Creating new market spaces … Markets can be defined however you want, framed in your own language, rejecting old models like B2C and B2B, focused on enabling customers to achieve more.

February 18, 2023

The Middle East is a fascinating yet bewildering place for many foreign visitors.

Whilst it is mostly welcoming and safe, it has grown over recent years with a jumble of traditional culture and western influence. Working in Kuwait City recently, I ventured out from my hotel to explore skyscrapers mixed with traditional souq markets, cafes full of smoking locals, and small shops packed high with local delicacies.

Then I came across a minimalist single-floored glass building, % Arabica. It was full of young professionals, lined up for the best coffee and snacks in town, a meeting place that was an alternative to the crowded environs.

Japanese designer Ken Shoji told me that he had brought his Asian coffee concept to the Gulf state simply because it was so different. It was an inspiring fusion of multiculturalism – Asian architecture, African coffee roastery, and Arabic meeting place. Since launching a year ago, “%” had become a cult brand.

Creating new markets

Chan Kim and Renee Mauborgne are both professors at the beautiful INSEAD business school based in Fontainebleau, 60km south of Paris. It was founded in 1957 by Georges Doriot, often called the father of venture capitalism, which makes it a fitting place to explore new markets.

“Blue Ocean Strategy” published in 2004 has become a business text of our times. I first met Mauborgne in Istanbul, in the same year. She explained the concept incredibly simply, saying “red oceans are the crowded markets where everyone crowds in to compete, blue oceans are the unexplored markets which are quite and uncontested”.

For the last 15 years they have told the story of Cirque du Soleil, how it blended the ideas of opera and ballet with traditional circus, whilst eliminating animals and raising prices. Or Southwest Airlines, offering shuttle buses to secondary airports with limited service, the first low cost airline. Or Nintendo Wii, taking the established concept of video games but adding multi-players and augmented reality to enable family participation.

Kim offers four ways to innovate the “strategy canvas” which maps out the attributes of a market, exploring what to reduce, what to enhance, what to eliminate, what to create. The results for Cirque’s Guy Laliberté, Southwest’s Herb Kelleher, and Nintendo’s Shigeru Miyamoto, were innovative businesses that dominated new market spaces.

Creating a new market space, in my experience happens in one of three ways:

Forming markets: this is the most radical, in that it creates a completely new business opportunity, responding to a new need and aspiration of the customer. Red Bull’s Dietmar Mateschitz returned from Asia, tired after a long flight, with the inspiration to create an “energy drink”, and the likes of Gatorade later followed.
Fusing markets: combining the best ideas of two different markets, potentially to reach new audiences with new applications. Apple did this with the iPhone. When Steve Jobs launched it he described it as “a combination of a mobile phone, entertainment player and internet browser”.
Framing markets: redefining the boundaries, domain and descriptors of a market as trends shift, categories evolve, and new possibilities can be included. Shell, the oil giant, redefined itself as an energy company. Danone, the French food manufacturer, as a health company.

In three decades of working with hundreds of companies, these two latter concepts have proved the most enduring for me. More than any clever technique, name-checked model, or guru inspiration, the simple acts of “fusing” and “framing” have been most productive.

Power to the people

The most significant shift in business over the last 30 years has been from product-centred to customer-centred thinking. Many companies are still not there, but I suspect more has been invested in trying to make that transformation, that anything else, even the digital transformations of recent years.

30 years ago, when I started my business career, all 30,000 staff in the company were asked to go on a two-day program called “Winning for Customers”.

At the time, led by an inspired people-thinking CEO, Colin Marshall, it seemed radical and fresh. At the same time, for an airline, it seemed obvious. The primacy of the customer experience, rather than the functionality of any component – parking, check-in, boarding, seats, entertainment, food, transfers – seemed obvious. It was easy to think “horizontal” and follow the customer’s journey, crossing over the “vertical” silos of internal functions and product and service components.

Customer-centric companies succeed in three ways:

Customer control: the customer is the starting point of any transaction, determining when and how they want to do business. Technology empowers their choices and preferences, whilst imperfect responses are quickly challenged.
Customer creativity: increasingly customers want to be more active in the design and shaping of what they buy, be it through co-creation of personalised solutions, or more strategic involvement through partnerships.
Customer collaboration: customers trust and influence each other, advertising is largely background noise in today’s marketing world, as customers seek to do more together, sharing their passions and projects in communities enabled by brands.

Technology has finally made customer-centric thinking obvious for every type of business. Power is now unquestionably in the hands of customers. They have infinite choice, they can access your business or any other, with a simple click, and there is a surplus of supply rather than demand.

Businesses now even struggle to engage customers in a relationship, let alone gain their loyalty, as customers trust each other more than any brand, and are loyal to their community rather than any supplier.

Every business is a “consumer” business

This power shift from product to customer fundamentally changes the mindset and structure of businesses.

Businesses (B) are organised by customer (C) or segment rather than product or category, with internal alignment of capabilities giving way to an alignment of insight. In reality, a business needs to achieve both.

As supply chains become ecosystems, networks rather than linear flows, the relationships between businesses and customers change. Businesses can reach end-customers directly by developing direct channels, giving them much more ability to self-assemble components, be it organising vacations or building their own homes.

As a result, the end customer, or the “consumer”, becomes the lead actor in a reconfigured play. We can see the shifts here, evolving over time:

From B2C to C2B: empowered by technology, transparency and choice, consumers demand businesses and brands to act on their terms – when, where, how, what they need – they demand more, and influencers drive preference. Examples: L’Oréal personalisation direct. Netflix video on demand.
From B2B to B2B2C to C2B2B to C2B: enabled by technology, businesses no longer need to work through aggregators of solutions, or distribution intermediaries, instead the most “industrial” of businesses connect directly with consumers, again on their terms. Examples: Goldman Sachs’ consumer bank, Cemex direct to consumer.
From C2B to C2C: enabled by technology, consumers find each other, seeking to share their passions, and possibly enabled by brands. Even if brands provide products and services, they are secondary to what the consumer seeks to achieve. Examples: Glossier’s beauty community. Rapha’s Cycle Clubs.

Every business is a “consumer” business.

Alibaba’s “C2B” model shows how to use the power of AI and machine learning to respond to customers’ rapidly changing needs and aspirations. Ming Zeng, chief strategy officer, says that in a digital world, all successful companies use the latest tech, but Alibaba has taken the underlying principles of e-commerce the furthest, with a model based on machine learning and the comprehensive “datafication” of the consumer’s experience.

The technology allows the company to put consumers at the centre of business, constantly collecting data on them and their purchase choices in real time and using feedback loops to drive machine learning. When consumers log on they see a customised webpage with a selection of products curated from the billions offered by millions of sellers.

The model requires several connected elements: a network that can dynamically adjust the supply and quality of service offerings, an interface where customers can easily articulate their needs and responses, a modular structure that can grow from an initial beachhead, and purchasing platforms than can provide agility and innovation.

Every consumer exchange supplies more data, which goes into the feedback loops required for machine learning. This system requires that a large number of actions and decisions are taken out of human hands. Algorithms automatically make incremental adjustments that increase system-wide efficiency.

For the brands of P&G, it means a new way of engaging, as demonstrated by L’Oréal. For industrial businesses like commodity miners, cement producers, agricultural farmers, it is a huge opportunity to connect directly with consumers, to add value in new ways and transform profitability.

It also means that there is no such thing as a “commodity”.

Excerpt from “Business Recoded” by Peter Fisk

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