A start-up could target a broad or focused market:
- Broad. The terms broad and focused are of course relative terms. However, in general, large companies tend to aim for either broad or focused markets, while start-ups tend to aim for either (a) small vertical markets, or (b) well-defined, narrow segments of broader markets. Both are generally considered to be focused. Porter [POR80] was one of the first to document differences between broad and focused markets in business strategy.
- Focused. A focused market is one in which members have very specific (and similar) buying characteristics, well-defined and well-understood needs, and can be easily identified. Fundamental to success of most start-ups is the demonstration of successful penetration in one target market. This requires you to have proper alignment between the distinct pains felt by members of this focused market, the pains addressed by your products or services, and the messages conveyed by your marketing materials. Once accomplished, brand recognition begins in the market and confidence grows among investors. With both of these, the company can take more dramatic steps toward adjacent and perhaps larger target markets. Because of limited resources and need to demonstrate success quickly, start-ups usually aim for a focused market as their initial target. Porter [POR80] describes the general approach as focused. Miles and Snow’s [MIL78] identifies some companies as prospectors; these are the ones constantly on the lookout for previously unidentified market segments and ways to target their unique needs; they are also focused. Meanwhile, when attacking competitors using Ries and Trout’s [RIE93] guerrilla or flanking strategies, companies are also focusing on narrow market opportunities that are not being adequately defended by competition.
The above extracted from my latest book, Will Your New Start Up Make Money? Buy your copy in Kindle or paperback formats at http://www.amazon.com/Will-Your-Start-Make-Money-ebook/dp/B00JOOZQNE.
Let’s talk about how the choices you have made for business strategy (for my previous few blogs) will affect your pricing strategy. Let us assume that your start-up has figured out some way of being different and better in the eyes of customers. Either your product itself is better (i.e., product strategy), or it has better features (i.e., feature strategy), or is somehow delivered to the customer in a better way, (i.e., delivery strategy) or the company delivers better customer service (i.e., service strategy), or something else. Once accomplished, you now have two choices for a pricing strategy to consider:
- Sub-Strategy 1: Premium Pricing: You price your product higher than the competition. You argue that customers will see more value in your product and thus will be willing to pay more for it.
- Sub-Strategy 2: Comparable Pricing: You price your product in line with the competition’s products. When customers compare your product and the competitor’s side-by-side, they see two products at the same price, but your product will stand out as clearly superior, and thus will provide more value. As a result, you will achieve more volume and thus higher market share.
The above extracted from my latest book, Will Your New Start Up Make Money? Buy your copy at http://www.amazon.com/Will-Your-Start-Make-Money-ebook/dp/B00JOOZQNE.
A start-up could sell unique (aka differentiated) products or it could sell products that are sold by others:
- Differentiated product. Almost every start-up offers products and services that are unique in some way when compared to its competitors. These unique characteristics are called differentiators, and when selected appropriately become order winners (i.e., they may encourage customers to purchase your product instead of a competitor’s). Infinite ways exist to differentiate a product: new taste, totally new category of product, more prestige, more convenient, faster service, better quality results, newer technology, safer, smaller, and so on.Porter [POR80] captured this concept in his broad differentiated category of strategy, although Porter’s broad differentiation includes aspects of both product (“differentiation”) as well as target market (“broad”). Treacy and Wiersema [TRE93]’s concept of product leadership represents a specific example of differentiation in which a company aggressively pursues new solutions that obsolete all existing products, even its own. Companies like 3M, Apple, Hewlett-Packard, Intel, and Newell Rubbermaid are all well known as companies that follow this product strategy. Because start-ups have no history of products, it is hard for them to endeavor to obsolete their own past products. However, they can certainly embark on a path with that as a plan.
- Same product as competitors. Start-ups that sell products identical to or very similar to the competition will usually fail unless they have some other way to differentiate themselves. They will need something; for example, better marketing (to create more market pull), better distribution (to reach more of the market), lower price (to cause more price-conscious customers to buy), better customer service (to encourage return customers), or lower cost (to increase your margins or to enable you to lower your prices). I will discuss all of these in subsequent blog entries. Although start-ups rarely have the ability to execute on many of these approaches (i.e., they tend to stick to being differentiated), exceptions exist: Amazon started selling undifferentiated products online in 1995 with better marketing, better distribution, lower infrastructure costs, and lower prices than the competition.
The above is extracted from [DAV14].