In any industry, competition usually focuses on a familiar range of products and services, and often aligns with either rational or emotional appeal. Some industries emphasize price and functionality, appealing to customers’ logic. Others focus on emotions, creating a connection with customers. However, most products and services aren’t strictly one or the other. This division often results from how companies have competed in the past, shaping what customers expect over time. This cycle means market research rarely reveals new customer insights. Customers often just want more of the same, but cheaper.
To find new market opportunities, companies need to challenge their industry’s typical emotional or functional focus. Here are two common strategies:
- Emotionally Oriented Industries: These industries often include unnecessary extras that increase prices without adding value. By removing these extras, companies can create simpler, cost-effective models that customers appreciate.
- Functionally Oriented Industries: These industries can make their products more appealing by adding emotional elements, creating new demand.
Starbucks: Turning Coffee into an Experience
In the late 1980s, the U.S. coffee market was dominated by General Foods, Nestlé, and Procter & Gamble. Coffee was seen as a commodity, with heavy price cuts and thin profit margins. Consumers were used to focusing on price, discount coupons, and big brands.
Starbucks changed this by making coffee an emotional experience. Instead of selling coffee by the can, Starbucks created coffee bars that offered a chic gathering place, relaxation, and creative coffee drinks. This turned ordinary coffee into a $3-per-cup experience that customers loved. With minimal advertising, Starbucks built a national brand with profit margins five times the industry average.
Swatch: Making Watches Fashionable
Swatch transformed the budget watch industry. Watches were once purely functional, bought to keep time. Leaders like Citizen and Seiko focused on technological advancements like quartz accuracy and digital displays. Swatch changed this by turning watches into fashion accessories.
Swatch’s parent company set up a design lab in Italy to create stylish watches, making them an important part of personal style. Before Swatch, people usually owned one watch. Swatch made owning multiple watches the norm, with the average Italian owning six to match different moods and outfits.
The Body Shop: Focusing on Function
The Body Shop found new market space by shifting from emotional to functional appeal. The cosmetics industry traditionally sells glamour and beauty, with packaging and advertising making up 85% of costs.
The Body Shop reduced these costs by using simple, refillable plastic bottles and minimal advertising, focusing on natural ingredients and healthy living. This straightforward approach resonated with consumers, creating new market space by challenging the industry’s norms.
Changing the Game in Service Industries
New market creation is also happening in service industries like insurance, banking, and investing, which traditionally rely on emotional bonds between brokers and clients. For example, Direct Line Insurance in Britain eliminated traditional brokers, focusing on efficient claims handling and minimal paperwork.
This approach reduced costs, allowing for lower premiums. In the U.S., Vanguard Group in index funds and Charles Schwab in brokerage services are transforming their industries by shifting from emotionally driven relationships to high-performance, low-cost functional businesses.
By rethinking their approach, companies can uncover new market spaces. Whether it’s adding emotion to functional products or removing unnecessary extras from emotionally charged ones, challenging industry norms can lead to innovative and profitable business models.
