One of the established ways new competitors enter existing markets is similar to the way retail private brands enter existing markets. New suppliers in the connectivity business, for example, often offer a simple value proposition: “similar product, lower price.”
In fact, attackers often must enter the market with products that more accurately are “basic product; mostly works; some hassle factor; lower price.” Think about the introduction of Skype and other voice over IP products when first introduced.
One could not call any public telephone network number. One had to use headphones, as “telephones” did not support use of VoIP. There was no big network effect: one could only talk with others who agreed to become part of a community of users.
Over time, defects are eliminated, features are added and the upstart provider’s product begins to approximate most of the value of the legacy leader. Eventually, there is virtually no difference between the upstart’s product and the legacy leader’s product, in terms of features, functionality or ease of use.
Retail private brands also move through similar development cycles, eventually perhaps creating new brands with substantial brand awareness, perceived value and customer loyalty.
Often, the adoption pattern is similar to that of upstart connectivity providers: target the value-driven customer segment first, then gradually add features to attract mainstream segments and finally the full range of customers.
In many ways, the private label business also is similar to the connectivity business in that a “price attack” can eventually become a “quality attack.” Often, a new provider can deliver experiences or performance that are better than the legacy provider.
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