Disruptive Pricing

Companies often claim that they are disrupting some particular market, however in his classic book The Innovator’s Dilemma, Clayton Christensen talks about market disruption in a very specific way that has a lot to do with pricing.

Market disruption is when a new player enters a market with a new product which is lower quality than the dominant products, but still good enough to meet the needs of some current or potential customers. However, it’s also much cheaper than the existing products.

At first it seems to the dominant players in the market like this entrant is no threat because their product is much lower quality and they are only picking off the least profitably business in the market. But as their technology improves, the take over the whole market.

I discuss some of the classic examples from Christensen’s book, talk about personal computers disrupting the market for mainframes and minicomputers, and then branch off into something Christensen doesn’t talk about: the disruptive effect of Chinese manufacturers on the US manufacturing market.

Here the disruption is cost based, not technology based, and I talk about some ways the US manufacturers might fight back against that threat with their pricing and value positioning.

All this was in part inspired by all the discussion of tariffs the last couple weeks. If you’d like to read my recent article on tariff pricing, you can see it here.