By Jeff Dyer, David Bryce For adherents of classic disruptive innovation theory, Tesla’s potential as a market disruptor is minimal. After all, the company doesn’t go after low-end, price-sensitive customers who are over-served by current vehicles; they don’t pursue “non-consumption” (customers who don’t currently drive cars); and the technology didn’t start out […]
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Tesla’s strategy does not follow the common disruptive mold because it doesn’t have to. Instead, Elon Musk pursues what we call a “high-end” disruption strategy, an approach that can be just as troublesome for incumbents. High-end disruption is about producing innovations that are “leap frog” in nature making them difficult for incumbents to rapidly imitate. Then, instead of using technology to improve performance over time, they use technology to lower costs per unit of performance over time. Our 5 years of research on the phenomenon indicates that Tesla could become a textbook case. [ii] In stark contrast to the low-end variety, high-end disruptive innovations outperform existing products on key performance dimensions at introduction; they sell for a premium price rather than a discount; and they target incumbent’s most profitable customers, often going after the most discriminating and least price-sensitive buyers before spreading to mainstream markets. History provides sharp examples: Apple’s iPod outplays the Sony Walkman; Starbucks’ high end coffee drinks and atmosphere drowns out local coffee shops; flash drives zoom past zip drives and floppy disks; Garmin’s GPS golf watches have taken much of the business from range finders; and Dyson’s vacuum cleaners have dropped prices from $3000 to $300 and continue to grow market share. The incumbents didn’t react fast enough and the high-end disruptors successfully invaded their markets. The big question facing incumbent automakers protecting over $1 trillion in sales: Will Tesla’s strategy work? It appears to be playing out well so far, as evidenced by Tesla’s recent debut at the number one spot on our Most Innovative Companies List this year and discussed in more depth in the article Decoding Tesla’s Secret Formula.