Recombination is something that I’ve spoken about extensively over the years, especially in terms of innovation. It basically posits that most innovation today occurs when ideas and practices from one domain are applied in a new domain.
Often we think of these in terms of markets, but perhaps a more useful application is through the lens of what marketers refer to as the ‘big seven’. These are the seven industries that are believed to account for around 94% of all consumer spending (in the United States at least). Harvard’s Thales Teixeira defines them thus:
- Where to live, including housing, home goods and maintenance
- How to move, including air, land and sea transport
- What to eat, including the preparation of food as well as foodstuffs themselves
- What to wear, including personal grooming as well as clothing
- How to learn, which includes both formal and informal learning
- How to entertain, including sports, media and electronics
- How to heal ourselves, which includes not only formal healthcare but other physical and mental treatments
Teixeira argues that ideas, especially around how consumers behave, often flow between these areas. For instance, once consumers decide they value convenience in how they eat, it can rapidly spread to demanding similar convenience in how they dress or entertain themselves as well.
This doesn’t just apply to our need for convenience, but also for our need for variety, uniqueness, value-for-money and sustainability.
“Once consumers gain a taste for any of these particular needs in one category of Big Seven goods, many quickly seek it in the other categories where purchases are frequently made,” he explains in Unlocking the Customer Value Chain.
Potential disruption
Teixeira believes that once you’re armed with an understanding of the Big Seven, you can then easily spot potential for disruption simply by looking for increases in the cost to consumer in any of the seven areas. This increase is likely to trigger a switch to a better alternative from consumers, and if the cost increase is significant enough, then it’s likely to precipitate a major change in consumer behavior.
He highlights how costs have increased across the seven areas, with education, healthcare and housing all seeing considerable, above-inflation cost increases in recent years that render them likely candidates for disruption. Indeed, with just two of the Big Seven (dressing and entertaining) seeing cost decreases in recent times, it would seem many of the areas of considerable consumer spending are ripe for disruption.
As well as charting this data across industries, it’s also possible to do so across regions, with Teixeira showcasing the different expenditure breakdown across the Big Seven in various countries to highlight the potential for disruption.
“Given that consumers in different countries spend different amounts on different categories of goods and services, the locus of opportunity for disruption is very much country-specific,” he writes. “And since the degree of price increase is one indicator of an opportunity for cost-reducing disruption, we should pay attention to the rise in real prices within each country and Big Seven domain, in conjunction with the amount of relative spending in the category.”
Suffice to say, cost-based disruption is not the only area of potential disruption, and effort and time-based disruptions are also possible, but these are much harder to monitor. They are possible however, with data sources from the likes of the Bureau of Labor Statistics providing a reasonable breakdown of how people spend their time on an ongoing basis.
However you analyze consumer trends, the process provides a nice reminder that disruption doesn’t just come from the latest technologies, but also from changing consumer patterns, and that these patterns can be observed in adjacent industries and adjacent parts of the Big Seven spectrum, allowing us time to either adjust if we’re an incumbent, or spot possibilities for disruption if we’re a new entrant.
