Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers

by Geoffrey A. Moore

Remember, the goal of positioning is to create and occupy a space inside the target customers’ head. Now, as we already noted, people are very conservative about what they let you do inside their head. One of the things they do not like is for you to take up too much space. This means they will use a kind of shorthand reference: Mercedes (“top-of-the-line, conservative”), BMW (“upscale performance sedan, yuppie”), Cadillac (“American top-of-the-line, tired”), Lexus (“New kid on the block, current best buy”). That’s all the space you get for your primary differentiation statement. It’s like a telegram with less than one line. If you don’t make the choice to fill the space with a single attribute, then the market will do it for you. And since the market includes your competition trying to unposition you, don’t count on it to be kind.

The trade press is not interested, therefore, in a great trumpeting article on Release 3.0 (not unless, that is, you are a Microsoft, but that’s another story). So if the message is not “Look at my hot new product,” then what is it, and how are you going to get it out? The message now is “Look at this hot new market.”

1. Focus the competition within the market segment established by your must-have value proposition—that is, that combination of target customer, product offering, and compelling reason to buy that establishes your primary reason for being. 2. Create the competition around what, for a pragmatist buyer, represents a reasonable and reasonably comprehensive set of alternative ways of achieving this value proposition. Do not tamper with this set by artificially excluding a reasonable competitor—nothing is more likely to alienate your pragmatist buyer. 3. Focus your communications by reducing your fundamental competitive claim to a two-sentence formula and then managing every piece of company communication to ensure that it always stays within the bounds set out by that formula. In particular, always be sure to reinforce the second sentence of this claim, the one that identifies your primary competition and how you are differentiated from it. 4. Demonstrate the validity of your competitive claim through the quality of your whole product solution and the quality of your partners and allies, so that the pragmatist buyer will conclude you are, or must shortly become, the indisputable leader of this competitive set.

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 money to provide it. There is even a kind of prestige in buying the high-priced alternative. All this is pure value-based pricing.

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 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.

Price in the mainstream market carries a message, one that can make your product easier—or harder—to sell. Since the only acceptable message is one of market leadership, your price needs to convey that, which makes it a function of the pricing of comparable products in your identified competitive set. 4. 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.

The fundamental lesson of this chapter is a simple one: The postchasm enterprise is bound by the commitments made by the prechasm enterprise. These prechasm commitments, made in haste during the flurry of just trying to get a foothold in an early market, are all too frequently simply unmaintainable in the new situation.

That, however, is exactly what the high-tech enterprise must accomplish to leave the chasm behind. The enterprise must stop “being itself”—in the sense that it must accept that it is going through a phase and act competently with that knowledge.

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. It is not a time to forgo friendships and implement an authoritarian management regime. Indeed, management style is one of the few things that can remain constant during this period of transition. But there is a call to review and revalue the skills and instincts and talents that helped to build up a leadership in the early market in light of the new challenge of building leadership in the mainstream. And that call can and will test friendships and egos throughout the firm.

Nor does the prechasm organization motivate itself by profitability, or typically any other financial goal. Oh, to be sure, there are the get-rich dreams that float in and out of idle conversation. But there are much headier rewards closer at hand—the freedom to be your own boss and chart your own course, the chance to explore the leading edge of some new technology, the career-opening opportunity to take on far more responsibility than any established organization would ever grant. These are what really drive early market organizations to work such long hours for such modest rewards—the dream of getting rich on equity is only an excuse, something to hold out to your family and friends as a rationale for all this otherwise crazy behavior.

So early market entrepreneurs are not called to focus on, nor are they oriented toward, making money. This has enormous significance, as most management theory assumes a profit motive present, serving as a corrective check against otherwise alluring tactics. When that motive is not present, people make financial commitments that have consequences they either do not, or do not care to, foresee. Although this comes in many and varied forms, perhaps its most prevalent one is the hockey stick forecast of revenue growth.

In fact, however, the revenue line is a slave—and to not just one but two masters. At the front end, it is slave to the entrepreneur’s cost curve, and at the back, to the venture capitalist’s hockey stick expectations. Revenue numbers, under this methodology, are... well, whatever they have to be. Once that sum is identified, then market analyst reports are scoured for some appropriate citations, and any other source of evidence or credibility is enlisted, to justify what is a fundamentally arbitrary and unjustifiable projection of revenue growth.

But in fact, the revenue development that actually occurs looks more like a staircase than a hockey stick. That is, there is an initial period of rapid revenue growth, representing the development of the early market, followed by a period of slow to no growth (the chasm period), followed by a second phase of rapid growth, representing return on one’s initial mainstream market development. This staircase can continue indefinitely, with the flat periods representing slower growth due to transitioning into broader and broader mainstream segments, and the rapid rises representing the ability to capitalize on those efforts. As more and more segments are served, sooner or later the ups and downs begin to cancel each other out, and one can achieve the less bumpy results that Wall Street greatly prefers. (In fact, only the most successful high-tech companies have achieved such a state; most continue to fluctuate more dramatically than the financial community can understand, with the result that their stocks routinely take a vicious beating at the slightest indication of bad news.)

Or, to put this in investment terms, How long will it take before I can achieve a reasonably predictable ROI from an acceptably large mainstream market? The simple answer to this question is, as long as it takes to create and install a sustainable whole product. The chasm model asserts that no mainstream market can occur until the whole product is in place. A reasonable corollary, I believe, is that once the whole product is in place—in other words, has become institutionalized—the market will develop quickly—normally, although not necessarily, around the company that drove and led the whole product effort.

Can we predict how long this will take? I think so. By analyzing the target customer and the compelling reason to buy, and then dissecting all the components of the whole product, we can reduce this process to a manageable set of performance factors, each of which can be projected ahead in time, with an estimated point of convergence. It’s not a science, but it’s not a black art either: It is, in essence, just another kind of business plan.

How big will this market be? Again, the simple answer is, As big as can be motivated by the value proposition—the compelling reason to buy—and served by the whole product. Market boundaries occur, in other words, at the point of failure of either the value proposition or the whole product. The other market-making factors—alliances, competition, positioning, distribution, and pricing—do not impact the size of market but rather the rate of market penetration. Given free market economy incentives, efficient solutions in these areas will fall into place sooner or later if the market is truly there.