The Entrepreneurial Market Creation Process INTRODUCTION .The Entrepreneurial Market Creation...

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    The Entrepreneurial Market Creation Process

    INTRODUCTION

    Market creation is a fundamental business activity in dynamic and competitive free

    markets that can provide large corporations a potential growth trajectory. With the marketplace

    overflowing with competitors offering similar value propositions, a firm seeking to create

    competitive advantage is often faced with three alternatives: (1) drive costs down to create a

    lower cost structure than competitors in the present product/market space (difficult in an era of

    widespread lean production and global outsourcing); (2) differentiate their marketing mix to

    create a superior value proposition in the present product/market space; or (3) leverage a shift in

    consumer behavior or/and radical, disruptive, proactive innovation to develop a competitive

    advantage based upon the creation of a new product market space. Firms that follow the third

    alternative seek new product market spaces that allow the firm to move from overcrowded

    hypercompetitive markets to markets with little or no competitive threats into a new commercial

    and technological ecosystem (see Kim and Mauborgne, 2004). Figure 1 illustrates this third

    form of competitive advantage and its potential consequences.

    In comparison, entrepreneurship has taken a different path. Instead of a business strategy

    that focuses upon play(ing) the game better than competitors, entrepreneurial business strategy

    attempts to change the rules and play the game better than competitors or play your own game

    (Covin and Slevin 2002: 321). Market creation offers a way to shift the competitive landscape

    and play your own game in a new product/market space.

    Venkataraman (1997: 120) defines the central issue of entrepreneurship as being

    fundamentally concerned with understanding how, in the absence of current markets for future

    goods and services, these goods and services manage to come into existence. Shane and

    Venkataraman (2000) further argue that entrepreneurship is a process involving: (1) discovery or

    creation; (2) assessment; and (3) exploitation of economic opportunities by opportunity driven,

    enterprising entities that often as a consequence create new product-markets. Like

    entrepreneurship, marketing has also placed market creation within the boundaries of its

    discipline, but this was done early in the development of the discipline of marketing, with

    minimal interest in this area of research lately.

    Creating new needs and wants is, as we will demonstrate, central to market creation. However,

    we believe that marketing has drifted too far away from market creation as an intended strategic

    decision and, instead, presents market creation simply as a consequence of satisfying latent needs

    which many would agree is a by-product of effective marketing, and not a strategic decision.

    Levitt (1960) suggests that firms will tend to enjoy better performance through planned

    marketing innovation. We suggest that market creation is an intended strategy and is different

    from market creation as an emergent phenomenon. Accordingly, we propose an entrepreneurial

    marketing approach to market creation that more fully embraces current work in both marketing

    and entrepreneurship (see for example, Miles and Darroch 2006; Morris et al. 2002 and

    Schindehutte, et al. 2008) where market creation is presented as intended strategy and at the

    core of the marketing and entrepreneurship interface (see: Hills and LaForge 1992 for additional

    discussion on the marketing/entrepreneurship interface). Our approach is consistent with the

    position taken by Miles and Darroch (2006: 498) who, contend that:

    firms that adopt EMPs are better suited to discover and create, assess, and exploit

    attractive entrepreneurial opportunities, and that this enhanced level of corporate

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    entrepreneurship enables the EMP firm to more effectively and efficiently create and

    renew competitive advantage.

    Thus by adopting an entrepreneurial marketing approach to market creation, managers are

    in a better position to develop new means-end relationships, rather than working within existing

    means-end frameworks (Kirzner 1997; Shane and Venkataraman 2000).

    WHAT IS A MARKET AND HOW ARE MARKETS CREATED?

    Markets have had a somewhat mythical existence in Western culture and the managerial

    and social sciences (Coase 1988). Markets can be conceptualized in a similar way to quality,

    you know quality when you see it (Persig 1974) and we suggest the same can be said of

    markets - you know one when you see one. Markets can be conceptualized as free and open

    (Friedman 1962) or highly controlled, domesticated, and regulated (Arndt 1979a; Arndt 1979b).

    Markets can be examined from a supply side perspective, in which the focus is on the

    products or services firms are willing to supply (Sarasvathy and Dew 2004). Competitor products

    are seen as direct competitors, therefore, products that can be categorized as having the same

    product form or use similar technology. The purpose of market analysis then is to identify which

    firms belong in the market so as to make inferences about market power and anticompetitive

    actions, often as part of a broader assessment of anti-trust issues. Markets defined using a supply

    side perspective would consist of the competitive set of firms within the marketers relevant eco-

    system (Alsem 2007) all of which produce products that more or less satisfy the same needs and

    wants of consumers (Mason 1990). Alternatively, markets can be defined from a consumer or

    demand-side perspective. Here, a market comprises a set of consumers who have

    homogeneous revealed preferences for a certain combination of attributes (Lancaster 1971).

    These preferences might be for existing products or yet-to-be-invented products. An example

    of a demand side perspective could be the fitness market with alternative products serving this

    emerging need from home rowing equipment to Nordic walking equipment to health clubs, to

    liposuction to weight watchers.

    Therefore, we suggest that a market is either: (1) a group of consumers with the same

    needs and wants; or (2) a group of products that satisfy the same needs and wants. Common to

    both definitions of a market is the homogeneity of consumers needs and wants. However, the

    difference lies in whether any analysis of the market begins with the consumer (i.e. the demand

    side) or the product (i.e. the supply side). Since our unit of analysis is market creation, we

    propose that markets are created when a consumer group with a new set of homogenous needs

    and wants are identified and served. Furthermore, the process of market creation begins with

    either the consumer or product - we have labeled these approaches as either: (1) a demand side

    approach to market creation; or (2) a supply side approach to market creation. These two

    approaches to market creation are captured in Figure Two.

    According to the demand side approach to market creation, managers begin by identifying

    emerging tastes and preferences that typically arise due to social, technological, or regulatory

    environmental changes. These tastes and preferences manifest themselves as unmet needs and

    wants, for which managers develop new products. Within this framework, it is assumed that

    consumers can state tastes and preferences but may not be able to articulate their needs and

    wants. In fact, it is quite likely that consumers harbor latent but detectable unmet needs and so

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    can describe a problem they have with an existing product but not offer a solution (for example,

    the digital picture frame as a solution to displaying digital photographs). Importantly though, a

    homogeneous set of tastes and preferences exists and this provides the incentive for managers to

    develop new products. Thus, one task of marketing management is to detect consumer

    preferences in order to identify unmet latent needs (Kotler 1973).

    The more latent the need, the more sophisticated managers market sensing capabilities

    need to be and the more entrepreneurial the manager must act in order to make the linkages

    between unmet needs and possible product solutions. One potential downside risk of this

    approach however is that products may be developed that are at odds with the core business. In

    addition, managers might acquire and invest in new resources and diversify the core business

    based on the promise of potential profits, eventual market creation and a possible sustainable

    competitive advantage.

    Alternatively, a market can be created by first developing a new product and then leading

    consumers to that product. Here the focus is on leveraging innovations around existing products,

    processes, strategies, domains or business opportunities (see Morris et al. 2008). For many

    managers, this internally driven option is often more certain, manageable, and economically

    attractive (see for example, Burgelman and Doz 2001; Campbell and Park 2004) because these

    entrepreneurial initiatives are linked to the core business. However, new product development

    may not be coupled with strong market sensing capabilities and so the risk is that consumers may

    not adopt the product because managers have misread the market. If the firm does succeed i