Toyota disrupted the US car market through a strategy of entering low-margin market niches ignored by incumbents, innovating to make those niches profitable, and then moving upmarket to compete directly with incumbents. Specifically, Toyota entered the US market in 1968 with subcompact cars, then reengineered its manufacturing process using lean techniques to lower costs and increase margins. This allowed Toyota to offer lower-cost, higher-feature cars than incumbents and capture market share across segments. Toyota's example demonstrates how disruptive innovation can involve targeting overlooked niches before competing head-on with existing companies.

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by Niro Nirmalan
@niroism

2. Me
2
Startup
Mentor
16 years
working in digital
Growth
Hacker
Fintech
Enthusiast
Love
Cars
@niroism

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What is the Best Selling Car in the US?
GM Ford
Dodge
?
Some other car

4. Toyota Camry
The Best Selling Car in the US is…
Jan 2016 US car sales

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How?

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Toyota’s entry into the US Market
Toyota Corolla 1968 (Sub-compact)
Typical 1968 Muscle Car

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Traditional Business Thinking of
US Car Manufacturers
Focus on the best customers
Focus on the highest margin products

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Continued allocating Resources to build new features
for these segments (Sustaining Innovation)
£

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Toyota knew that selling cheaper cars
meant tighter margins for them
$$$
Manufacturing cost
$$$$
Car retail price

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So they re-engineered the car manufacturing
process – Toyota production system
Just-In-Time
Systems
Lean Manufacturing Kaizen teams
(Continuous improvement)

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This lead to cheaper manufacturing
costs and better margins for Toyota
$$
Manufacturing cost
$$$$
Car retail price

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And once they captured a significant stronghold over
the lower end of the market, Toyota moved upmarket

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The incumbents could not compete with Toyota’s Lower
cost, High Feature cars as their margins would not allow it
Toyota Car Sales Incumbent Car Sales
Disruptive
Innovation

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Path to
Disruption
Enter low margin niche ignored
by market incumbents
Innovate to make the niche market
segment profitable
Move upmarket and compete
with market incumbents
Become new market
incumbent
Beat incumbents on price
and service
Disruptive Innovation – Clay Christensen

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Disruptive innovation can
hurt if you are not the one
doing the disrupting
- Clay Christensen

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Path to
Disruption
Enter low margin niche ignored
by market incumbents
Innovate to make the niche market
segment profitable
Move upmarket and compete
with market incumbents
Become new market
incumbent
Beat incumbents on price
and service

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Enter low margin niche ignored by market incumbents
International Payments
P2P Lending
Personal Finance
Management
Cloud Accounting
Banking Disintermediation

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Path to
Disruption
Enter low margin niche ignored
by market incumbents
Innovate to make the niche market
segment profitable
Move upmarket and compete
with market incumbents
Become new market
incumbent
Beat incumbents on price
and service

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Innovate to make the niche market segment profitable
Onboarding - Automate form completion
Usage of Companies House API to
autopopulate form

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Innovate to make the niche market segment profitable
Snap ID for real time KYC
Onboarding – Real time KYC

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Innovate to make the niche market segment profitable
Video call with live photo
and ID capture for KYC
Onboarding – Real time KYC

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Innovate to make the niche market segment profitable
Solution for thin credit file applications

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Path to
Disruption
Enter low margin niche ignored
by market incumbents
Innovate to make the niche market
segment profitable
Move upmarket and compete
with market incumbents
Become new market
incumbent
Beat incumbents on price
and service

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Move upmarket and compete with market incumbents
Banking re-intermediation - Marketplace bank?!?

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What should Banks do?
The Innovator’s Dilemma
Sustaining Innovation Disruptive Innovation
• Do new better things
• Focus on niche segments and unproven
markets
• Do what we always did but better
• Focus on high margin products

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What should Banks do?
The Solution – Do both
SustainingInnovation
DisruptiveInnovation
Collaborate with startups
Enter adjacent or completely new marketsFast follower
Kaizen teams

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Any Questions?