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Inside The Tornado by Geoffrey Moore


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There is a specific marketing strategy for each and every kind of product or service. "Inside the Tornado" gives stimulating introduction to guerilla marketing tactics in Silicon Valley and detailed analysis of various marketing strategies. Read book summary compiled by Prof. Sameer Mathur for more insights.

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Inside The Tornado by Geoffrey Moore

  1. 1. BOOK SUMMARY 1 Geoffrey Moore
  2. 2. What do you do when your company has a new technological product or service? How do you introduce it to the market and target new customer segments? How do you form strategic alliances in order to deliver on time? How do you sell disruptive products to mainstream customers? All of this (and more) it is cover by Geoffrey Moore on its bestseller “Inside Tornado” Overview 2
  3. 3. CONTENTS 3 1.The Land of OZ 2. Crossing The Chasm – And Beyond 3. In The Bowling Alley 4. Inside The Tornado 5. On Main Street
  4. 4. 6. Finding Your Place 7. Strategic Partnerships 8. Competitive Advantage 9. Positioning 10. Organizational Leadership Contents 4
  5. 5. LESSON 1 5 The Land of OZ
  7. 7. Consumers are clustered in 5 groups; as we will see, each demands a different approach and treatment. The graph moves from left to right, being the Innovators, those willing to try something truly new. THE CONSUMERS 7
  8. 8. Innovators: • They love to get their hands on the latest innovations. They will try anything new. Early adopters: • They want to use the discontinuity of any innovation to break with the past and start a new future. Early majority: • They make the bulk of purchases. They believe in evolution, not revolution. THE CONSUMERS 8
  9. 9. Last Majority: • Price sensitive, very demanding and sceptical. They are a huge untapped opportunity for tech companies Laggards: • They always challenge the hype and love to critic. The idea with this group is not to sell them directly, but sell around them. THE CONSUMERS 9
  10. 10. Innovators = Technology enthusiasts. Early Adopters = Visionaries. Early Majority = Pragmatists. Late Majority = Conservatives. Laggards = Skeptics. 10 Lesson 2
  11. 11. LESSON 2 11 Crossing The Chasm and Beyond
  12. 12. The first two clusters represent early adopters that are willing to try anything new, however - right after this “honeymoon”- there comes the CHASM, that critical and delicate moment in which companies can MAKE or BREAK. The chasm, or tornado is a moment in which the adoption cycle will play a determinant role, since after all the excitement, the market will be waiting for a complete product that meets all their demands. The Chasm 12
  13. 13. LESSON 3 13 In The Bowling Alley
  14. 14. LESSON 3 The Bowling Alley: Once a company has successfully established a whole product with a chosen beachhead, they now enter the phase known as “The Bowling Alley”. It is the first taste of the mass market, but the company is still quite a way from The Tornado. During The Bowling Alley phase the company must use the initial beachhead customer as the head bowling pin to win further niche market opportunities. 14
  15. 15. LESSON 3 It is only after establishing itself within a community of niches that the technology innovation can become standardized enough to be adopted by the pragmatists and the mass market and to ultimately enter The Tornado. It is still too early to control the market, in fact you are at the mercy of your first customers, but it is these customers that will become your allies in attracting further clients in order to gain the mass market standards. 15
  16. 16. How should navigate the chasm? Focus on a niche market to validate the idea. Spot a clear problem of an underserved area and solved it. The Bowling Alley 16
  17. 17. Gain access to one key segment in order to start moving into the next one. This approach is based on two principles: 1.- Never serve a segment whose current expenditure on your category exceed your current annual revenue. 2.- Focus on the end-user community, not the technical one. The Bowling Alley 17
  18. 18. “ The only safe way to cross the CHASM is in fact to put all your eggs in one basket. ..the key to winning strategy is to identify a single beachhead of pragmatism customers in a mainstream market segment and to accelerate the formation of 100% of the whole product. The goal is to win a niche foothold in the mainstream as quickly as possible - that is what is meant by crossing the chasm”. Remember 18
  19. 19. So, how do we choose a segment? 1.- The segment has a compelling reason to buy. 2.- The segment is not currently served by any competitor. How do we choose a segment? 19
  20. 20. Questions To Ask: Is the target customer well funded and are they readily accessible to our sales force? Do they have a compelling reason to buy? Can we today -with the help of partners- deliver a whole product to fulfil the reason to buy? If we win this segment, can we leverage it to enter additional segments? How do we choose a segment? 20
  21. 21. LESSON 4 21 Inside The Tornado
  22. 22. Once a company can actually gain a customer segment and solve its issues, a new market might be forming. When competitors realize there is potential there, they will attack immediately. Inside the Tornado 22
  23. 23. The Gorilla – Market leader. They set the bar and the market ‘reference price’. The Chimps – At one point could have been the Gorilla, but lost out. The Monkeys – Companies catering to the edge cases that aren’t covered by the market leaders. They should focus on a niche unattended by the gorilla (a new tornado could be ignited from a monkey). Once the market stabilizes, you have 23
  24. 24. Market share by revenue Gorilla Chimp #1 Chimp #2 Monkeys Market share by profit Gorilla Chimp #1 Chimp #2 Monkeys Inside the tornado Tornado strategy: Just ship 24
  25. 25. Characteristic: Paradigm shift with swift ferocity One company assumes market leadership pushing all others aside New Infrastructure New players, new industries, new jobs 25 Inside the Tornado
  26. 26. Reasons: When it is time to move, let us all move together When we pick a vendor to lead us to the new paradigm, let us all pick the same one Once the move starts, the sooner we get it over with the better 26 Inside the Tornado Inside the Tornado
  27. 27. Given this scenario, companies that are pioneering should follow three rules: ignore the consumer (it doesn't know what he needs, so there is no point in getting feedback from him), attack competitors ruthlessly (the leader company has to make sure that no one will try to steal market share away) and expand distribution channel as fast as possible (be there always, when the need comes up in the consumer’s mind). Inside the Tornado 27
  28. 28. NEVER! (a) try to control the tornado (b) try to introduce a discontinuity during a tornado, (c)design services out, not in, (d) try preventing the tornado. Inside the Tornado 28
  29. 29. Once a company has successfully faced the TORNADO, it can start moving into a growth model that will ensure (most of the cases) a bright future. This is the moment to create and validate a new industry in which the most successful company will own market share and earn the most profits. This stage it is called MAIN STREET. In the Tornado 29
  30. 30. Two great tornadoes of 1980’s Midrange computer tornado PC market What to do in a tornado? Attack the competition ruthlessly Expand your distribution channel as soon as possible Lesson 4 30
  31. 31. Tornado mistakes: Tornado forces are bigger than any one company’s ability to control, so don’t try Don’t introduce discontinuity during a tornado Tornado design service out, not service in Don’t bet on preventing a tornado Lesson 4 31
  32. 32. Intel and Microsoft way: Recruit partners to create a powerful whole product Institutionalize the whole product as the market leader Commoditize the whole product by designing out your partners Lesson 4 32
  33. 33. Lessons that HP taught us: Just ship Extend distribution channel Drive to the next lower price point Lesson 4 33
  34. 34. 34 On Main Street Lesson 5
  35. 35. Now, the company that created strategic partnerships and validated a new market, has to act ruthlessly in order to own and lock as many customers as possible. By now, the competitive advantage should be clear and the market actually has a need that this product(s) or service(s) solve. High Tech Sector Growth 35
  36. 36. We move into operational excellence (decreasing cost) and building intimacy with the consumer (engagement). During this stage, the company starts to solidify its positioning and build top of mind among consumers. 36
  37. 37. Companies that have developed an innovative technological product or service need to start working on their delivery strategy. This is in order to face the tornado and serve the market in which the pioneer company aims to be a gorilla (or clear leader). High Tech Sector Growth 37
  38. 38. LESSON 6 38 Finding Your Place
  39. 39. In the Early Market, you must not segment, simply follow visionaries wherever they lead you To cross the Chasm and negotiate the Bowling Alley you must segment Once Inside The Tornado you must not segment On Main Street you must segment but not in the way you did in Bowling Alley, here the segmentation is the basis of your +1 strategy When To Segment 39
  40. 40. There are two kind of discontinuity that shape the technology adoption life cycle Paradigm Shock: Whether experienced by end users or the infrastructure that supports them Application Breakthrough: The result of dramatic changes in end-user roles enabled by new technology, which in turn spur equally dramatic returns on investment Discontinuity and The Life Cycle 40
  42. 42. Quadrant 1: TECHNOLOGY ENTHUSIASTS Life cycle starts here and paradigm shock is high while benefit is low typically because applications for new technologies is yet to be fielded It is the realm of pure sciences and prototypes Discontinuity and The Life Cycle 42
  44. 44. Quadrant 2: VISIONARIES Here we see the emergence of the early market, buildup around one or more visionaries seeing the benefit potential for new technology Dramatic competitive advantage is generated by visionaries, thereby warranting the pain of displacing the paradigm shift Pragmatists like to incorporate breakthroughs but not at the price of paradigm shock required which creates the chasm Discontinuity and The Life Cycle 44
  46. 46. Quadrant 3: Pragmatists This is Bowling Alley phase, where clever marketing can accelerate what otherwise will be a prolonged period in the chasm. Since pragmatists move as a hard, they create a de-facto standards and stimulates the broad base of supplier support needed to obliterate paradigm shock together while still delivering application breakthrough. Discontinuity and The Life Cycle 46
  48. 48. Quadrant 4: CONSERVATIVES As the Tornado subside the conservatives are able to buy in to the market for the first time The paradigm shock has been fully absorbed and application breakthroughs have become standard The market now moves to main street with further innovation focused on secondary value prepositions Discontinuity and The Life Cycle 48
  50. 50. WALL Between First and Fourth Quadrant: The wall says you cannot move from one to the other without going through the right hand side of the diagram If you come with a discontinuous technology whose sole benefit is to lower cost and improve productivity within a well-worn application arena, you have an essentially unmarketable opportunity Conservatives will not tolerate paradigm shock nor will they invest in helping vendors reduce the shock over time Discontinuity and The Life Cycle 50
  51. 51. Signals of Early Market: One sure signal of early market product is when its own developer declines to comment on it Another is when the coverage focuses on technology and product features, the two items of greatest interest to early-market players Calibrating Market Acceptances 51
  52. 52. Calibrating Market Acceptances Signals of Mainstream Market: Mainstream Markets are more interested in market and company in formation 52
  53. 53. Signals of Tornado Market: A lot of Emphasis on cut throat competition If there is a lot of porting activity focused on a single vendor, even if that vendor is not you, it’s a good sign that you and they are in a tornado market Calibrating Market Acceptances 53
  54. 54. Calibrating Market Acceptances A second sign from the infrastructure is cloning Widespread price discounting within the product category – both for gorilla product and for clone products 54
  55. 55. Just because a product is not shipped does not mean it is in early stage, rather place the product where the group think it will enter life cycle when shipped The same product can be at different points in life cycle depending on global context so specify geography when making a group choice You can have a “local tornado” within a single bowling alley segment How To Keep Group on Target 55
  56. 56. Some product get to main street without going through a tornado. The whole product does eventually become a commodity within the niches they serve Just because your product is going down the tubes does not mean you are in chasm, product can fail anywhere within the life cycle, although failing in a tornado takes special work How To Keep Group on Target 56
  57. 57. How To Predict Start of Tornado First, Bowling Alley successes help tornadoes to start because they validate product architecture Second, in retail markets, price point is a key indicator of tornado readiness More abstractly, tornadoes require the commoditization of the whole product 57
  58. 58. The big signal for the tornado is “killer app” but it is not clear whether tornado causes killer app or vice versa You can know a tornado has started when a gorilla company begins to emerge Finally betting on the tornado coming at a specific time is like buying a lottery ticket and expecting to win How To Predict Start of Tornado 58
  59. 59. Part Two Implications for Strategy 59
  60. 60. LESSON 7 60 Strategic Partnerships
  61. 61. Lesson 7 Strategic Partnerships Closed System • Vendor lock-in • Vertical Integration • Focus to minimize dependency and maintain control Open System • Vendors free to pursue best of breed strategy • Favors smaller and more entrepreneurial entities 61
  62. 62. An OPEN SYSTEM business strategy puts a premium on partnerships to ensure rapid development of new technology markets Learning how to COMPETE in such environment is the single biggest challenge Learning how to make and keep COMMITMENTS in such an environment is second biggest challenge Partnerships 62
  63. 63. Stage 1: In this stage there is a core product but it is raw and hence you need to provide a gamut of services to sell the product. It is where you need a set of partners who can provide these services in the initial phase Evolution of a Product 63
  64. 64. Stage 2: In this phase you start to eliminate partners by integrating the critical services with the product itself, so you start to buy out partners or develop excellence in the critical services and make them part of the product Stage 3: In this phase the product is in last stage and again you need partners who can provide services to take care of the customers. This part is also commercially very important for the companies and is very profitable Evolution of a Product 64
  65. 65. Early Market: In the early market power lies with the technology provider and the systems integrator. The former has the bait that brings visionary customers into range; the latter has the tackle necessary to land them Bowling Alley: Power Centralizes in the hand of the ringleader of the niche market attack In the Tornado: Power in the tornado centralizes in the hand of Gorilla Companies and their cronies non as “The Club” Power Play 65
  66. 66. 1) How do I know if a partnership is really strategic? A Partnership is only strategic when it is focused on the whole product necessary to win you the number one position in the target market. Market leadership is the only strategic object. Therefore, partner only if a partner adds to the objective of achieving the leadership position in the market Five Questions of Strategy 66
  67. 67. 2) How do I manage strategic partnerships created with no specific whole product in view? Partnerships formed in absence of a focal point are simply unmanageable and they consume resources like crazy For a partnership formed in advance of a commitment to a specific whole product, make TARGET MARKET SELECTION your top priority otherwise run away from partnership Five Questions of Strategy 67
  68. 68. 3) How do I decide when to partner as opposed to make or buy? Partnership confer critical leverage but they are expensive and exhausting to manage. Five Questions of Strategy 68
  69. 69. As a rule, a total of two to three partners in any one opportunity is optimal. Within this team each partner needs something real and challenging to do along with a reward commensurate for doing it When these conditions are met it is good to go for partnership else choose for make or buy Five Questions of Strategy 69
  70. 70. 4) Why should not I keep all the partnering revenue to myself? No other vendors will be attracted to the market, unless there is something for them to gain, The market will grow faster with a larger vendor base Five Questions of Strategy 70
  71. 71. Five Questions of Strategy Juicy service margins seduce vendors into staying in the bowling alley instead of commoditizing the whole product for a run at the tornado 71
  72. 72. 5) How do dance with a Gorilla in a Tornado and come out in one piece? The strategic principle is, if we are not the gorilla it is not our market and eventually we will be forced out. Five Questions of Strategy 72
  73. 73. The only viable way out of this dilemma, in the short to medium term, is to sustain enough ongoing innovation to keep us just outside the gorilla’s reach. Longer term, of course, we have to find some place where we can be the gorilla Five Questions of Strategy 73
  74. 74. PARTNERING AS A SERVICE PROVIDER Service component of the whole product is inversely proportional to its state of pre- integration 74
  75. 75. At the Front of Cycle pre-integration is low and the service provider is high margin “deep water” fish At the Back End pre-integration is high requiring the service vendor to be a “shallow water” fish Fish Model 75
  76. 76. At some point in swallowing of margins, it behooves the service provider to merge with the sales channel because there is no longer sustenance for more than one service organization At every stage in this evolution, however, a fish can thrive Fish Model 76
  77. 77. Instead of arguing about why discount margins are getting less and less favorable to the reseller the conversation should instead be based on What gross margins does the service partner need to make to have a healthy business? Let us agree to do business only where those margins can be earned Fish Model 77
  78. 78. The most constructive path forward for both service and product vendor is to pursue Taking the service providers margin requirement as constant, what whole products are now drifting out of its range? How in short term can a service provider squeeze a last good year out of business by productizing its experience into less costly to deliver? Fish Model 78
  79. 79. Looking to the future what kind of opportunities are coming downstream to replace those lost sources of revenue? How in the short term can the product vendor accelerate the market development of those opportunities to increase deal flow for the service provider? Fish Model 79
  80. 80. LESSON 8 80 Competitive advantage
  81. 81. Can be gained by using one of the following three approaches: Product Leadership Operational Excellence Customer Intimacy Competitive advantage 81
  82. 82. Value Disciplines and the Life Cycle COMPETITIVE ADVANTAGE 82
  83. 83. Lesson 8 Competitive Advantage Product Leadership only Product Leadership + Customer Intimacy Product Leadership + Operational Excellence Operational Excellence + Customer Intimacy Two Elements Capability of Inducing Radical change Flexibility to adapt to the visionary’s plan 83
  84. 84. Bowling alley: Product Leadership (leverage technology), Customer Intimacy (Segment focus) Tornado: Product Leadership, Operational Excellence Gorillas use operational excellence to ship in high volume and also uses new product releases to keep competitors at bay Lesson 8 84
  85. 85. Monkeys compete on low price. Operational excellence by reducing overhead. Chimpanzees compete with their own version of product leadership. Lesson 8 85
  86. 86. Main Street: Operational Excellence, Customer Intimacy Low cost commodity provider and niche oriented premium brand Hypercompetitive Behavior It is damaging as goal is to win the game, not beat the competition Lesson 8 86
  87. 87. 87 Positioning Lesson 9
  88. 88. It is about the place we occupy within two interrelated systems, both of which predate our existence, and both of which can get along just fine without us. They are: The system of purchase choices available to the customer The system of companies interacting to make a market Positioning 88
  89. 89. Market – Maker’s View of the Marketplace Imperialists Vs. Natives Explorers & Forty-niners Old Guard: Gorillas Chimpanzees Monkeys Barbarians Vs. Citizens New Market Established Market Established Product New Product Positioning 89
  90. 90. 90 Organizational Leadership Lesson 10
  91. 91. ORGANIZATIONAL LEADERSHIP 91 Organizational Imperatives: Customer Intimacy Operationa l Excellence Product Leadership Bowling Alley Tornado Main Street
  92. 92. Lesson 10 Bowling Alley Tornado Main Street Economic Buyer Infrastructure Buyer End-User Vertical Markets Horizontal Markets Secondary Markets Event-Driven (External/ Internal) Process- Driven (Internal) Process-Driven (External) Key Disciplines: • Business knowledge • Application Engineering • Recruiting • Revenues Within Target Key Disciplines: • Sales Management • System Engineering • New-Hire Orientation • Cash Flow Key Disciplines: • Convenience Engineering • Marketing Communications • Staff Development • Margin Management 92
  93. 93. ORGANIZATIONAL LEADERSHIP 93 BOWLING ALLEY TORNADO MAIN STREET Economic Buyer Vertical Markets Infrastructure Buyer Horizontal Markets End-User Secondary Markets Product Leadership + Customer Intimacy Not Operational Excellence Product Leadership + Operational Excellence Not Customer Intimacy Operational Excellence + Customer Intimacy Not Product Leadership Event-Driven (External / Internal) Key Disciplines: Process-Driven (Internal) Key Disciplines: Process-Driven (External) Key Disciplines: • Business Knowledge • Application Engineering • Recruiting • Revenues Within Target • Systems Engineering • Sales Management • New-Hire Orientation • Cash Flow • Convenience Engineering • Marketing Communications • Staff Development • Margin Management
  94. 94. SUMMARY OF LEARNING 94 1. The Land of OZ 2. Crossing The Chasm – And Beyond 3. In The Bowling Alley 4. Inside The Tornado 5. On Main Street
  95. 95. SUMMARY OF LEARNING 95 6. Finding Your Place 7. Strategic Partnerships 8. Competitive Advantage 9. Positioning 10. Organizational Leadership
  96. 96. 96 Prepared By: Prof. Sameer Mathur, Ph.D. Sameer Mathur Indian Institute of Management, Lucknow Marketing Professor 2013 – Marketing Professor 2009 – 2013 Ph.D. and M.S. (Marketing) 2003 – 2009