Innovating in the Interstices
A market here, a market there.... could there be a market in between?!Looking at several new products that have emerged in recent years, a new innovation theme can be discerned. It is what I call innovating in the interstices. Let me explain this theme by means of a highly topical innovation that all of us have heard about recently: the unveiling of the Nano ultra-low-priced car from the house of Tata.
What was the logic that drove the conception of this incredibly innovative product? In essence the logic was the following:
-the personal transportation needs of budget-conscious customers today are being met by 2-wheelers (scooters, motorcycles) and small cars.
- there is a large gap in between the 2-wheeler and the small-car markets, and in that gap a market may exist
-if we can create the right product, we may be able to serve that "in-between" market.
The above logic illustrates the general principle behind what I am calling innovating in the interstices. The principle is: pitch a new product in the interstice (gap) between two adjacent but distinct markets, on the premise that in that gap lies a market waiting to be served.
What distinguishes such "interstitial innovation" is the process of discovering a potential market segment that is unserved - looking at two adjacent markets and asking the question, could there be an untapped market in between?
A few illustrations and observations should help clarify what this innovation theme is about:
1. A company that "innovates in the interstices" is sometimes a company that is already serving one or both of these adjacent markets, but it does not have to be. Southwest Airlines* used precisely the above principle to discover a travel market "in between" driving and flying to one's destination. Southwest was not an existing airline but a completely new airline designed from the ground up to fit into this new market. Of course, most incumbent airlines entered this market segment as followers (much later, and in some cases too late).2.The process of designingthe new product that will serve the interstitial market is likely to start with the product currently serving either of the adjacent markets, and adapt it to the needs of the interstitial market. In designing the Nano, the Tatas first tried starting from the 2-wheeler end: take a motorcycle and fit a roof and other parts onto it. They soon realized this was not the way to go, and so tackled the problem from the other end: take the smallest car currently available and figure out how to make it cheaper.
3. The new product created to serve such an 'interstitial' market is usually not a simple hybrid of products currently serving the adjacent, existing markets. In general it will have some features of at least one of those products, but also a few features that are unique. McDonald's introduced its innovative chicken snack wrap in 2006, designing it to meet the needs of consumers who wanted something heavier than a snack, but lighter than a meal. Although it included several ingredients found in a variety of snacks, it was a unique new product. Consumers have kept lovin' it, and the snack wrap has become one of the most successful product launches in the company's history.4. Other examples of such interstitial innovation in action include
- the Sports Utility Vehicle (SUV), which was conceived to fit into the market between conventional passenger cars and rugged, off-road vehicles such as Jeeps.
- The Tatas have also used this principle before, in developing the hugely successful Ace, a sub-one tonne mini-truck. This innovative product was designed to fill the large gap that then existed between the smallest mini-truck (of about 2.5 tonne capacity), and three-wheeled vehicles that were of very low capacity. This gap turned out to constitute a huge market - the Ace sold over a 100,000 units well within two years of its launch.The reason why interstices of the kind mentioned above offer a fertile ground for new product introduction is not far to seek - potential customers who lie in between two well-defined market segments are forced to choose between products serving those two markets. Thus, they are likely to be unhappy consumers, having to "stretch" their needs to fit into either of the existing products. Many may simply be unwilling to make the required stretch, and thus end up as non-consumers. In either case, this leads to pent-up demand being "bunched" in the interstices.
It is thus that, in the never-ending quest for innovation, these interstices afford a high payoff for discovering new, untapped markets._______________________________________________________________________________________ * it may interest the reader to know that Southwest Airlines was not the first low cost airline. Southwest Airlines, launched in 1971, used the first sophisticated low-cost airline model, but the raw low-cost airline concept had been pioneered by Pacific Southwest Airlines (unrelated to Southwest airlines) as far back as 1949.