The process of market creation… demystified


Oct 26, 2023

Most innovations target the consumption economy—a seemingly safe place to invest as here, the market is already created and people and organizations are already consumers. The types of innovations that target the consumption economy are called sustaining innovations. They make good products better. But before organizations can invest in sustaining innovations, they must first create the market. This is where market-creating innovations play a significant role. 

Market-creating innovations transform complicated and expensive products into simple and affordable ones, making them accessible to a whole new set of people called nonconsumers.

The creation of a market is rarely foreseen but, like all good ideas, it is taken for granted after it appears, and, when fully formed, seems impossible to live without. For example, today, imagining an Africa where the average person does not have access to a mobile phone is difficult. The creation of this market may seem like a fluke, but thankfully there is a predictable, albeit difficult, path to market creation and thus, to ample job creation and prosperity.

First, in the process of market creation, a discovery must occur. Discoveries happen through experimentation, failure, learning, and ultimately—with enough perseverance—success. Most new discoveries are built on prior advances in human knowledge and understanding of how the world works. Discoveries can be an invention or technology, a new business model, a new process, or a new product. Discoveries typically take access to a product or service from zero to one, or a few. They make a product or service available to few people who have access to money, skill, or the discoverer. Those with access to discoveries are typically the wealthiest and most connected in society.

For example, in the 1990s, there were fewer than ten million mobile phones in Africa and only the wealthy had access.

But a discovery by itself isn’t enough to change the world. At best, it benefits a few people close enough to the discovery or those wealthy and networked enough to access the discovery. We remember discoveries because they—after the process of market creation occurs—create a paradigm shift in how many people ultimately experience the world. But that’s only possible because of the second phase of market creation.

Second, a distribution mechanism must be developed to enable widespread adoption of a discovery. Distribution takes access from one to many. The following activities typically occur in the distribution phase of market creation: mass production, mass marketing, management, mass financing or credit availability, mass distribution and logistics, mass consumption, and mass regulations. It is in the distribution phase that standardization occurs. For this phase to be successful, the aforementioned activities must happen concurrently—or at least before funding runs out. As a result, many discoveries never get to the masses. This is the fundamental problem with innovation activities in many poor countries. 

In the 2000’s the rapid development of the mobile telecommunications sector across Africa began to occur. In two short decades, access has jumped from barely nothing to almost one billion subscriptions. For that to occur, entrepreneurs such as Mo Ibrahim and Strive Masiyiwa and companies such as MTN and Safaricom had to invest in the distribution phase of market creation.

In Nigeria alone, investors have poured in more than $75 billion to build out the distribution component—mass production, marketing, advertising, financing, training, consumption, regulation, maintenance, etc.—of this market. This level of investment in distribution, over time, is what creates the infrastructure of society. The third phase of market creation is democratization.

Democratization happens when an innovation is deemed too important or critical that everyone should have access to it. Democratization efforts are typically heralded and led by governments, international organizations, and nonprofits. In democratization the hope is to take access from many to all. Many poor regions in the world, unfortunately, find themselves in the midst of many democratization efforts–universal healthcare, universal education, financial services for all, rural electrification initiatives, and so on. Yet, as important as democratization is, it is impossible to achieve if the first two phases do not occur.

Distribution, it turns out, is the unsung hero of market creation. It is what makes discovery profitable and democratization possible. Although everyone celebrates discovery, and we all stand behind democratization initiatives as we seek to live in a more just and equitable world, without distribution, discoveries languish, and democratization programs never succeed.

Efosa Ojomo is a senior research fellow at the Clayton Christensen Institute for Disruptive Innovation, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.