Creating new market space is an approach that forward-thinking companies can use to achieve a competitive marketing advantage. This case addresses the six components of new market space (substitute industries, strategic groups within an industry, redefining buyer groups, complementary products and services, functional and emotional industry orientation, and time), individually and collectively. We will explain how Lexmark International utilized (and might have utilized) several of these strategic differentiators as it went head-to- head with the leading manufacturers in the global printer industry.

A cohesive strategy is essential for understanding and improving a company's business performance. This strategy should include a clear approach that is designed to outthink and outvalue rivals. Many companies are overwhelmed by fierce competition. Some companies lack the ability to recognize and adjust to trends. Others are unable to acquire and exploit market intelligence that is readily available. Others simply do not have the wherewithal to stay in the market, let alone leapfrog the competition.

Rather than focusing on building market share, market-driving firms such as Amazon.com, CNN, Dell, FedEx, and SAP have revolutionized their industries. These innovative companies have created new markets or redefined their businesses to make competitors inferior or obsolete.

Creating new market space (hereafter abbreviated as NMS) is a marketing response and strategic model for extending growth in maturing or matured markets. This may be best understood from the per- spective that specific markets are already saturated with products and suppliers, yet creative entrepreneurial companies can redesign the competitive landscape by redefining markets to find new business opportunities.

This case study examines the components associated with NMS as a fresh approach to market definition/segmentation strategy. The Lexmark International case demonstrates how NMS ideas can be employed to gain a competitive advantage in the printer industry. Finally, this case concludes by offering guidelines for marketing professionals and managers on how to compete in new market arenas.

WHAT IS NEW MARKET SPACE?

Kim and Mauborgne (1999) state that innovation is the only way that companies can break free from the pack when faced with cut-throat competition. It is essential that organizations stake out a fundamentally new market space by creating products or services for which there are no direct competitors. This suggests that the best companies have developed processes and/or strategies for "cornering the market" or "nailing down" particular market niches.

Defining markets is not a one-shot effort; rather, it requires fine- tuning and periodic reviews. Guidelines for defining market spaces were provided by Vandermerwe (2000):

1.Take an integrated view of the customer.

2.Look for arenas that are greater than the sum of the core items.

3.Find market spaces that can be expanded over time.

4.Bridge product lines.

5.Cut across industry boundaries.

6.Span customer activities over a lifetime.

As Kim and Mauborgne (1999) explain, creating NMS consists of six areas of comparative opportunity for managers to evaluate in making effective market decisions. This approach can work well for both early entrants and latecomers in the market- place. Note that Lexmark International was a late entrant into the global printer industry. The next section details how Lexmark employed NMS initiatives in its market planning.

LEXMARK INTERNATIONAL:

NMS AS A COMPETITIVE MARKETING TOOL

Lexmark International is a twelve-year-old company that began as an IBM spin-off. The company develops and owns innovative technologies that have won more than 800 awards from technology and business publications worldwide. Lexmark has grown to become a global leader in printing solutions (printers, supplies, and services). In the year 2000, the company generated more than $3.8 billion in revenue, earned a half a billion dollars in profit, and obtained 56 per- cent of its business from international markets.

Clearly, a key ingredient in the Lexmark success formula was its ability to apply ideas that reside in the domain of NMS. Were these NMS principles executed in a deliberate way, i.e., as part of Lexmark's global strategy? It is difficult to know the answer to this query, for sure. It is interesting and worthwhile, however, to examine how several of these elements became part of Lexmark's global marketing strategy.

The first element associated with creating NMS is the concept of "looking across substitute industries." As an extreme example, one might argue that postage stamps, e-mail service, long-distance telephone calls, video conferencing, and airline tickets are all competitive offerings. To achieve and sustain an effective presence in global markets, it is necessary to design and execute an integrated strategy that covers the full spectrum of market entries across a variety of industries.

Undoubtedly, Lexmark employed this strategy by using its type- writer products and industry contacts to pave the way for its dot-matrix and low-end laser printers. With the market well established for these products, Lexmark then moved on to the next stage of its overall strategytapping market segments for its top-of-the-line laser printers. From the outset, it appears that Lexmark intentionally used a sub- stitute industry (typewriters) to develop a viable market for its emerg- ing high-end laser printer sector. Early generation Lexmark products such as typewriters and dot-matrix printers provided brand recognition, price leadership, and quality signaling to the marketplace; this yielded a competitive advantage over less diversified mass and niche market players in the global printing industry.

Second, Lexmark created NMS by targeting "strategic groups within each industry." Strategic groups are companies within an industry that pursue a similar strategy, often based on price and perfor- mance dimensions. Initially, the company's market included users of laser printers, dot-matrix printers, and typewriters. Lexmark com- peted in a strategic group that targeted end users who did not have an immediate need for high-end laser printing (the firm created a new market segment in the industry). These customers were located in many different industries and came from various geographical areas around the world.

Lexmark divided the international market into three regions in scanning the global market horizon: (1) the United States; (2) Canada, Latin America, and Asia Pacific; and (3) Europe, the Middle East, and Africa. In emerging markets, prospects often lacked the purchasing power to buy expensive equipment and the necessary training to maximize the printing power of advanced technologies. Since many developing countries lacked the technological infrastructure to absorb its laser and color inkjet printers, Lexmark formulated a strategy to capture the typewriter and dot-matrix business; later, it introduced more sophisticated printers as the economies of each country allowed. Hence, Lexmark targeted these buyers as long-term (lifelong) strategic customers.

Third, Lexmark achieved a competitive advantage by "redefining buyer groups." It exploited information by collecting market intelligence about end users. As Porter's (1986) value chain theory suggests, the bargaining/purchasing power of the buyer is a fundamental market consideration. Lexmark clearly recognized the importance of buyers. As an example, the company provided low-end, but high- quality laser printers to specific customers whose needs were not met by Hewlett-Packard. (Note: HP laser printers were often priced be- yond the purchasing power of average consumers.) Since its inception into the printer market, it was Lexmark's strategy to introduce a variety of laser printers to meet market needs that were previously untapped by the competition. As a result, Lexmark outperformed Hewlett-Packard and other rivals in many key segments of the laser printer market.

Fourth, it can be shown that Lexmark obtained a competitive ad- vantage, particularly for it high-end laser products, by offering "complementary products and services" to its typewriter and dot-matrix customers. Lexmark developed channel relationships by providing quality goods and services that met immediate customer needs. Strategic alliances were created with local distributors in host countries that allowed the distributors the freedom to design their own effective marketing strategies and programs. Lexmark also provided training to enable intermediaries and customers to better utilize its products. Later, the company rolled out upgraded products and services for the international markets, as needed. Thus, Lexmark created NMS by providing complementary products and service where the competition failed to do so, and Lexmark achieved a global competitive ad- vantage in the process.

In considering Lexmark's overall marketing strategy and performance, a fifth point can be stated: the company achieved a competitive advantage over "time." The company's objective is to develop and keep customers for life. Initially, Lexmark acquired new business by meeting customers' basic printing needs, using dot-matrix printers, other low-end printer types, or services. Many of these customers were located in developing regions of the world with limited funds or capacity to absorb high-end laser products. Over time, as these countries, companies, and customers expanded their capacity and economic and technical infrastructures, Lexmark introduced state- of-the-art laser printers into those markets. A variety of other customer-specific services and products were also provided. This strategic planning process was fine-tuned with the introduction of each new version/product into designated market segments.

In sum, five approaches for creating new market space were effectively utilized by Lexmark International, a late market entrant, to forge a competitive marketing advantage in the global printer industry. (Note: we did not find sufficient information to comment on the functional and emotional orientation of the industry.) When existing domestic or international markets are saturated with competitors and their associated products, NMS techniques may provide the needed competitive edge to win customers and build market share.

How can NMS concepts be used as a strategic business tool by managers and marketing professionals to gain a competitive advantage in international markets? As a starting point, the marketing strategy should enhance the business performance. Consider Lexmark's global expansion into new regions. For example, Lexmark recently entered the subcontinent of India through a joint venture with a local Indian partner. It will be noteworthy to observe Lexmark's performance in the world's second largest country over the next few years. Hence, multiple business strategies (some NMS based and others not NMS based) need to be executed in different parts of the world to achieve marketing advantages.

In addition, the proposed NMS concepts are useful as a complementary competitive tool to strategies that are currently being used by companies in any market. While it is not necessary that all six components of creating NMS be utilized, the right combination may prove sufficiently effective in penetrating and expanding a market base. Five additional implications of creating NMS are suggested:

1.NMS advocates that a company extend its competitive reach by looking across substitute industries. In contrast, niche market- ing narrows an organization's scope by focusing on a single seg- ment of a market.

2.Strategic groups within industries or markets can be cultivated to build new competitive alliances.

3.Creating NMS recognizes and effectively manages the trade- offs between the bargaining power of buyers and end users.

4.A product development culture is nurtured. This competitive strategy extends product life cycles and fosters relevant new product and service offerings.

5.The concept of time is based on building long-term relation- ships and creating customers for life. The different ways in which various cultures deal with the idea of time must be care- fully assessed.

Finally, the recent Dell-Lexmark alliance, whereby Lexmark will manufacture low-end, Dell-branded inkjet and laser printers and sup- plies, which threatens Hewlett-Packard's market leadership, is worthy of careful analysis. As of 2002, HP had about a 43 percent share of the world's printer market, followed by Epson (22 percent) and Lexmark (14 percent). The Dell-Lexmark team, led by Dell's PC marketing muscle, may alter this competitive landscape consider- ably. An in-depth study of relevant NMS concepts in this context may be enlightening.

END-OF-CASE QUESTIONS

1.How can your company apply the ideas of creating NMS?

2.What impact does the size of the company have on using these guidelines?

3.Compare and contrast NMS concepts to niche marketing and market segmentation?

4.What changes would be called for if Lexmark International ap- plied NMS thinking to the European Union, Japan, or Latin America?

Critique the Dell-Lexmark joint venture from a segmentation and market space perspective.

Thanks in advance :=)