“Historically, when this performance oversupply occurs, it creates an opportunity for a disruptive technology to emerge and subsequently to invade established markets from below.” Fundamental change is created by performance oversupply, the order will change in which customers choose one product over another which will trigger the transition to the next phase in the product life cycle. Oversupply through this product life cycle determines how the industry’s competition will change over time.
“Generally, once the performance level demanded of a particular attribute has been achieved, customers indicate their satiation by being less willing to pay a premium price for continues improvement in that attribute. Hence, performance oversupply triggers a shift in the basis of competition, and the criteria used by customers to choose one product over another changes to attributes for which market demands are not yet satisfied.”
When does a product become a commodity? When the changes in competition actually come to fruition and multiple products satisfy the need for performance. In these cases it is hard to stand out from the competitors. “But differentiation loses its meaning when the features and functionality have exceeded what the market demands.”
Buying hieracrchy describes four phases of the performance oversupply life cycle, which is what drives the transition. These phases include functionality, reliability, convenience, and price. Functionality is based on when there is only one product available to satisfy the functionality, the customers will go for that. When there becomes two similar products available with the same functionality then customers do not base their buying decisions on functionality and the buying hierarchy moves up one life cycle phase. The next phase that customers will base their choice of product on is its reliability and the reliability of the vendor, and the most reliable products can change a premium for this sense of reliability. This works until two or more products are equally reliable then the next phase in the life cycle is convenience. Customers will want the most convenient product to use and the deal with the vendors who are most convenient. When multiple vendors offer convenient products and services the phase of competition moves to price. Customers will buy the lowest priced functional, reliable, and convenient product. In all of these situations it will stay in the current phase as long as the market demand for the phase exceeds what the vendors are able to provide, customers will choose products on this basis. As soon as it exceeds that point then it will move to the next life cycle phase.
In Geoffrey Moore’s book Crossing the Chasm, he shows the same life cycle but through the eyes of the customer instead of the product. Explaining it in waves of growth, and through the waves of growth “technology can improve to the point that market demand for a given dimension of performance can by satiated.” This change of phases, and growth waves of basis of competition is a very important characteristic of disruptive technology.
Christensen, Clayton, The Innovator’s Dilemma (Boston: Harvard Business School Press, 1997).
Geoffrey A. Moore, Crossing the Chasm (New York: HarperBusiness, 1991).