Future Markets - Blue Oceans and the Light in the Dark
For years, the German TV show "Die Höhle der Löwen" (equivalent to the American TV show “Shark Tank”) has been driving audiences up. Start-ups that compete for investors' support aim to conquer a future market and make substantial profits with their products. But what exactly are future markets and how can they be identified? We will tell you.
About the Explorers of Modern Times
In addition to the well-known "Magellans of modern times" such as Elon Musk (Tesla), Jeff Bezos (Amazon) or Larry Page and Sergey Brin (Google), there are many other successful market explorers of the future. Godo Röben is one of those who has successfully conquered a future market. Five years ago, Röben was still director of the marketing department of the sausage manufacturer Rügenwalder Mühle. He observed the market for meat products very closely and concluded that today's society focuses on sustainability and attentiveness. Therefore, there is no need for a business model, which focuses on killing animals.
He then took the courageous step of addressing the management and the staff to inspire them with his idea of vegetarian sausage. With success. Shortly thereafter, the almost 200-year-old traditional company began to continuously introduce new vegetarian products to the market in order to lead the meatless trend. The goal of transforming the portfolio to 40% vegetarian products by 2020 was pursued with full commitment, as part of the corporate strategy. Today, Röben is CEO and again deals following the question: Where should the company go? Identifying a future market is once again the key issue. But what is a future market anyway?
Characteristics of a Future Market
Four characteristics allow a future market to be distinguished from a trend or an already established market: origin, classification, competition, and consistency.
The origin of future markets can be located by closely observing megatrends and their environment. Godo Röben, for example, identified the mega trends of sustainability, which is powered by influences such as climate change, or demographic change and the associated value change of society as relevant drivers. Several future research institutes and think tanks have compiled a selection of megatrends that can be used as orientation. More in-depth analyses of the changing environment can be conducted with the help of scenario technology. A variety of influencing factors are identified on the global and industrial environment of the company and combined with different characteristics to form scenarios. These scenarios then serve in the company as a basis for deriving directions in potentially attractive future markets.
A future market can also be defined by classification in one of the best-known growth strategy frameworks, the so-called Ansoff Matrix. The matrix distinguishes between market and product developments. If both factors are low, only market penetration without an innovative character takes place. On the other hand, the other three quadrants mean either a product innovation (e.g. a vegan liver sausage), which establishes a future market, a market development (e.g. the offer of a “Teewurst” in Africa) or an industry, which did not exist so far. If the identified future market can be located in one of these three fields, there is a high probability that an innovative growth potential exists.
Another core characteristic of a market is the type and number of competitors. For this reason, it is also necessary to take a closer look at the competitive situation in future markets. Due to the novelty of a future market, it is likely that it is a so-called "Blue Ocean". The Ocean Model by Kim and Mauborgne describes how temporary monopolies, untouched of the bloody power battle of several companies, represent blue oceans. However, these blue oceans are usually characterized by high barriers to market entry or just by the difficulty of recognizing these markets - nevertheless, all companies are looking for them.
Once a blue ocean has been identified and tapped, the consequence is a reward in the form of long-term strong demand, great development potential, and high profits.
Identification of Future Markets
Against this backdrop, it is almost surprising how low the number of companies looking for a future market is. This is often due to the existing market power of established companies and the concern of losing this position due to cannibalization effects. Kodak did not want to cannibalize its films with a digital camera, and Xerox did not want to cannibalize its paper sales with computers. Another factor is the human quality of shying away from uncertainty. This problem becomes clear in the following metaphor:
“A drunken man looks under a streetlight for his keys. A policeman helps him to find them. After a long search, the policeman wants to know if the man is sure that he lost his keys here. He replies: ‘No, not here, but back there - but it is much too dark over there’.”
Instead of searching where it is dark but promising, companies rely on incremental but predictable innovations. But how can light be shed on the dark and disruptive ideas and future markets be identified? The so-called innovation architecture supports this process.
The innovation architecture combines market, product and technology aspects and supports the identification of future markets in four steps:
Analysis of the core elements: At the beginning of the process, the current situation of the company is analyzed, and gaps are identified within the existing business model or market with the help of the architecture. In addition, expert interviews are used to determine the company's resources and capabilities that are necessary to fill these gaps. Finally, the collected findings are transferred into the architecture.
Determination & description of focus fields: One of the building blocks of the architecture is then selected and described in more detail (e.g. the need for healthy meat alternatives). This building block is then linked to another (e.g. 3D Bio-Printing). In this way, building blocks are gradually added until a coherent formulation of a focus field emerges. By doing so several potential focus fields should be formulated.
Evaluation & selection of a strategic focus field: After the focus fields have been compared to the company's mandatory criteria (e.g. compliance with corporate strategy, customer benefit and sufficient capacity), the remaining fields can be arranged on a matrix. This includes the "extent of the opportunity" and the "necessity to exploit". Only focus fields and resulting future markets with a high chance and necessity are allowed.
Development of a roadmap: Conclusively, concrete measures and responsibilities are determined in a time schedule for the development of the future market.
This approach helps companies to bring light into the darkness in a structured way and to take away the fear of uncertainty so that organizations like Rügenwalder with Godo Röben or the candidates from "Die Höhle der Löwen" can courageously break new ground and sustainably secure their competitiveness.