Here’s a quick quiz for you. Is it easier to get

A: 1% of a huge, established market?hbr_130x130
B: 100% of a completely new one?

If you work for Apple, you might have picked B. But too often when companies embark on innovation projects, they pick A: that is, they start by believing that nothing could be easier than to capture a small chunk of a very big, existing market.

But to unleash the power of innovation to capture big markets, what matters is not how big any existing market is but how many people are wrestling with some problem that no current offering really solves, what we here at Innosight call the “important and unsatisfied jobs” of consumers — and non-consumers. When sizing an innovation opportunity, what you should be looking for are jobs what are widely held and currently poorly served, not lots of people who haven’t bought your own products yet.

To see what I mean, consider what happened to Kellogg when it first attempted to enter the Indian market in the early 1990s.The logic behind its decision appeared to be unassailable. With $3.8 billion in revenue and a whopping 40% share of the U.S. ready-to-eat cereal market, Kellogg was the market leader in its home base. And with sales in nearly 150 countries, it already had a formidable international presence. India was home to 950 million possible new consumers.  If Indian consumers would eat as much cereal, on average, as Americans, then just 2% of the population would generate more revenue than the entire U.S. market. Surely, Kellogg could capture 2% of this vast group with a little bit of innovation.

Buoyed by this optimism, Kellogg invested $65 million in establishing an operational and marketing presence to launch Corn Flakes, Wheat Flakes, and its “innovation” — Basmati Rice Flakes — throughout the country.  “Our only rivals,” declared the managing director of Kellogg India, “are traditional Indian foods like idlis and vadas.”

Unfortunately, these rivals turned out to be formidable. The company’s significant investment failed to gain Kellogg much of a foothold in the Indian breakfast market and, 12 months later, by April 1995, it could claim to have less than 0.01% of those 950 million potential consumers. Over the years, Kellogg continued to invest in the market — repositioning products, launching new brands of ready-to-eat cereal, and marketing heavily. But by 2010, Kellogg had managed to capture considerably less than 1% of the population, generating revenues of only $70 million.

How is it possible that Kellogg could envision building a $3 billion business in India, invest $65 million in the first year alone, and end up, 16 years later, with only $70 million in annual revenues?  And how can other business leaders avoid making similar mistakes?

Read the full article on Harvard Business Review

Robyn M. Bolton is a Partner at Innosight.

One comment on “Are You Targeting a Phantom Market?

  • I guess, it’s safer to pick option A and only a few would dare to pick option B. The risks are high this time and with the uncertainty of today’s economy, you can’t really blame businesses to play it safe. Is it fear of failure then? I think someone needs to compile all those big data and get all the business intel they need so they can forge a product/service in a new market – from experimenting to becoming a mover/shaker in a whole new niche.

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