The Benefits of Starting Either High-End or Low-End
I was speaking with an entrepreneur recently about which part of the market they should target first. Should they focus on the low-end market with a simple product that gets better and move up over time? Or should they focus on the high-end niche market with a beautiful and expensive product and move down market as they scale? Of course, it depends on several factors but both strategies can be effective … just make sure you pick only one and don’t try to do both at the same time!
One strategy is to approach a market by getting into the market with a lower end product that is not as good overall as the current models but solves a specific pain point for a specific customer segment well. Initially, the product is ignored by competitors as not good enough but over time, the product continues to improve and eventually takes over the market. Examples here could include Airbnb (started with cheap extra rooms that were not good enough to replace hotel rooms), smartphones (that were not good enough to replace laptops, cameras, camcorders, etc.), and Wikipedia (not trustworthy or good enough to replace encyclopedias and use for research).
This approach can be best if you are going up against long-standing incumbents with lots of excess product features that can’t/won’t defend one small segment/feature, a market that will take time to move to a new concept/model, and/or a product that you can quickly get into market with minimal cost to test and see market feedback/traction.
Another strategy is to start with a premium product that serves a small/high-end niche with a beautiful product and experience. Then over time as the costs come down and the business scales, move downstream to lower price points and bigger markets. An example here is Tesla, who started at the super high-end with their electric vehicles and now continue moving downstream into more affordable models that appeal to wider target markets.
This approach can be best if you want to be laser focused on a premium segment that values product + experience that is not being met by mass market competitors. This can also be a wise approach in a market where current costs are high but will come down over time as you scale and current price points only can generate value/ROI at the high-end.
Both can be good options depending on circumstances, but I would first think about doing effective customer discovery to determine what problem you are solving, who is the ideal customer profile, and what is the best strategy to gain traction.