Using "Creative Imitation" to Gain Market Position in a Growing Market: Part II

Editor's Note

A simple look around quickly reveals creative/innovative imitation is not only more abundant than innovation, but actually a much more prevalent road to business growth and profits.

A classic New Yorker magazine cartoon sums this up best with the caption: "What we need, gentlemen, is a completely brand-new idea that has been thoroughly tested."

We all talk about the need to innovate, but opt for a proven, tested idea we believe has met the market test.

We much prefer to get a piece of the growing market rather than create a new market. It's easier and If done correctly, far less risky.

In Part I, we just scratched the surface of how your company should use creative imitation as a continuous improvement strategy.

In Part II, we'll discuss a common failing of many established organizations of all kinds and sizes. By ignoring emerging new niches, many market leaders provide a market entry strategy for newcomers and former second raters.

In short, by failing to exploit their success to the fullest, many organizations create a marketplace vacuum that is inevitably filled by aggressive competitors ready, willing & able to take action.

These competitors identify and capitalize on neglected/emerging market segments/niches. Stated differently, newcomers really have a proven, tested idea that they know works.

All they have to do is "customize" their offering to the emerging niche markets the market leader–for a variety of reasons–fails to serve. And voilà they have "a brand-new idea that has been thoroughly tested."

This is so important it should be repeated: Strategy experts believe no other area offers richer opportunities for gaining market share from dominant competitors than when established market leaders equivalently "fall asleep at the wheel."

Creative Imitation

Said Peter F. Drucker: "By the time an industry, growing rapidly, has doubled in volume, the way it perceives and services its market is likely to have become inappropriate… In particular, the ways in which traditional leaders define and segment the market no longer reflect reality, they reflect history…"

Translated, this means the innovator is not market focused and is not fulfilling new & evolving customer expectations.

In plain English: new market niches inevitably present themselves; but tend to be neglected/ignored by the pioneer and, thereby, provide a market entry strategy for rivals.

According to Drucker, when a truly entrepreneurial newcomer does something somebody else has already done, but does it better by giving emerging niches what they want, need, value, expect and are willing to pay for, they are practicing one form of "creative imitation."

Some call this strategy "innovative imitation." Same thing. This term might seem contradictory. But that's not the case.

Drucker's disciplined observation that "creative imitation" satisfies a demand that already exists rather than creating one: By the time creative imitators go to work, the market has already been identified as demand has already been created.

David Ogilvy's Summary of Creative Imitation

David Ogilvy, founder of Ogilvy & Mather, was a true marketing genius. Here's what he said:

"If a particular market category is growing by leaps and bounds, with very few brands in it, it is possible to introduce a 'me too' product successfully… But the risks are great…

…'Second' brands in a market typically get only half the shares of the pioneer–unless the second brand spends outrageously more…

… It is usually better to wait until you have a product with a real difference… The difference may be in terms of better performance or better quality…

… The difference may be better value… It may be providing a new use or new service (surrounding the basic product)… It may consist of solving a problem which other brands do not solve…

… Too many products have only minor technical differences that can only be perceived in a laboratory… Use research to make sure that consumers can see what's different about your product when they use it and that this difference means something to them…"

How Facebook Beats Rivals

Several years ago, a decline in teenage users led to predictions Facebook would become the next Myspace–a victim of technological displacement and failure to employ the appropriate strategy and tactics for defending its existing market position.

But today, writes Will Oremus in Slate.com, "Facebook's grip on social media is stronger than ever…"

About 2 billion people now use the social network every month, almost twice as many users as it had in 2013, when the doomsday scenarios predictions began.

In essence, Facebook employs one of three strategies to neutralize competition: "If you can't beat them, buy them. And if you can't buy them, copy them."

To this we can add the third strategy of "creative imitation." Facebook waits until somebody else establishes the new, but only "approximately." Then it goes to work. And in a relatively short time comes out with a better product/service that wins the marketplace via better positioning, better value, better total customer experience.

Put bluntly: it seems the companies Facebook can't buy, it creatively imitates or just develops a "me-too" version of the rivals' products.

After Snapchat turned down a $3 billion offer, Facebook simply duplicated its best features but added in a few twists that made a real difference.

Now… A Drucker Example

Drucker offered the early Xerox company as a prime example of a successful innovator that opened the door to creative imitators.

Xerox dominated the market for office copiers in the 50s and 60s.

Xerox charged a premium price for its services and focused on "big users." That, of course, was the high profit segment of the market.

It did not reject smaller customers (e.g., dentists, doctors, school principals, small businesses) but it did not actively seek them or service them.

Yes, practicing professionals in small offices wanted, needed, valued and were willing to pay for a copying machine that fits their specific needs. But they were considered by Xerox to be more of a nuisance than a potential new market.

Innovators must exploit their success. If they don't they create a market for innovative imitators.

To repeat: Xerox didn't develop a small copying machine that would fit the needs of smaller customers. And that created the opportunity for Japanese imitators to enter the market.

The Japanese identified "the unserved niche markets" created by Xerox's breakthrough innovation; and reacted quickly by designing and selling copy machines that fit the needs of the low-usage rate market segment.

They did not compete directly with Xerox; nor did he offer a machine with the speed and clarity of Xerox's technological wonder.

Instead, they provided users with a low-cost, simple machine. That's what this market segment needed… and Xerox did not design a product to fulfill that need. But the Japanese did!

Gaining market share from first movers/originators of a given innovation usually involves creative imitation. Perhaps this thought is best expressed in a book written by a 14th century samurai warrior:

"First, injure the corners… Then, proceed with a frontal attack."

Once the Japanese established themselves in low usage market, they then moved to in on other high usage segments of the copier market. Xerox's total market share of the copier market plummeted as a result of the market-focused and market-driven strategies of Japanese competitors.

Take-home message: Failure to identify and exploit emerging new market segments inevitably leads to "newcomers," "outsiders" or former "second-raters" selling to customers the market leader never heard of or didn't bother with… and slowly, then suddenly, taking away a large share of future growth potential.

How PAYCHEX Exploited ADP's Success

For years, ADP virtually "owned" the computerized payroll field. But approximately 35 years ago they failed to identify, appraise and react to two significant changes their product/market environment–namely:

1. The emergence of new market segments, and
2. The emergence of new competitors

ADP focused its efforts on large organizations–the high-usage segment. Indeed, this was (and still is) the high-profit part of the market.

ADP, at the time, refused to recognize "that the nation's 6 million small companies–those with fewer than 20 employees, add up to one big market," reported Bloomberg Business Week magazine.

Concentration on the high-profit segment of the market is called "market creaming." Developing different products or services for different market segments is called "differentiated marketing."

So "market creaming" and failure to practice "differentiated marketing" made ADP vulnerable to attack.

A small company started by Tom Golisano called PAYCHEX concentrated on the market ADP considered too small.

PAYCHEX and others identified ADP's two vulnerabilities and reacted by designing and selling a set of services to the low-usage group. These companies did not compete directly with ADP. Instead, they provided small user groups with what they needed and valued.

As the smaller company grows larger, thought Tom Golisano, it would be likely that PAYCHEX would develop payroll services that satisfied new needs. And he was right!

Subsequently, Golisano became a multi-billionaire by successfully applying "creative imitation." He simply satisfied the demand that already existed but was not being satisfied by the market leader.

What should've been ADP's response? They could've easily launched a small business service to satisfy the needs of smaller customers.

That certainly would have (at the time) taken away important sales from newcomer competitors. (In future issues, we will discuss four specific strategies for defending existing market positions.)

Summary & Conclusions

Creative imitators, as the Xerox & ADP examples show, did not succeed by taking away customers from the pioneers who first introduced an innovative product and service; but they did succeed by serving neglected market segments or niches the pioneers created but did not adequately service.

According to Drucker, "By the time creative imitators go to work, the market has already been identified and the demand has already been created."

Again, Drucker's insight that as a market grows and develops, trying to satisfy every single user through the same product or service is a recipe for inviting creative imitators into the marketplace.

Inevitably, creative imitators initially "injure the corners" and eventually launch a frontal attack on the established/innovator's market.

The point? If the pioneer did everything right the first time, the door was closed because there was no opportunity for improvement. But that's rarely the case!

Established market leaders, observed Drucker, have a tendency to allow themselves to lose market leadership and markets by enabling competitors "to establish a beachhead… One which the established leaders do not defend at all or defend only halfheartedly…"

Smart attackers or aggressive competitors usually employ a "hit-them-where-they-ain't" strategy. Traditional marketing lingo sometimes calls this strategy "niche entry."

As a market grows, new segments always emerge. And many of these new segments are neglected by market leaders.

We will show in subsequent print articles & online forums how to prepare a marketing/strategic plan that forces identification of emerging/neglected market segments… and the appropriate response strategies & tactics.