Disrupters must trust the 'nonconsumer'

Don't listen to your customers.

Yes, you read correctly.

The primary target for companies looking to establish a disruptive foothold in a market should be people who aren't yet customers of a product or service. We call them "nonconsumers."

These are the people automakers seeking to unleash disruption in electric vehicles need to listen to.

If would-be disrupters launch EVs in line with their existing customers' expectations, they'll inevitably design vehicles that meet or improve upon factors that matter most to them. These customers have performance benchmarks that are preset by the gasoline-powered vehicles they own; they're used to short fueling times and a range that satisfies almost all of their driving needs.

We see automakers respond to these expectations already — with many racing to increase range and reduce charging times of their EVs. But this strategy is unlikely to help automakers unleash new waves of growth.

That's because they are following what we call a sustaining strategy. Sustaining innovations bring a better product to an established market, and therefore are important to the progression of an industry. Many automakers are motivated to execute sustaining innovations because such innovations help the companies sell better vehicles for higher profit margins to their best customers.

But sustaining innovations offer little net growth.

By contrast, disruptive innovations offer a wellspring of new growth. These innovations transform complicated and expensive products and services into simple and affordable ones, often benefiting a new and eventually much larger population.

While disruptive innovations initially take root in less demanding applications, they eventually improve with the introduction of what, for them, are sustaining innovations along the new disruptive trajectory.

As they do so, little by little, they start to pull the least demanding customers away from industry leaders, resulting in disruption.

So to take advantage of electric powertrain technology to create a new growth engine, automakers should start by listening to nonconsumers.

Nonconsumers are those who can't "consume" a product or service, such as a vehicle, because of constraints such as money or skill. Automakers in tune with nonconsumers' needs will prioritize simplicity, affordability and accessibility, preparing themselves to cater to a larger population of potential customers who don't expect the bells and whistles of sustaining innovations.

Some entrants in China are pursuing this strategy, offering low-speed EVs primarily targeted at nonconsumers in rural communities. As I describe in a newly published paper, "Driving Disruption: Catching the Next Wave of Growth in Electric Vehicles," low-speed EVs can't travel far or fast. Yet the customers are willing to accept a relatively inferior vehicle because it is infinitely better than their alternatives: bicycles, motorcycles or farm vehicles.

During the decade that low-speed EVs have been available in China, sales have soared. According to the International Energy Agency's Global EV Outlook 2017 report, between 1.2 million and 1.5 million units were sold in China in 2016. In fact, in 2016, low-speed EV sales in China overshadowed the approximately 750,000 battery and plug-in hybrid electric cars sold globally.

While disruptive innovations are key for capturing new growth, sustaining innovations help automakers meet near-term growth and profit targets and fund their operations. To that end, automakers must strike a balance between listening to their best customers to strengthen their core business and ignoring them as they unleash disruptive innovations.

It's counterintuitive, but in the world of disruptive innovation, sometimes doing the right thing is actually the wrong thing. It all depends on the circumstance.