Disruptive innovation occurs when a smaller business starts competing with larger ones in the same market, challenging established norms and often lowering the prices of once high-end products.
In most product segments, large corporations — think Walmart, Amazon, or Nike — seemingly own most of the market share and often set norms for pricing, marketing, and customer engagement.
Disruptive innovation happens when smaller companies move steadily upmarket to own an increasing percentage of market share. This often results in new norms, lowered product pricing, and increased access to the products.
In some cases, consumers themselves can cause disruptive innovation to occur. For example, many customers have shifted from primary care medical offices to retail clinics for easy access to basic medications and short wait times. The shift has disrupted how major medical players work, causing them to change their models to compete with smaller clinics.
In other cases, companies lead the shift by entering into markets with lower-cost versions of existing products. Here, the low-end product threatens the stability of once high-end product prices, disrupting the whole segment.