Many companies expect digital transformation and innovation to drive growth in the future. There are many reasons a company might pursue digital transformation in the markets they serve:
• Their existing product lines may not see future growth because the markets they serve are saturated.
• They may see product obsolescence on the horizon and want to fill the pipeline with new businesses.
• They may face price pressure from global competitors.
• They may see customer demand shifting to products with higher levels of technological integration.
• They may seek the scalability, flexibility, and higher profit margins of software businesses.
• They may see software-enabled services as means to expand customer value.
Companies that are setting out to digitally transform markets without first transforming their marketing are using old tools for new problems. These companies should first transform their marketing from “industrial” to “innovation” marketing. Industrial marketing describes a marketing process that will include these steps:
1. Market Segmentation
To improve the probability of a successful market transformation, a switch from “industrial marketing” to “innovation marketing” involves adopting a marketing process that views customer experiences across defined markets, instead of segmenting and differentiating within traditional markets. During times of transformation this integrating approach is redrawing the lines of traditional markets and leaving behind those companies stuck using industrial marketing.
"The integration of experiences available in the iPad created new market lines and introduced entirely new groups of consumers to the computing world"
Apple vs. Industrial Marketing Theory
When Apple announced the release of the first generation iPad many observers voiced concerns that there was not room for a third category of mobile devices. Steve Jobs spoke of their concerns during his keynote introduction of the iPad.
“All of us use laptops and smartphones now, and the question has arisen lately, is there room for a third category of a device in the middle? And of course we’ve pondered this question for years as well.”
Industrial marketing answered this question with “no”. To see why, consider the example of a theoretical company using industrial marketing to evaluate building a tablet. The first step of industrial marketing is market definition. Assuming the company selected the PC and laptop market for their analysis, segmentation of that market would have created groups of PC and laptop buyers such as “business professionals”, “teachers or educators”, “students”, and “home computer users”. The sizes of each segment would vary and the largest segment of PC and laptop users at the time would have been “business professionals”.
At this point, industrial marketing would instruct the company to choose a market segment to target. Financially speaking larger customer segments are more able to justify large investments, so if “business professionals” was the largest segment of PC and laptop users, it would also have been an attractive segment to target. What might have been the result of an analysis to make tablets for “business professionals”? What percentage of “business professionals” would have expressed interest in a smaller laptop that didn’t have a keyboard? Perhaps the ones who travel a lot? Importantly, by starting with the segment of “business professionals”, industrial marketing artificially caps the potential size of the tablet market to be the size of the target segment. This led many to conclude there was not a big enough market for tablet devices.
Apple concluded there was room for a tablet device. Apple’s iPad transformed the personal computing market. Within two years of its launch in 2010, more iPads were sold than Hewlett Packard sold personal computers. By 2013, more tablets were sold the desktop computers, and in 2017 more tablet devices were sold than laptops.
How did Apple create this market transformation?
Apple integrated experiences to transform the traditional PC and laptop market. Steve Jobs highlighted this integration in his keynote of the iPad.
“In order to really create a new category of devices, those devices are going to have to be far better at doing some key tasks…far better at doing some really important things”
• browsing the web
• doing email
• enjoying and sharing photographs
• watching videos
• enjoying your music collection
• playing games
• reading eBooks
The integration of experiences available in the iPad created new market lines and introduced entirely new groups of consumers to the computing world. One of those groups is children. For children, an iPad can be a TV, movie player, mobile gaming device, notebook, and more.
How likely is it that kids would have been a target segment by a company using industrial marketing? Were there large numbers of elementary age children buying laptops? The act of segmentation removed children from the scope of thought. In fact, industrial marketing is unlikely to prompt a company to integrate “playing games” and “enjoying and sharing photographs” into a tablet designed for “business professionals”, but these are experiences that helped Apple transform the PC and laptop market.
Transform the marketing process to transform a market. Innovation marketing is a better tool for companies searching for growth through innovation and digital transformation.