Why Businesses Should Know Where Their Densest Markets Are
Instead of launching innovative new products to a mass market, smart marketers should seek to introduce them in “maximum density markets” — niches with unusually high per-capita spending on the category. Sometimes MDMs are defined by geography (driverless cars will be especially appealing in retirement communities). Sometimes that are specific subcategories of buyers (Keurig launched its original coffee brewers in office settings). Sometimes it will be based on consumers’ stage-of-life (a site for parents of newborns would be appealing to marketers of a range of products, such as life insurance). Trying out new innovations in these specialized spaces can pave the way for an eventual mass-market launch.
Self-driving cars are one of the most exciting and hotly-debated new categories that are being created. The billion (or trillion?) dollar question is: Which company will successfully bring this to market? Will Tesla crack the code, as Elon Musk is promising? Or will Waymo, the self-driving car division of Alphabet, figure this out first? Both have huge amounts of resources, smart people, and the tech to do this.
Our bet is neither will be the first to successfully commercialize self-driving cars. That’s because both Tesla and Waymo are going for the mass market first. Instead, the winner will likely emerge from a self-driving car company that is much more focused.
Consider Nuro, which focuses on driverless delivery, and Voyage, a sub-25-PH self-driving taxi service focused on retirement communities. Both are innovating in a highly concentrated sub-sector of self-driving cars — with dramatically different economics, demand and often easier critical success factors — that we call Maximum Density Markets (MDMs)
A MDM is a subsector of a category that has unusually high concentrations of demand in a small arena on a per capita basis. Demand density is extremely important as it provides a shortcut to scalability with far less investment than to achieve it on a mass market basis. The density of the market makes word of mouth exponentially faster and more powerful, so less marketing (if any) dollars are needed. Because a denser market offers the chance to grow sales more quickly (via deeper penetration), it changes the math when companies figure if they can afford the costs to launch a minimum viable product, allowing them to get to market more quickly. These MDMs are also highly correlated with the presence of superconsumers who are not just the most profitable and passionate consumers in the category, but are the most prescient and can help you perfect your minimum viable product.
The result: Speed plus scale plus lower marketing dollars plus access to the smartest consumers creates the primordial soup necessary for successful category creation.
There are three versions of MDMs to consider when thinking about your own launch.
One is a local geography where demand per capita is very high. We call these areas ‘super geos’ as they have unusually-high concentrations of superconsumers and optimal market conditions (e.g., climate, culture, demand conditions, etc.) which explain why demand per capita is very high. For example, Hawaii is the highest per-capita state for Spam. Why? Probably because Hawaii is a strategic military site and is thousands of miles away from major food sources. Spam’s sturdy packaging and long shelf life makes it an idea food for both the military and in remote locations. Recognizing factors like these can help marketers identify potential super geos that aren’t yet high per capita but could be if invested in.
This approach is incredibly important for companies trying to create a low penetration nascent category and market leaders in mature categories watching out for disruption. The truth is an emerging category with tiny single-digit percent penetration is comprised of hundreds or thousands of local markets, some of which have double-digit-plus penetration. These are not just incredible opportunities to double down where a market is hot to drive near term growth, they are great learning opportunities to kick start growth elsewhere.
The second version of a MDM is a subsector of a category, often a business to business (B2B) versus a business to consumer (B2C) market. Keurig got its start in the $4 billion dollar office coffee market. It’s early “minimum viable product” brewer cost $10,000 — a far cry from the $100 price point it is now. But focusing on this initial market made strategic sense. The office coffee market was extremely concentrated from a distribution standpoint (its products were sold by office products distributors) and office coffee drinkers would gladly try a new product paid for by the office. It was a critical strategy that other competitors like Tassimo by Kraft and Senseo by Sara Lee failed to understand; they launched products in the consumer market, and saw their market share eclipsed by Keurig.
The third version is via a common life event or trigger. This kind of MDM is not defined by proximity but rather by affinity. Historically, winning in this MDM wasn’t really feasible, but now with digital advertising, social media, and direct to consumer business models, the affinity is amplified and is far easier to scale.
Consider Tinybeans, a fast-growing private social media network with over 3 million users. It’s a photo and video sharing site focused on newborns and the many delightful milestones they achieve over the next months. Unlike Facebook, where everyone can see your photos and videos, Tinybeans is private and accessible by invitation only to close friends and family, so there is a tremendous amount of trust which encourages more sharing. This newborn MDM is extremely attractive to marketers whose products are tied to this life event, such as life insurance, a $700 billion dollar industry that is normally unpleasant to talk about.
For a new innovation, beginning life in a MDM can make a lot of strategic sense — and provide a stepping stone toward an eventual mass-market introduction.
Eddie Yoon is the founder of Eddie Would Grow, a think tank and advisory firm on growth strategy and a director at The Cambridge Group. His book, Superconsumers, was published by HBR Press in December 2016. Follow him on Twitter @eddiewouldgrow.
Michelle Stacy, the former president of Keurig, is now a speaker, consultant, and director.
Why Businesses Should Know Where Their Densest Markets Are
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