Next Leader

A competitor or product that offers much better than industry-standard performance for a low price to a specific subset of the industry customers. A Next Leader can do this because it has a low cost structure
(abbreviation: NL).
(See also Performance Leader

, Price Leader

, Standard Leader
,
Reformer Product
,
Transformer Product

)

Next Leader: Next Leaders are an industry's golden children because they are able to violate the rule that performance and price move in the same direction. Next Leaders create a value proposition offering higher performance for a notably lower price than the industry Standard Leaders. Next Leaders offer this attractive value combination to a niche segment of customers in the industry. The better-than-standard performance of a Next Leader product results either from an application of new technology or from a unique approach to benefit bundling in their products. The new technology or benefit bundling not only improves performance but also reduces the cost-to-serve for a segment of customers. This low cost structure allows Next Leaders to offer pricing in the range of 20-50% below the prices on Standard Leader products.

Next Leaders do not appear in many industries. When they do appear they can transform an industry, whether the industry is in manufacturing, retail or service. Toys R Us invented the toy retailing category killer, much as Home Depot has done in hardware retailing. These companies offer great depth and breadth of products, in massive stores, with limited personal assistance and low prices. Other Next Leader examples include the early Apple in the personal computer industry and Intuit in personal financial management software. Both of these firms exploited a new technology to become Next Leaders. Jiffy Lube, in auto services, used a new approach to benefit bundling, where the company eliminated the expense of mechanics and built outlets equipped solely for oil and fluid changes. Jiffy Lube's conveniently located stores promised a twenty-minute while-you-wait oil change and prices below those charged at local gasoline stations. Domino's Pizza offered the original, mass marketed, delivered-to-your-home pizza, also at low prices, by eliminating most of the costs of the restaurant.

The eventual market share of these companies is difficult to forecast. Next Leaders tend to create new industries of their own. Next Leaders usually become Standard Leaders in their new industries. On occasion, as in the case of Apple, they become Performance Leaders.

Example 1:

Ultrasystem's latest innovation is the micro co-generation plant. The "unit" is the size of a freezer, efficient and mobile. Lease payments for the plant will run at least 20% less than the equivalent electricity costs from current electric utility charges.
(Year 1987-SIC 1600)

Explanation: This Transformer Next Leader product provides an inexpensive, mobile co-generation plant. It improves the benefits for the user of the product.

Example 2:

Millions of internet users visit www.bluemountain.com to send free electronic messages for birthdays, anniversaries, all the major holidays and some little-known ones, too. Blue Mountain was ranked the 10th-most visited Web site, surpassing Amazon.com.
(Year 1999-SIC 2771)

Explanation: This Reformer Next Leader product improves benefits for the buyers of the product. The product is more convenient to buy for a niche segment of greetings purchasers.

Example 3:

Pocket versions of MS Word and Excel will let users read standard word processing and spreadsheet files downloaded from their PCs or sent as email attachments. It will even be possible to edit such documents on the pocket device.
(Year 2000-SIC 3571)

Explanation: The pocket PC is a Transformer Next Leader product in the computer industry. Compared to standard PC software, this software works with handheld computers, allowing the user of the product much greater mobility.

Example 4:

Torrent Networking Technologies Corporation, claims a proprietary algorithm allows its routers to operate as much as 10 times as fast as Cisco's 7500 Series router at just one-third the price.
(Year 1998-SIC 3576)

Explanation: Torrent Networking Technologies is a Next Leader company selling a Transformer Next Leader product against the industry Standard Leader Cisco. The Next Leader product provides the user more speed for substantially less price.

Example 5:

Packaged Ice has developed a $15,500 machine, called the Ice Factory. It can cut a store's wholesale price nearly 20%, to 45 cents a bag.
(Year 1999 – SIC 3999)

Explanation: Packaged Ice is a Next Leader company offering a Transformer Next Leader product in the Ice Factory. This new product reduces the order cycle time and cost for the buyer of the product.