Beachhead Markets and Diffusion of New Products
The term beachhead derives from a military strategy where an army forms a stronghold at an under guarded front of an enemy and later uses this to strategically control and win territory. The term was coined after the Battle of Normandy where allied forces gained control of the beachhead of Normandy and were able to then land more troops, supplies and eventually win the battle. This strategic maneuver that creates opportunities for invasion of a territory is a crucial concept in the growth and development of an early stage company. In entrepreneurship, a beach-head is considered a customer segment that makes it ideal for a lunch of a new product or service. Once a startup has gained dominant market share within this segment, it is strong enough to pursue other customer segments and grow its business. This customer segment is also synonymous with innovators in marketing: the customer segment that is first to adopt a technology. In regards to networks, a beach head is equivalent to the initial adopters of a behavior or technology in a network.
As you can see in the figure above, a beachhead market is not a piece of the pie but rather a sub-pie of it’s own. In this way, they share many characteristics with clusters: the individuals within them are highly connected with each other and can form a strongly connected component of a network that share significant similar characteristics. These characteristics are not generic such as age and other demographic factors but specific, for example: the individuals within these segmentations share a specific set of problems and have jobs to be done that the existing alternative products and services either fail at accomplishing or have inefficiencies. Furthermore, word of mouth communication exists between the different individuals in the segment, creating an opportunity for initial customers to serve as high-value point of references for others within the cluster/customer segment.
Although a startup wants to chase after the full pie, entire market domination, in the future, this beachhead strategy provides a small company a strategic advantage and opportunity that will ensure its survival in the short term and growth in the future. The strategic advantage is simply the fact that there are a lot less moving parts a startup will have to worry about when launching it’s business. By focusing on a small set of individuals that share a specific set of problems and have similar characteristics and habits, a small startup is able to concentrate its limited resources and energy to truly understand the issues this set of individuals face. Hence, the alternative solution, product or service, the startup develops will be better than the existing solution for this set of individuals as it meets their particular needs and provides them with a higher payoff. Since these individuals also share similarities, it is easy to identify and sell to them, making the marketing aspect simple.
In networks terms, using this strategy, a small startup is able to lower the q threshold value needed to overcome for an individual to switch to a new product. Since the q value is calculated using the payoff an individual receives from using a certain technology or adapting a behavior, a startup is able to lower that value by increasing their payoff. Furthermore, the existence of strong ties and word of mouth communication in this narrow cluster of individuals creates an opportunity for this new technology to spread and cascade through the rest of the cluster. Hence once the initial users within the cluster have adopted the new technology the startup offers, the adoption of the new technology will increase rapidly. As a result, a startup will attain market domination for this customer segment and expand to other segments over time.
A good example of this is Uber. In its founding, Uber was a transportation company that served wealthy young people that wanted on demand access to high end luxury car transportation in San Francisco. By focusing on this specific cluster of individuals from the vast network of individuals that needed to get from point A to point B, Uber was able to serve the specific needs of this group: quality and speedy service. As a result, Uber was able to lower the q threshold value at which an individual from this group will adopt its technology by making a better product with higher payoff. The existing alternative at the time was phoning cab service providers which was tedious and time consuming. Furthermore, finding and selling to this initial set of customers was also easy because they share similar characteristics and habits: they attended large events and enjoyed nightlife in the city, which made it easy for Uber to target these individuals in their marketing efforts. The existence of word of mouth communication and strong ties between these individuals as a result of shared habits, activities, and needs, made the cascade and diffusion of this technology easy to initiate. After gaining a foothold in this market segment, Uber was able to expand geographical and diversify its business to serve the needs of many more people.
All in all, sometimes to be big you have to start small. In my personal entrepreneurial experience, proper selection of beachheads has made all the difference in the growth of my business. Without identifying an initial set of customers that share a specific problem and have similar characteristics, it is hard to even start building a business. Without the first set of paying customers, a business is nothing. The knowledge I’ve developed on the structure and development of networks has tremendously shaped my perspective on how to strategically introduce new products and services to the world.
https://jungleworks.com/uber-business-model-canvas-what-led-to-uber-success/
https://www.investopedia.com/articles/personal-finance/111015/story-uber.asp
http://gsl-archive.mit.edu/media/2_beachhead_market_(bhm).pdf
https://executive.mit.edu/blog/launching-a-successful-start-up-3-the-beachhead-market