Creating Competitive Advantages In Markets Exhibiting A Fluid Phase

Strategic considerations for companies seeking new markets


'Winners focus on winning and losers focus on winners' – Conor McGregor. The same can be said about strategy, primarily as new markets are identified. Consider the following: in new markets there are two key strategies, one focused on being first movers, these are best defined as companies who identify a new market and set up a strong differentiation strategy, not by focusing on what competitors are doing, but rather identifying and creating niche or new markets in pursuit of higher value creation. 

Fast second, the alternative to first movers, is focused on competition, and once a competitor establishes a new market, fast second companies deploy a strategy with the focus on colonizing and establishing a presence in this newly created market. Their primary pursuit focuses on utilizing technology as the central driver of incremental innovation to the first movers, leveraged by strong differentiation in service and products. 

Significant literature exists on case studies reflecting on the historic performance of companies - people who are good at (as a friend of mine puts it) 'telling the news, but not making the news' – where companies are reflected upon and where the focus is on how such companies outmaneuvered competition and established themselves as a dominant player in a market. Sadly, less literature is available to those navigating newly created market spaces, e.g., augmented or virtual reality, peer-to-peer lending platforms, medical marijuana stores, and crowdsourcing, to name a few. 

These new markets are initially dominated by first movers - where potentially ethical (marijuana stores) or legal (Uber and drones) precedence has not been established and thus there is less literature to draw from in helping them navigate and establish their business strategy. The opportunities in such newly created industries are large and the purpose of this publication is to shed some light on how to identify such niche segments while creating a competitive advantage therein, intended to sustain your business into maturity through the identification of market transitions.

Identifying and creating new market space

When looking at identifying a new market, it is good to look across substitute industries. Some companies have monopolistic industries, where alternatives or substitutes to their existing products and services are non-existent elsewhere. For the majority of us, however, this may not be the case, thus we consider substitutes, which are products or services which offer the same functionality and utility, while appearing in a different form. 

Alternatives to your products offer the same outcome but have different functionality or utility. One way to think about substitutes and alternatives is using Tesla and Uber. Tesla is a substitute to general combustion based automobiles - the value stems from the emotional appeal, while still addressing functionality and utility. Uber is an alternative, you can choose to drive, take a taxi, or ride the bus (utility/functionality) while still meeting the same outcome (going from point A to point B). Creating or identifying an alternative or substitute in a market alone is not sufficient. In the case of Uber, it came in the form of economic value through the access of previously unattainable resources. As you reflect on your existing business and look across substitute industries and consider any possibilities or gaps that might linger, consider the performance or value factors that could significantly shift with the introduction of an alternative or substitute. How far these key variables for your targeted customers shift determines the acceptance and likely success of your newly created market.

Other firms are less concerned with alternative market segments and instead within their existing industry focus on various strategic groups. Strategic groups are sub-segments within an industry that compete against each other, best thought of as those competing in a section of a larger industry and for conceptual purposes illustrated and shown in Figure 1

As an example, in the hotel industry companies can identify that within the bottom of the luxury segment identified in Figure 1, there are customers whose needs are not being met - in certain situations these customers may feel as if they are over-paying for their primary needs, while being offered amenities that they may not have a need for. The business segment therein may have customers at the top, who are willing to pay a little more for additional amenities not offered in the business segment, but due to company reimbursement policies, or their own value perception, are out of the reach of the luxury segment. These gaps between strategic groups, if appropriately identified and when value propositions are adjusted to reflect their underlying needs, are valid new market space opportunities. 

Looking across substitute industries and strategic groups may be two ways of identifying new markets, but they are by no means the only alternatives. A total of six are identifiable, and for some organizations as with Tesla and Uber, the disruptive nature of their entrance into an established industry typically lingers on the utilization of more than one of these frameworks. The key of this publication is thus only partially focused on the identification of new uncontested market spaces, and instead seeks to identify with the development of sustainable competitive advantages as such new industries shift the socio-cultural norms of the general public and as people start to consider such products as a staple of daily life.

Market transitions

Market transitions are where previously established companies fail or start to decline. Blackberry, Borders or Blockbuster are prime examples to name a few. Reflecting, it is easy to identify why they failed – but more importantly, it is important to assess how their replacements are sustaining their current competitive advantages relative to their existing and future capabilities. The market for video rentals was a mature and established market, Blockbuster dominated with little competition from Family Video and other small companies. Netflix, looking across substitute industries, identified streaming (though at the time in limited offerings) as a niche segment uncontested. With the vast movies and titles that could be available, a brick and mortar video rental store could never offer what Netflix could. 

Their entrance into such a market, at a price level that completely disrupted the existing $3 a movie price, changed the value proposition and socio-cultural norms of customers. People no longer wanted to get in their car, drive down to the video rental store and rent movies, pay late fees and deal with the hassle of returning movies. More importantly, the newly established movie rental format not only created a new market space, but also brought about major product innovation, with companies such as FilmOn, NimbleTv, Amazon and Hulu – along with all major TV networks contesting and introducing their own versions of Netflix’s streaming service, typically with varying degrees of performance (think content and titles offered for viewing). 

This introduction of a market is known as a fluid phase, due to the fast industry clockspeed that streaming services compete in, within a few years the market had already moved into a transitional phase (current stage). In the transitional phase, companies establish their competitive advantages and start to leverage these, in the case of Tesla – it was not their high performance proprietary battery technology as many believe. In fact, Elon Musk (CEO of Tesla) released these patents to the public. Musk’s focus is not in the automobile industry, it is simply a channel to shift the socio-cultural norms of functionality and utility, while addressing the emotional appeal of those concerned with environment. 

The sustainable competitive advantage stems from a backward integrated organization, where Musk merges its Solar City Corp, with that capabilities of its Gigafactory and its vast supercharging network in Europe, Asia and North America. Tesla and Solar City thus become more of a utility company for sustainable alternative energy power, focused not only on automobiles but also homes, completely disrupting the existing utility companies (substitute industries). In the case of Netflix, the transitional phase introduced platform based products. The creation of content unavailable on other streaming services, that have a high degree of popularity, allow Netflix to retain customers loyal to their content, and not just their platform. In some cases, as presented with regard to Tesla (who is still in a transition phase) and Netflix who is moving into a specific phase, where products are established and the possibilities of new entrants starts to diminish, sustainable competitive advantages are created during the transition period, for some organizations they may unknowingly have entered such new market spaces, where clearly defined customer demands and measurements of performance are unknown, this is a good indicator to establish and leverage internal technical capabilities to set the standards for your new industry. 

Those who have identified a new market space and are in competition to establish themselves as a dominant player, think ahead – what barriers do you need to create to keep existing and new customers, and how do you need to market your products in order to shift socio-cultural norms that align with your competitive advantages and investments in the future?


While 'winners focus on winning and losers focus on winners', first movers have clear advantages in establishing themselves, not only as dominant players in the market, but also creating sustainable competitive advantages as they move their newly created market space from a fluid phase to a specific phase. Though first movers identify and create a new market space, unless their products are platform oriented, focused on locking customers in and leveraging their existing capabilities, with considerations to future investments – as fast second competitors start to enter, they may be challenged to sustain their newly uncontested market. For those such as Uber; Lyft, Didi, Curb, and Sidecar are catching up. What is Uber doing in their transitional phase to challenge these new entrants? Global political pressures are mounting, especially in Europe and Asia. As the next few years unfold, it will be interesting to see whether or not Uber leverages their key competitive advantage, and solidifies the industry to mimic their product design as the dominant design, making it harder for competitors to catch up.

Strategy growth small

Read next:

Strategy Development And Implementation In A Rapidly Growing Region