Market Creating Innovations and Pull Strategy

Anand Laishram *

Last time we learnt about Push and Pull strategies for economic development.

Just to recap, a push strategy involves pushing resources, facilities and infrastructure deemed essential for economic development onto an economy, in the hopes of kickstarting the economic development process.

This may take the form of building schools, roads, bridges, power plants etc. in a place, so that it leads to economic development. This strategy may prove ineffective if the local economy isn’t ready to absorb those resources & facilities and maintain them.

By contrast, a pull strategy involves responding to the needs of a market and pulling in the resources and infrastructure required to support that market. The stakeholders are incentivized to maintain the infrastructure so that the market remains functional and the stakeholders can realize the financial returns.

We also learnt how the development of the Ford Model T in order to meet the needs of the American public for a better means of transportation led to the development of many other industries and the infrastructure required to support those industries.

In this article, we will learn about what is called a Market Creating Innovation & how investing in Market Creating Innovations can help ignite the economic development of a nation. Before we jump onto the definition of a Market Creating Innovation, let’s first define a ‘market’ and ‘innovation.’

A market can be defined as a system that enables the making, buying and selling of a product/ service.

Innovation can be defined as a change in the processes by which labor, capital, materials & information are transformed into products or service of greater value.

Market Creating Innovations, therefore, are innovations that transform complicated & expensive products into products that are simple & affordable for a whole new segment of the population, which earlier couldn’t afford or utilize them to meet their requirements.
(There are other types of innovations - Sustaining Innovations & Efficiency Innovations)

Even though solutions already exist in the market, there are many people who can’t consume those solutions, because they face various barriers to consumption.

Market Creating Innovations help break down one or more of the following barriers to consumption:
- Affordability
- Accessibility
- Time
- Expertise

In other words, Market Creating Innovations help make an existing product:
- Less expensive (Therefore people who couldn’t afford them earlier can now afford them)
- More accessible (Therefore people who couldn’t access them earlier, because of distance, can now access & buy the solutions they need)
- Less time consuming to buy & use.
- Easier to use

Market Creating Innovations bring in new people into the market, thus expanding the market. They respond to the needs of what are called non-consumers, who are people who are in desperate need for a solution to their needs, but the existing solutions are too costly or complicated or too difficult to access.

Non-consumers therefore either use nothing, thereby choosing to live with the unattended need or they use a less effective workaround, despite all the difficulties entailed.

Ford’s Model T is an example of a Market Creating Innovation. Before the Model T, people in America relied on horses or horse carriages for transportation, which couldn’t cover as much distance, were difficult to maintain, weren’t very reliable & created other problems like horse manure on the roads & streets. People chose to move about over shorter distances and they had to live with the mess created by the horses.

Even though cars had already been invented, they were still very expensive and were more bought by the rich elite as status symbols, rather than a practical means of moving from Point A to B.

Ford’s Model T, which was much more affordable for a large percentage of the population, helped people meet their transportation needs, without any of the limitations they had come to live with. People could travel further, thereby choosing to live outside cities in suburbs. Cities became cleaner. Various other industries developed. We have covered this in the previous article.

Another example would be that of Alpargatas, the Brazilian footwear company. Alpargatas came up with a solution for the large majority of the Brazilian population who were too poor to afford and therefore chose to go barefoot, thereby suffering many problems & diseases and infections. Shoes & other types of footwear already available on the market were too expensive and could only be afforded by a small but rich minority.

Alpargatas came up with the Havaianas sandals, which were made with just two pieces of rubber. They were easy to manufacture and very cheap. Therefore, they broke through the affordability barrier to consumption for the Brazilian public.

Also, because many people lived in the countryside and other remote areas, far away from commercial areas, Alpargatas decided to sell these sandals using vans, which moved from place to place, thereby directly bringing the sandals to those who need them, thus also breaking through the accessibility barrier to consumption.

Alpargatas sold billions of these sandals and today they are one of the largest footwear companies in the world, with revenues in the billions of dollars.

They also had an enormous positive impact on the Brazilian economy, creating thousands of local jobs, especially in the remote, previously underdeveloped areas, where factories were set up for manufacturing. They also generated a lot of tax for the Brazilian Government, out of their profits, which helped fund public infrastructure, among other things.

We will learn more examples of Market Creating Innovations and how they help the economic growth of Nations, in the subsequent weeks.