demand-creation channel and then
= once the segment has become aware of your presence, transfer to the most efficient
fulfilment channel for your offer
- Your critical success factor is t establish a sustainable market position
- Until you have made a market, no one has a vested interest in supporting your sales
- As long as you need strong cooperation from your channel partners to deliver the
whole product, it is better to be a little under-distributed to protect their profit margin
than to get over-distributed and have them either drop out or begin to cut corners on
their delivery
DISTRIBUTION-ORIENTED PRICING
- The problem with pricing is that there are so many perspectives competing for the
controlling influence
CUSTOMER ORIENTED PRICING
- This depends a lot on the psychographic of the market (eg: visionaries will be
willing to pay a higher price for cutting edge technology)
- Sometimes there is a prestige in buying a high-priced alternative
- Value-based pricing: because of the high value placed on the end result, the product
price has a high umbrella under which it can unfold itself
- Conservatives want low pricing: they don’t get competitive advantage, but they do
keep their out-of-pocket costs down – this is cost-based pricing
- Pragmatists expect to pay a premium price for the market leader relative to the
competition, perhaps as high as 30% - this is competition based pricing
- Competition based pricing: even though the market leaders are getting a premium
their allowed price is still a function of comparison with the other players in the
market.
VENDOR ORIENTED PRICING
- Cost of goods, cost of sales, cost of overhead, cost of capital, promised rate of return
etc are critical to being able to manage an enterprise properly on an ongoing basis
- Vendor oriented pricing sets the distribution channel decision by establishing a
price-point ballpark that puts the product in the direct sales, retail or VAR camp
- Vendor oriented pricing represents the worst basis for pricing decisions during the
chasm period – it is a time for focus on the new demands of the mainstream customer
and the new relationship with a mainstream channel
DISTRIBUTION ORIENTED PRICING
- There are two pricing issues that have significant impact on channel motivation:
= Is it priced to sell?
~ Price doesn’t become a major issue during the sales cycle.
~ Crossing the channel means your price is too high from the early market and market
resistance will force you to reconsider the price to cater for the pragmatist market
~ Products can be priced too low when it doe not incorporate a sufficient margin
= Is it worthwhile to sell?
- Set pricing at the market leader price point, thereby reinforcing your claims to
market leadership and build a disproportionately high reward for the channel into the
price margin, a reward to be phased out as the product becomes truly established in
the mainstream
RECAP: INVASION LAUNCHING
- Put a price on your product and put it into the sales channel
- Four key principles:
= The prime goal is to secure access to a customer oriented distribution channel
= The type of channel you select for long-term servicing of the market is a function of
the price point of the product
= Price in the mainstream market carries a message – one that can make your product
either harder or easier to sell: your price needs to convey market leadership
= Margins are the channels reward: since you are trying to get the most out of the
channel’s existing relationships with pragmatist customers, you should pay a premium
margin to the channel during the chasm period
Conclusion: Leaving the Chasm Behind
- All organizations are market driven: the chasm phenomenon drives all emerging
high-tech enterprises to a point of crisis where they must go out in search of a new
home in the mainstream
- The key question is whether management can become aware of the shift in time to
leverage opportunities
- Aside from marketing, there are three critical arenas of change: finance,
organisational development and R&D
- The post-chasm enterprise is bound by the commitments made by the pre-chasm
enterprise
- One of the first tasks in the post-chasm era is to manage your way out of
unsustainable agreements forged in the hectic and “wild” pre-chasm era
- The best solution is to avoid making the wrong kind of commitments during the prechasm period
- Organisations must realise that they are “going through a phase” (ie: the chasm) and
once they come to grips with that, they can then arm themselves with the correct
tactics to navigate themselves out of the cave in one piece
FINANCIAL DECISIONS: BREAKING THE HOCKEY STICK
- The purpose of the post-chasm period is to make money
- The purpose of the pre-chasm period is not to make money
- Entrepreneurs show venture capitalists a “hockey-stick” graph: slow or no sales for
the first short while and then a sharp and sudden uptake and skyrocketing sales (a bit
like the shape of a Nike swoosh on an angle!)
- Hockey stick curves are created by spreadsheets, not by reality
- The revenue line is actually a slave to two masters: the entrepreneur’s costs and the
venture capitalist’s expectations
- But the revenue development should actually look like a staircase, rather than a
hockey stick – the flat parts are the transitions into new markets and across chasms
- When the hockey stick curve doesn’t eventuate, then things fall apart and companies
die in the chasm
- For the financiers of this world, the key is to reformulate their concepts of valuation
and expected rate of return
- For management the key is to know when to spend capital and when to adopt the
discipline of profitability
THE ROLE OF THE VENTURE-FINANCING COMMUNITY
- All investment is a bet on performance against competition within time
- The question is: how wide is the chasm? Or, in other words, how long will it take
before I can achieve a reasonably predictable ROI from an acceptably large
mainstream market?
- No mainstream market can occur until a whole-product is in place (ie:
institutionalised)
- How big will the market be? – Answer: as big as can be motivated by the value
proposition (the compelling reason to buy)
- Venture capitalists must make the entrepreneurs incorporate crossing the chasm into
their business planning (target customers, D-Day attacks, value propositions, whole
products, partners and allies etc
THE ROLE OF THE VENTURE-MANAGING COMMUNITY
- The entrepreneur’s key concern is how long should I live off capital and when
should I adopt the discipline of profitability?
- Until profitability is achieved, nothing is secure
- The software industry has low capitalisation requirements and is a very strong case
for adopting profitability from day one
- Accepting profitability from day one will ensure that you don’t fall into a “welfare
state mentality”
- There are two reasons not to choose profitability from day one:
= The price of entry is too great to fund with sweat equity or consulting contracts
= It is typically more capital intensive to cross the chasm than it is to build the early
market
- Once you have established yourself in the early market, the whole equation changes
and the product investment aspect takes a significant number of funded initiatives
ORGANISATIONAL DECISIONS: FROM PIONEERS TO SETTLERS
- In the developing organizations, pioneers are the ones who push the edge of the
envelope – they want to do great deeds and when there are no more great deeds to be
done, they want to move on
- It is critical that as an enterprise shifts from the product-centric world of the early
market to the market-centric world of the mainstream, that pioneer technologists be
transferred elsewhere to another project with the enterprise
- Without the visionary-sales team, selling to the early market is impossible: they are
the ones who understand the visionaries – who talk their talk, walk their walk and
share their enthusiasm for new technologies
- The visionary sales team become a liability once you have crossed the chasm – they
cannot stop selling on the basis of “new technologies”, which is not the way to sell to
pragmatists
- The problem is, if you shift the high-tech pioneer and the pioneer salesman, who do
you replace them with? Will they have enough product knowledge to continue to sell
this product? Is this a moral or fair thing to do to people who have contributed greatly
to date?
- Pioneers do not want to settle down, but by creating a mainstream market, they are
putting themselves out of a job
- The truth is that settlers do not take pioneers’ places, but they do create “laws”
(procedures” and do all the things that created range wars between settlers and
pioneers in the old west
TWO NEW JOB DESCRIPTIONS
- The key is to initiate the transition by introducing two new roles during the crossingthe chasm-effort, both of which are temporary positions:
= Target Market Segment Manager: one goal – to transform a visionary customer
relationship into a potential beachhead for entry into the mainstream vertical market.
~ Assign this person to be the account manager for an early market customer to allow
him extensive customer contact to learn all about the customer’s business and the
industry
~ He will isolate idiosyncratic elements as account-specific modifications making
sure thereby not to saddle the ongoing product development team with the burden of
maintaining them
~ Expedite the implementation of the first installation of the system: this will secure
the beginning of a reference base for the target market segment
~ During the implementation of the first installation, introduce into the account a true
account manager (a settler) who will serve his client for many years to come (ie: his
replacement)
~ Leverage the ongoing project to create one or more whole product extensions that
solve some industrywide problem in an elegant way
= Whole Product Manager (discussed below)
- The Target Market Segment Manager leads to being an industry-marketing manager
and the Whole Product Manager becomes the Product Manager
THE WHOLE PROJECT MANAGER
- A Product Manager: a member of either the marketing organization or the
development organization responsible for ensuring that a product gets created, tested
and shipped to satisfaction
- A Product Marketing Manager: a member of the marketing team responsible for
bringing the product to the marketplace and to the crossing-the –chasm agenda, from
target-customer identification through pricing
- Combining the two aforementioned jobs means that one or the other doesn’t get
done
- The Whole Product Manager: a product-marketing-manger-to-be: until there is a
successful crossing of the chasm there are no meaningful market relationships or
understandings to drive the future of the product development
- As the shape of the mainstream market emerges, the whole product managers steps
into the role of product marketing manager – but not too early because during the
early market stage it is important to be product driven and give strong powers to the
product manager
COPING WITH COMPENSATION
- Few compensation programs recognise either the fundamentally different
contributions of pioneers and settlers or their fundamentality different tenures within
the enterprise
- The key is to discriminate between account penetration and account development.
The latter is more predictable, less remarkable. It is also the most lucrative
- Compensation for the pioneer salesperson should provide the bulk of its rewards
immediately in recognition of a single key achievement – winning the account
- A bonus-based program rather than a straight commission approach would be most
appropriate – lucrative for the salesperson, event-driven and over and done with
relatively quickly
COMPENSATION DEVELOPERS
- The pioneer technologist can be divided into two categories: the true company
founders and very early employees
- Company founders have bet their lives on the product
- Early employees feel that they have produced a large part of the core product and
want a reward for it when it hits the mainstream market – but they don’t deserve it
because success in the mainstream market is based on the whole product, not the core
product
- Early employees and founders do have a right to rewards from the early market
- Compensation programs must take into account the differences between desired
performance in the early market and mainstream market
R&D DECISIONS: FORM PRODUCTS TO WHOLE PRODUCTS
- The dynamic that drives all else is: “Build it and they will come”
- Once customers start demanding personalised changes to the program, and we have
no choice but to serve them. At this point it must become whole product R&D
- Whole product R&D is driven by the marketplace
- Whole product R&D begins with creative market segmentation and penetrates into
habits and behaviours
- Whole Product R&D is often misnamed as “maintenance”
- The idea is not to create discontinuous innovations to “wow” the market, but to
continue R&D development on the whole product (look at successful companies
selling release #14!)
AN EMERGING DISCIPLINE
- Whole product R&D is an emerging discipline: it is a convergence between hightech marketing and consumer marketing
- As an innovation become continuous, focus groups become increasingly relevant
and effective tools
- Focus groups can be used to direct the extension and modification of an existing
product line to meet the special needs of a target market segment
- The goal of good packaging is to ensure a successful experience right out of the box
- In high-tech, marketing is too ignorant to drive the bus
LEAVING THIS BOOK BEHIND
- We began by isolating the fundamental flaw in the prevailing high-tech marketing
model (the notion that rapid mainstream market growth could follow continuously on
the heels of early market success)
- By analysing the differences between visionaries and pragmatists we could see that a
far more normal development would be a chasm period of little to no growth
- The fundamental strategic principle to tackle this was to launch a D-Day style
invasion within the marketplace including:
= identifying the target point of attack (isolating the compelling reason to buy)
= assembling the invasion force (the whole product)
= defining the battle (creating competition)
= launching the invasion (selecting the intended distribution channel and setting the
pricing to give us motivational leverage over the channel
- Tactics then have to be decided on how to cross the chasm by looking at the
commitments that get made in the pre-chasm period