Disruptive Innovation is all good. That is, if it originates from within ones' own organization of course. The chances are however, that it will occur from sources outside the existing market; from a new entrant, or Start up business. As we will lay out, this can represent a significant risk to companies and brands aready serving the marketplace concerned.
Yet, this of course is old news. Finding effective strategies to counter the impact from disruptive innovation is an ongoing business challenge for any company in any market.
In our post here- we look at whether raising spending on marketing, to increase the awareness/reach of a company, brand or product offers a realistic strategy. Does focusing the increased budget on existing products or services, in an effort to bolster sales make sense? Could this actually help counter the effects of the disruption..or instead just pose additional threats to the business?
Much has been written on the subject of course, however in essence Disruptive Innovation is a process that occurs when a revolutionary product or service enters an established market; and through the course of time, drastically changes the market. Part of the change that occurs is that a new market is formed- as a growing segment of the original market move to adopt the new product or service.
Managing the disruption that results from the above is a matter of growing urgency for the incumbents in a market, as the pace of disruptive innovation is increasing.
So what can be done to mitigate some of the effects of disruptive innovation on a business or a brand? The simple answer is a lot. Our purpose here however, is not to consider this wider question.
Our focus instead is simply on the possible implications of using too many additional marketing dollars as part of a potential strategy.
To be clear, we do not question the obvious need for companies to ensure marketing spend is managed in line with, and to support business objectives of the company or a brand. It is likely of course that the business objectives concerned were set after consideration of general market disruption that currently exists.
This disruption could have been caused by disruptive innovation, or by other events impacting the market. The point being general disruption is ubiquitous within a market and obviously needs to be accounted for the purposes of general business planning.
If staying in the race is the goal, i.e. not succumbing to the prevailing attrition, then perhaps it is just a question of which of the less well resourced companies, can justify the greatest marketing spend. However- this ignores the very real fact that the market disruption and subsequent contraction is not transitory.. it is continuous and also accelerating.
So yes the bigger companies can out spend the smaller companies in terms of marketing, as they try to counter the negative impact of Disruptive Innovation on their company or brand. In the same way certain smaller companies can outspend other smaller companies in terms of marketing. This process will of course create new winners and losers. Yet ultimately all companies incumbent in the market are still effectively operating within ever decreasing circles.
This is true irrespective of the size of the organisation- each spending more to attract more, of an increasingly smaller group of consumers. Yet the underlying dynamics of the market remain largely unchanged by this strategy. I.e increased marketing spend can do little to increase the overall consumers in the market.
We argue that despite any short term gains in sales that are enjoyed, additional marketing spending does little to counter the real effects of disruptive innovation in the longer term. This includes the fact that the net sales volume is likely to continue reducing going forward.
We would however go further this and suggest that too much of an increase in marketing spend could in fact skew or distort the real state of the business or brand and its position in the market. Perhaps giving the impression that things were actually better than they were in reality. This in our opinion presents real challenges.
Firstly- it is not our aim to try to over simplify what is for any business an incredibly complex and challenging issue- yet sometimes a more simplistic view can still be beneficial.
So that said, an example: Disruptive Innovation occurred in a market. Company A was able to increase its marketing spend, in order to attract more of the remaining consumers to its company or the brand. It was able to absorb the higher cost of acquisition long enough to outlast Company Bs' ability to do the same for its company or brand. Assume this results in Company B dropping its brand of even going out of business. A proportion of Company Bs' residual consumers then turn to Company A.
So Company A now has less competition in the market..and some new customers, yet what does it have beyond this? Considering overall net sales are likely still in gradual decline, Cost Of Acquisition is still increasing, driving reduced profitability- and the market is still getting smaller.
Imagine instead, that over the same period, Company A had invested the majority of the extra marketing dollars in a redirection of the business, or brand that focused on a longer term objectives. These objectives may have involved streamlining, lowering costs, and improving profitability. Or addressing staffing structures training and automation for instance. Even exploring untapped markets, diversification, consolidation, and a good deal of innovation. In any case the end result was the business was looking again at upward trend lines.
In this second scenario.. Company B or its brand may or may not still be around, but this fact, ultimately becomes less important to Company A. Since Company A is now winning new sales and seeing a growth in profitability- from the steps it took to realign itself and its product/service offerings.
Another easy fix?..if only life were so simple.
Yet, what is missing in scenario two is time and vision. It takes both to effectively analyse understand, prepare and execute key changes to a business. So much so that in most forward thinking organizations- the clock started long ago and the process of managing disruption is continuous.
The problem is, that energies and resources should be clearly focused on the underlying issues caused by the disruptive innovation. Without this clear focus, the time remaining to take what maybe significant remedial action is reduced: The opportunity cost.
Graph showing how using an increase in marketing dollars to tackle disruptive innovation, could impact cost of aquistion, profitability and opportunity cost.
Attempting to counter the effects of Disruptive Innovation by an overreliance on increased marketing spend, in our opinion, carries with it significant risk in the longer term.
This is as discussed, because the extra spending may make it harder to determine the real underlying strength of the business or brand; and its position relative to others in the market. There is also the impact on profitabilty, cost of acquistion, and a growing opportunity cost to consider.
This situation perhaps also risks, that there will be less of an imperative to tackle much more consequential business change that may in fact be needed. However, when looked at as part a wider business realignment process that also takes account of problems caused by underlying market dynamics; considerably increasing marketing spend may well be justified.
This is especially likely, bearing in mind the need for a business to continually innovate; and ideally create some waves of its own.
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