New entrants are growing much faster than the market

Symptom: New competitors are growing significantly faster than the market.

Implications for the market:

  • New competitors tend to enter a market in one of two ways:

    • Offer a low quality product at a low price — i.e., an entry level price or below. Experiment with the product until quality improves. Then expand into the middle of the market, using high quality and slightly-below-industry-standard pricing to gain share.

    • Offer a high quality product at a low price — i.e., an entry level price or a level at which no other price exists. Use this superior value to gain significant share quickly, moving into the middle of the market. This approach has been the more common in the last 15 years.

  • With either of these approaches, prices are liable to fall. The industry price structure will be below what it otherwise could have been, even in a period when demand is growing quickly.

  • At the same time, quality levels will increase throughout the industry because the new entrant will stress the quality of its product.

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Perspectives: Conclusions we have reached as a result of our long-term study and observations.