Crossing The Chasm
By Geoffrey A. Moore
Marketing & selling high-tech products to mainstream customers.
Our emerging and evolving markets are demanding continual adaptation and renewal, not only in times of difficulty but on the heels of our greatest successes as well. Which of us would not prefer a little more time to savor that success, to reap a little longer what we cannot help but feel are our just rewards? It is only natural to cling to the past when the past represents so much of what we have strived to achieve. This is the key to Crossing the Chasm. The chasm represents the gulf between two distinct marketplaces for technology products -- the first, an early market dominated by early adopters and insiders who are quick to appreciate the nature and benefits of the new development, and the second a mainstream market representing "the rest of us," people who want the benefits of new technology but who do not want to "experience" it in all its gory details.
If we step back from this chasm problem, we can see it as an instance of the larger problem of how the marketplace can cope with change in general. For both the customer and the vendor, continually changing products and services challenge their institution's ability to absorb and make use of the new elements. What can marketing do to buffer these shocks?
Fundamentally, marketing must refocus away from selling product and toward creating relationship. Relationship buffers the shock of change. We must direct our attention toward creating and maintaining an ongoing customer relationship, so that as things change and stir in our immediate field of activity, we can look up over the smoke and dust and see an abiding partner, willing to cooperate and adjust with us as we take on our day-to-day challenges. Marketing's first deliverable is that partnership.
How can marketing foster such relationships?
In the 1980s intense competition within small niches, everyone competing for the customer's attention, the customer became king and demanded more substance than image. Advertising, as means of communication, could not sustain the kind of relationship that was needed for ongoing success. Two reasons in particular stood out. First, the manipulativeness of advertising has deteriorated the credibility of advertisement as a means of communication. The second problem with advertising is that it is a one-way mechanism of communication. As the emphasis shifts more and more from selling product to creating relationship, the demand for a two-way means of communication increases. It should be education not promotion, the goal being to communicate rather than to manipulate, the mechanism being dialogue, not monologue. The fundamental requirement for the ongoing, interoperability needed to sustain high tech is accurate and honest exchange of information. Your partners need it, your distribution channel needs it and must support it, and your customers demand it. People in the 1990s simply will not put up with noncredible channels of communication.
The fundamental basis of market relations is to build and manage relationships with all members that make up a high-tech marketplace, not just the most visible ones. In particular, it means setting up formal and informal communications not only with customers, press, and analysts, but also with hardware and software partners, distributors, dealers, VARs, systems and integrators, user groups, vertically oriented industry organizations, universities, standards bodies, and international partners. It means improving not only your external communications but also your internal exchange of information among the sales force, the product managers, strategic planners, customer service and support, engineering, manufacturing, and finance.
Discovering the Chasm
The real news, however, is not the two cracks in the bell curve, the one between the innovators and the early adopters, the other between the early and late majority. No, the real news is the deep and dividing chasm that separates the early adopters from the early majority. The reason the transition can go unnoticed is that with both groups the customer list and the size of the order can look the same.
Marketing & selling high-tech products to mainstream customers.
Our emerging and evolving markets are demanding continual adaptation and renewal, not only in times of difficulty but on the heels of our greatest successes as well. Which of us would not prefer a little more time to savor that success, to reap a little longer what we cannot help but feel are our just rewards? It is only natural to cling to the past when the past represents so much of what we have strived to achieve. This is the key to Crossing the Chasm. The chasm represents the gulf between two distinct marketplaces for technology products -- the first, an early market dominated by early adopters and insiders who are quick to appreciate the nature and benefits of the new development, and the second a mainstream market representing "the rest of us," people who want the benefits of new technology but who do not want to "experience" it in all its gory details.
If we step back from this chasm problem, we can see it as an instance of the larger problem of how the marketplace can cope with change in general. For both the customer and the vendor, continually changing products and services challenge their institution's ability to absorb and make use of the new elements. What can marketing do to buffer these shocks?
Fundamentally, marketing must refocus away from selling product and toward creating relationship. Relationship buffers the shock of change. We must direct our attention toward creating and maintaining an ongoing customer relationship, so that as things change and stir in our immediate field of activity, we can look up over the smoke and dust and see an abiding partner, willing to cooperate and adjust with us as we take on our day-to-day challenges. Marketing's first deliverable is that partnership.
How can marketing foster such relationships?
In the 1980s intense competition within small niches, everyone competing for the customer's attention, the customer became king and demanded more substance than image. Advertising, as means of communication, could not sustain the kind of relationship that was needed for ongoing success. Two reasons in particular stood out. First, the manipulativeness of advertising has deteriorated the credibility of advertisement as a means of communication. The second problem with advertising is that it is a one-way mechanism of communication. As the emphasis shifts more and more from selling product to creating relationship, the demand for a two-way means of communication increases. It should be education not promotion, the goal being to communicate rather than to manipulate, the mechanism being dialogue, not monologue. The fundamental requirement for the ongoing, interoperability needed to sustain high tech is accurate and honest exchange of information. Your partners need it, your distribution channel needs it and must support it, and your customers demand it. People in the 1990s simply will not put up with noncredible channels of communication.
The fundamental basis of market relations is to build and manage relationships with all members that make up a high-tech marketplace, not just the most visible ones. In particular, it means setting up formal and informal communications not only with customers, press, and analysts, but also with hardware and software partners, distributors, dealers, VARs, systems and integrators, user groups, vertically oriented industry organizations, universities, standards bodies, and international partners. It means improving not only your external communications but also your internal exchange of information among the sales force, the product managers, strategic planners, customer service and support, engineering, manufacturing, and finance.
Discovering the Chasm
The real news, however, is not the two cracks in the bell curve, the one between the innovators and the early adopters, the other between the early and late majority. No, the real news is the deep and dividing chasm that separates the early adopters from the early majority. The reason the transition can go unnoticed is that with both groups the customer list and the size of the order can look the same.
What the early adopter is buying, is some kind of change agent. By being the first to implement this change in their industry, the early adopters expect to get a jump on the competition, whether from lower product costs, faster time to market, more complete customer service, or some other comparable business advantage. They expect a radical discontinuity between the old ways and the new, and they are prepared to champion this cause against entrenched resistance. Being the first, they also are prepared to bear with the inevitable bugs and glitches that accompany any innovation just coming to market.
By contrast, the early majority want to buy a productivity improvement for existing operations. They are looking to minimize the discontinuity with the old ways. They want evolution, not revolution. They want technology to enhance, not overthrow, the established ways of doing business. And above all, they do not want to debug somebody's else product. By the time they adopt it, they want it to work properly and to integrate appropriately with their existing technology base.
This contrast just scratches the surface relative to the differences and incompatibilities among early adopters and the early majority. Because of these incompatibilities, early adopters do not make good references for the early majority. And because of the early majority's concern not to disrupt their organizations, good references are critical to their buying decisions. The only suitable reference for an early majority customer, it turns out, is another member of the early majority, but not upstanding member of the early majority, will buy without first having consulted with several suitable references. When promoters of high-tech products try to make the transition from a market base made up of visionary early adopters to penetrate the next adoption segment, the pragmatist early majority, they are effectively operating without a reference base and without a support base within a market that is highly reference oriented and highly support oriented.
This is indeed a chasm, and into this chasm many an unwary start-up venture has fallen.
Marketing's purpose is to develop and shape something that is real, and not, as people sometimes want to believe, to create illusions.
If two people buy the same product for the same reason but have no way they could reference each other, they are not part of the same market. The reason we have separate markets is because the customers could not have referenced each other. Marketing professionals break up the market into isolable market segments. Market segments include the self-referencing aspect.
In the high-tech industry, the innovators are better known as technology enthusiasts or techies, whereas the early adopters are the visionaries. It is the visionaries who dominate the buying decisions in this market, but it is the techies who are first to realize the potential in the new product. High-tech marketing, therefore, begins with the techies.
Distribution
The right choice of distribution channel for crossing the chasm is to:
1. Use direct sales. You should always start with direct sales to establish a sustainable market position. Simply you cannot afford to lose one day of opportunity, and the only channel that would be ever be that responsive to your needs is your own. Moreover, until you have made a market, and can make it clear to others that you have done so, no one has a strong vested interest in supporting your sales. You start the fire.
2. Transition to the most efficient fulfillment channel. Once the fire is lit, then your job is to spread it as rapidly as possible. The key here is channel management, beginning with selecting the appropriate channel, then deploying it broadly enough but not too broadly, and growing forward according. For the moment, as long as you need strong cooperation from your channel partners to deliver the whole product, it is better to be a little underdistributed to protect their profit margins, than to get overdistributed and have them either drop out or begin to cut corners in their delivery.
Customer-oriented pricing
Distribution
The right choice of distribution channel for crossing the chasm is to:
1. Use direct sales. You should always start with direct sales to establish a sustainable market position. Simply you cannot afford to lose one day of opportunity, and the only channel that would be ever be that responsive to your needs is your own. Moreover, until you have made a market, and can make it clear to others that you have done so, no one has a strong vested interest in supporting your sales. You start the fire.
2. Transition to the most efficient fulfillment channel. Once the fire is lit, then your job is to spread it as rapidly as possible. The key here is channel management, beginning with selecting the appropriate channel, then deploying it broadly enough but not too broadly, and growing forward according. For the moment, as long as you need strong cooperation from your channel partners to deliver the whole product, it is better to be a little underdistributed to protect their profit margins, than to get overdistributed and have them either drop out or begin to cut corners in their delivery.
Customer-oriented pricing
Market are conservatives. They want low pricing. They have waited a long tome before buying product, long enough for prices to have dropped to only a small margin above cost. This is their reward for buying late. This is cost-based pricing. Our target customers for the chasm-crossing effort are the pragmatists. Pragmatists want to back the market leader, because by doing so they can keep their whole product costs to their lowest. They expect to pay a premium price for the market leader relative to the competition, perhaps as high as 30 percent. This is competition-based pricing. Even though the market leaders are getting a premium, their allowed price is still a function of comparison with the other players in the market. And if they are not the market leader, they will have to apply the reverse of this rule and discount accordingly. From the customer perspective, then, the key issue is market leadership versus a viable competitive set, and the key pricing strategy is premium margin above a norm set by comparison.
Vendor-oriented pricing
Vendor-oriented pricing is a function of internal issues, beginning with cost of goods, and extending to cost of sales, cost of overhead, cost of capital, promised rate of return, and any number of other factors. These factors are critical to being able to manage an enterprise profitably on an ongoing basis. None of there, however, has any immediate meaning in the marketplace. Vendor-oriented pricing represents the worst basis for pricing decisions during the chasm period. This is a time when we must be almost entirely external focused -- both on the new demands of the mainstream customer and the new relationship we are trying to build with a mainstream channel.
Distribution-oriented pricing
From a distribution perspective, there are two prcing issues that have significant impact on channel motivation:
1. Is it priced to sell? Being priced to sell means that price does not become a major issue during the sales cycle. Companies crossing the chasm, coming from success in the early market with visionary customers, typically have their products priced too high. Price does become an issue with the pragmatist customer, but when the channel feeds back prospect resistance and uses comparable products as evidence of the expected pricing, companies too often argue that they have no such competition, and that the channel does not know how to sell the product properly.
2. Is it worthwhile to sell? However, products can also be priced too low to cross the chasm. The problem here is that the price does not incorporate a sufficient margin to reward the channel for its extra effort in introducing this novelty into their already established relationship with the mainstream customer. If the channel is going to go out of its way to take on something new, the reward has to be significantly more attractive than whatever is available from business as usual.
If we look in a crossing-the-chasm context, the fundamental pricing goal should be:
set pricing at the market leader price point, thereby reinforcing your claims to market leadership, and build a disproportionately high reward for the channel into the price margin, a reward that will be phased out as the product becomes truly established in the mainstream, and competition for the right to distribute it increases.
Vendor-oriented pricing
Vendor-oriented pricing is a function of internal issues, beginning with cost of goods, and extending to cost of sales, cost of overhead, cost of capital, promised rate of return, and any number of other factors. These factors are critical to being able to manage an enterprise profitably on an ongoing basis. None of there, however, has any immediate meaning in the marketplace. Vendor-oriented pricing represents the worst basis for pricing decisions during the chasm period. This is a time when we must be almost entirely external focused -- both on the new demands of the mainstream customer and the new relationship we are trying to build with a mainstream channel.
Distribution-oriented pricing
From a distribution perspective, there are two prcing issues that have significant impact on channel motivation:
1. Is it priced to sell? Being priced to sell means that price does not become a major issue during the sales cycle. Companies crossing the chasm, coming from success in the early market with visionary customers, typically have their products priced too high. Price does become an issue with the pragmatist customer, but when the channel feeds back prospect resistance and uses comparable products as evidence of the expected pricing, companies too often argue that they have no such competition, and that the channel does not know how to sell the product properly.
2. Is it worthwhile to sell? However, products can also be priced too low to cross the chasm. The problem here is that the price does not incorporate a sufficient margin to reward the channel for its extra effort in introducing this novelty into their already established relationship with the mainstream customer. If the channel is going to go out of its way to take on something new, the reward has to be significantly more attractive than whatever is available from business as usual.
If we look in a crossing-the-chasm context, the fundamental pricing goal should be:
set pricing at the market leader price point, thereby reinforcing your claims to market leadership, and build a disproportionately high reward for the channel into the price margin, a reward that will be phased out as the product becomes truly established in the mainstream, and competition for the right to distribute it increases.
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