Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers

by Geoffrey A. Moore

THE COMPETITIVE-POSITIONING COMPASS There is a lot of information packed into

People who are skeptical of you do not. This means that, at the beginning of a market, when skepticism is the common state, basing communications on product or company strengths is a mistake. You have no permission to tout these elements because the market players do not yet believe you are going to be around long enough to make a difference.

However, there are ways to win over skeptics. Even the most skeptical specialists are always on the lookout for new technology breakthroughs. Thus, although you cannot initially get them to sponsor your product, you can get them involved in understanding its technology, and from that understanding, to gain an appreciation for the product itself. The more they appreciate the technology, the easier it becomes for them to support the product.

Similarly, skeptical generalists may not take an interest in an unproven company but are always interested in new market developments. If you can show the generalists that there is an emerging unmet market requirement, one that you have specifically positioned your products and your marketing efforts to meet, then out of their appreciation for the market opportunity, they can learn to appreciate your company.

the entire basis of the focus on whole product and partners and allies was to move our leadership premise from the left-hand list to the right. That is, lacking an existing market leadership position, we wanted, within the confines of a manageable market segment, to create the valued attributes of one, and thereby bring a state of true market leadership into existence.

To sum up, it is the market-centric value system—supplemented (but not superseded) by the product-centric one—that must be the basis for the value profile of the target customers when crossing the chasm. This value profile, in turn, will model how the target customers are likely to perceive the competitive set and what position they are likely to accord to a new player coming into that set.

The first of these two competitors we will call the market alternative. This is a vendor that the target customer has been buying from for years. The problem they address is the one we will address, and the budget that is allocated to them represents the money we as the new entrant are going to preempt. To earn the right to this budget, we are going to use a disruptive innovation to address a stubbornly problematic limitation in the traditional offer. The second reference competitor we will call the product alternative. This is a company that is also harnessing the same disruptive innovation we are—or at least close to it—and is positioning itself like us as a technology leader. Their very existence gives credibility to the notion that now is the time to embrace this new discontinuity. Our intent here is to acknowledge their technology but to differentiate from them by virtue of our own segment-specific focus.

At the same time, by calling out Dropbox as its product alternative, it makes clear that its disruptive innovation is radical ease of use. The company still has to deliver on these promises and still has to compete vigorously to win, but nobody is confused about what game it is playing.

Just to be perfectly clear here, as I noted before with Box, WorkDay still has an uphill battle taking on an entrenched incumbent like Oracle. But by thoughtful use of reference competitors, what they do not have to struggle with is explaining their value proposition.

Segway was all by itself, and that is not a good place to be when you are trying to cross the chasm. The same held true for what looked like a much more reasonable proposition in the electric vehicle space, Shai Agassi’s Better Place.

Choosing your market alternative wisely is the solution to this problem. But it has to be credible. And understand that, as soon as you call out your choice, you are in for a fight. That market alternative, whoever it may be, had plans for the money you are targeting. Indeed, it considers that budget as its budget, and it will not take kindly to your actions.

So, market alternatives call out the budget and thus the market category, and product alternatives call out the differentiation.

The goal of positioning, therefore, is to create a space inside the target customer’s head called “best buy for this type of situation” and to attain sole, undisputed occupancy of that space.

The key idea here is to focus on the So what? and the Who cares? part of the value proposition. If the who has the clout and the budget, and the what is a big enough reward, then the risk of sponsoring an early market purchase is worth taking.

Establishing relationships of trust, therefore, rather than wowing them on a one-time basis, is key to any ongoing success.

Whatever your claim is, it cannot be transmitted by word of mouth. In this medium the unit of thought is at most a sentence or two. Beyond that, people cannot hold it in their heads. Since we have already established that word of mouth is fundamental to success in high-tech marketing, you must lose.

Your marketing communications will be all over the map.

Your R&D will be all over the map.

You won’t be able to recruit partners and allies,

You are not likely to get financing from anybody with experience.

For (target customers—beachhead segment only) • Who are dissatisfied with (the current market alternative) • Our product is a (product category) • That provides (compelling reason to buy). • Unlike (the product alternative), • We have assembled (key whole product features for your specific application).

Now what is often interesting about writing a statement like this is not what you write down but what you have to give up. In the case of Verinata, there is nothing about it being the cheapest test. And in the case of HANA, there is a narrow focus on retailers even though we know there are many other applications for in-memory databases outside of retail. Wouldn’t it have been better in both cases to have included extra value statements for a bigger effect? The answer here is an emphatic no. Indeed, this is just what defeats most positioning efforts. Remember, the goal of positioning is to create and occupy a space inside the target customers’ head.

One final point on claims before moving on to other issues: The statement of position is not the tagline for the ad. Ad agencies come up with taglines, not marketing groups. The function of the statement of position is to control the ad campaign, to ensure that however “creative” it may become, it stays on strategy. If the point of the ad is not identical with the point of the claim, then it is the ad, not the claim, that must be changed—regardless of how great the ad is.

In sum, to the pragmatist buyer, the most powerful evidence of leadership and likelihood of competitive victory is market share. In the absence of definitive numbers here, pragmatists will look to the quality and number of partners and allies you have assembled in your camp, and their degree of demonstrable commitment to your cause.

The number-one corporate objective, when crossing the chasm, is to secure a distribution channel into the mainstream market, one with which the pragmatist customer will be comfortable. This objective comes before revenues, before profits, before press, even before customer satisfaction. All these other factors can be fixed later—but only if the channel is established. Or, to put it the other way around, if the channel is not established, nothing further can be accomplished.

In other words, during the chasm period, the number-one concern of pricing is not to satisfy the customer or to satisfy the investors, but to motivate the channel. To sum up, when crossing the chasm, we are looking to attract customer-oriented distribution with one of our primary lures being distribution-oriented pricing.

Visionaries—the customers dominating the early market’s development—are relatively price-insensitive. Seeking a strategic leap forward, with an order-of-magnitude return on investment, they are convinced that any immediate costs are insignificant when compared with the end result. Indeed, they want to make sure there is, if anything, extra money in the price, because they know they are going to need special service, and they want their vendors to have the funding to provide it. There is even a kind of prestige in buying the high-priced alternative. All this is pure value-based pricing. Because of the high value placed on the end result, the product price has a high umbrella under which it can unfold.

At the other end of the market are the conservatives. They want low pricing. They have waited a long time before buying the product—long enough for complete institutionalization of the whole product, and long enough for prices to have dropped to only a small margin above cost. This is their reward for buying late. They don’t get competitive advantage, but they do keep their out-of-pocket costs way down. This is cost-based pricing, something that will eventually emerge in any mainstream market, once all the other margin-justifying elements have been exhausted.

Between these two types lie the pragmatists—our target customers for the chasm-crossing effort. Pragmatists, as we have said repeatedly, want to back the market leader. They have learned that by so doing they can keep their whole product costs—the costs not only of purchase but of ownership as well—to their lowest, and still get some competitive leverage from the investment. 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 c...

Finally, you must remember that margins are the channel’s reward. Since crossing the chasm puts extra pressure on the channel, and since you are often trying to leverage the equity the channel has in its existing relationships with pragmatist customers, you should pay a premium margin to the channel during the chasm period.

To leave the chasm behind, there is a molting process that must occur, a change of company self, wherein we grow away from celebrating familial feelings and dashing individual performances and step toward rewarding predictable, orchestrated group dynamics. It is not a time to cease innovation or to sacrifice creativity. But there is a call to redirect that energy toward the concerns of a pragmatist’s value system instead of a visionary’s.

pioneers are the ones who push the edge of the technology application envelope. They do not institutionalize. They do not like to create infrastructure. They don’t even like to document. They want to do great deeds, and when there are no more great deeds to be done, they want to move on. Their brilliance fuels the early market, and without them, there would be no such thing as high tech. Nonetheless, once you have crossed the chasm, these people can become a potential liability. Their fundamental interest is to innovate, not administrate.

There is a comparable process going on in the sales force at the same time. Here the group at the forefront is the high-tech sales pioneers. These are people who have the gift of selling to visionaries. They are able to understand the technology and product at a level where they can readily manipulate it and adapt it to the dreams of the visionaries. They can talk the visionaries’ language, understand the quantum leap forward that visionaries seek to achieve, and wrap their products in that cloak. They can translate that language back into concrete manifestations of the product, to be illustrated through custom demos, for which they make insatiable demands. They can think big, and they can get big orders. They are the darlings of the early market. Without them, achieving early market leadership is all but impossible. These same people, however, also become a liability once you have crossed the chasm. Indeed, they are the ones primarily responsible for dragging companies back into the chasm. The problem is, they cannot stop making the visionary sale, a sale predicated on delivering custom implementations of the whole product. Such contracts are fulfilled by robbing from Peter—the mainstream R&D effort—to pay Paul—the custom R&D effort necessary to achieve the visionaries’ buying objective.

The truth is, of course, that settlers do not take pioneers’ places. They take other places, ones that pioneers have never occupied nor would ever choose to. Nonetheless, settlers do take over the employment roster, including the management positions, the authority, and ultimately the budget. And they build fences and create laws (called procedures) and do all the things that led to range wars between pioneers and settlers back in the Old West. All this bodes well for the post-chasm marketplace, populated with pragmatists, who like reliable, predictable people and abhor surprises. But it hardly sits well with the pioneers. How in the world, then, can you make the transition between these two groups in an orderly way?

The target market segment manager has one goal in his or her short job life—Transform a visionary customer relationship into a potential beachhead for entry into the mainstream vertical market that that particular customer participates in. If Citicorp is the client, then it is banking; if Aetna, insurance; if DuPont, chemicals; if Intel, semiconductors. The process works like this: Once you have closed such an account as part of an early market sales program, assign the target market segment manager as its account manager with a charter that allows him the kind of extensive customer contact that will let him really learn how their business works.

the whole product manager is a product-marketing-manager-to-be. The reason she is not one today is that the job itself is premature. Until there is a successful crossing of the chasm, there are no meaningful market relationships or understandings to drive the future of product development. The target market segment manager is off getting these under way, but they are not there today. What is there today, on the other hand, is a list of bug reports and product-enhancement requests that is growing with disconcerting speed. If this list is not managed properly, it will bring the entire development organization to its knees. The tactic, which at once secures proper management of the list and initiates a transition process from pioneer to settler culture in the development side of the house, is to take this list away from the product manager and give it to the whole product manager. For whoever is serving as the product manager at this point almost certainly is a pioneer—otherwise, the organization could not have got to where it is today. The problem with this person continuing to direct the future of the product is that she will be driven first and foremost by her own personal commitments made to early customers. Unfortunately, these commitments are often not in the best interest of the mainstream market customer.

During the early market it is important to be product-driven and to give strong powers to the product manager. But to fail to take those powers back now is equally foolish, for every day that the enhancement list is in the hands of the original pioneers, the company risks making additional development commitments to unstrategic ends.

These divide into two camps—true company founders and very early employees. The former have bet their lives on the equity gamble, and there is nothing further to discuss, except to hope that in reading this book they learn to conserve a large portion of that equity to fund crossing the chasm. The

Mainstream success, as we have argued at length, is a function of the whole product, not the core product, and that is a very large team effort indeed. What pioneer technologists do have a right to is a larger share of the early market returns, because here it truly is the core product that drives success.

The problem is that cash is typically so tight during this period, there is none to throw off in the form of a reward. So equity is the usual fallback. This is a compromise, to say the least, as equity should be reserved for people who cross the chasm and stay—not the pioneers’ ideal role, but still a more frequent occurrence than them leaving the company.

Whole product R&D is driven not by the laboratory but by the marketplace. It begins not with creative technology but with creative market segmentation. It penetrates not into protons and processes but rather into habits and behaviors. It does not, like the captain of the starship Enterprise, “go where no man has gone before,” but rather, like T. S. Eliot, finds the end of all its exploring is “to arrive where we started / And know the place for the first time.”

discontinuous innovations, flooding the market with far more technology than it can possibly absorb, and complaining all the while about how product life cycles are becoming shorter and shorter. They play the game, in other words, almost entirely to the left of the chasm, cycling through endless repetitions of early markets that never cross over to the mainstream.

Now these types of efforts—focus groups and packaging studies—are traditionally located in the marketing department. But in high tech, marketing is too ignorant to drive the bus. What appears to the generalist to be a simple change may in fact cut across some fundamental technology boundary in a radically inappropriate way. Or conversely, what looks impossible to achieve may in fact be a by-product of a minor adjustment. In either case, engineering must be a direct partner in the effort, or it is wasted. It’s not market research alone, nor is it just product development. It’s whole product R&D, and it implies a new kind of cooperation between organizations traditionally set apart from each other.

Enlisting the faithful involves “hyper-engaging” with a small but vocal minority of consumers who have already demonstrated a propensity to evangelize and proselytize on your behalf. They do this because they believe in you and what you are doing so much they have made it part of their own identity. You don’t pay them—indeed, to do so would be insulting; they are doing this because it has become part of who they are.