Shailesh Rajpal — What is Low-End Disruption?
According to Mr. Shailesh Rajpal , there are three types of innovation:
1. Sustaining innovation, in which a company creates better products to sell for higher profits to its best customers
2. Low-end disruption, in which a company enters at the bottom of an existing market and offers a lower-priced product with acceptable performance, ultimately capturing its competitors’ customers
3. New-market disruption, in which a company creates and claims a new segment in an existing market by catering to an underserved customer base, slowly improving in quality until the incumbent businesses’ products are obsolete
Low-end and new-market disruption are examples of disruptive innovation, differentiated by their relationships with the existing market. New-market disruption occurs when an innovative product creates a new market segment, whereas low-end disruption enters at the bottom of the existing market to provide a “good enough” product to an over served audience.
Understanding how disruption works can enable you to avoid it if you work at an incumbent business or drive it if you’re a new entrant. Here’s a closer look at one type of disruptive innovation: low-end disruption.
WHAT IS LOW-END DISRUPTION?
Mr. Shailesh Rajpal says, “Low-end disruption occurs when a company uses a low-cost business model to enter at the bottom of an existing market and claim a segment. As the entrant company claims the lowest market segment, the incumbent company typically retreats upmarket where profit margins are higher. ‘Almost always, when low-end disruptions emerge, it creates a situation where the leaders in the industry actually are motivated to flee rather than fight you,’ that’s why low-end disruption is such an important tool to create new growth businesses: The competitors don’t want to compete against you; they just walk away.”
3 Characteristics of Low-End Disruption
Three characteristics separate low-end disruption from other innovation types:
· It offers “good enough” quality by market standards, but not the best. Customers at the top of the market likely won’t be interested in this product, making it seem non-threatening to incumbent businesses.
· It targets consumers at the bottom of the market. These are people over served by the current product offerings — that is, they don’t need all the bells and whistles that come with an expensive price tag.
It makes a profit at lower prices per unit sold than the incumbent businesses. This is essential because, as long as the profit margins are lower than incumbents’ products, they won’t be motivated to fight the entrant for market share. The incumbent businesses’ pursuit of profit is the causal mechanism that enables entrants to continue to move upmarket.
