Philips owes the huge success of its environmentally friendly light bulb to a new definition of who it should be selling to and a clear understanding of the needs of those buyers 

For more than 80 years General Electric dominated the US lighting industry with a market share of more than 50 per cent. GE's manpower, pedigree, presence and financial clout let it define the rules. 

As GE courted corporate purchasing departments, its competitors hypnotically followed suit. Everyone in the industry moved in step, listening to corporate purchasing departments' needs and improving their product accordingly. 

The result was a commodity product that forced manufacturers to compete on price, brand name and old boy networks - all factors where GE enjoyed a huge advantage. 

Then in 1995, Philips Lighting, the North American division of Philips Electronics, launched the Alto, the first environmentally friendly light bulb. 

Unlike traditional bulbs, the Alto contains very low levels of toxic mercury. As a result, it allows big savings. While a typical fluorescent lamp costs around 80 cents to buy, replacement costs can reach Dollars 1 per light because of restrictions in collection and disposal, and legal coverage against possible pollution at dumping sites. 

The Alto can be thrown straight in the rubbish bin. It has superior profit margins, a rapidly growing market, and has already replaced more than one in four traditional T-12 fluorescent lamps in schools, office buildings and hospitals in the US. It is also winning tremendous free press and political backing for helping to protect the environment. 

But where did Philips Lighting get the insight to create this market? How did it see an opportunity for high growth and profits where others saw only a low-growth commodity industry dominated by one of the toughest companies in corporate America? 

Simply put, Philips defied conventional wisdom that said lighting companies should sell to corporate purchasing managers. Corporate purchasers had one overriding concern: to minimise upfront costs. For more than 50 years, they had asked the same two questions: what does the light bulb cost? and how long will it last? 

By switching its attention to chief financial officers, Philips discovered the paradox of its industry. While purchasing managers haggled with manufacturers over purchase price, it turned out that this initial expense sometimes accounted for as little as half the total cost to the company. The purchasing departments never saw the costs of disposal - but, much later, the CFO did. 

So Philips dramatically reduced the level of mercury in its bulbs to pass all legal tests of being environmentally friendly. Philips Lighting then used both CFOs and public relations campaigns to drive the purchase of the Alto. Companies, the environment and Philips came out big winners. 

In most industries there is a chain of "customers" who are directly or indirectly involved in the buying decision. There are the purchasers who pay for the product or service of the industry. There are the users of the product or service that is purchased. And then there are influencers, who play a critical role in deciding which product or service to buy. In children's medicine, for example, the purchasers are the parents, the users are the children, and the influencers are the doctors. 

These different groups often value very different things. A corporate purchasing agent, for example, may focus on cost, while a user may be more concerned with ease of use. 

While in many industries competing firms target different customer segments - for example, wealthy, middle income, and the less well-off; or large, medium or small companies - there is often tremendous convergence on the buyer group all players in the industry focus on. 

Before the Alto, the lighting industry focused almost exclusively on corporate purchasers. The pharmaceutical industry focuses mainly on the influencers, namely the doctors. And the clothing industry focuses keenly on the users, the wearers. 

Sometimes this is because of economic rationale. Often, however, it is due to conventional industry practices that have never been questioned. By breaking out of this convergent behaviour companies can discover fundamentally new sources of value that were not apparent before. 

Think of Bloomberg, which in little over a decade has become one of the largest and most profitable business information providers in the world. Bloomberg leapfrogged Reuters and Telerate in the online financial information sector by shifting its focus from the IT managers who had traditionally purchased financial information systems to the traders who used them. 

Bloomberg's innovation was to provide online analytics that perform financial calculations, historical price information and lifestyle information that the users, rather than the purchasers, value. It also greatly increased the terminals' ease of use. 

In the copier industry, Xerox, Kodak and International Business Machines focused on corporate purchasers, who value big machines centrally located that can handle large orders and process them quickly. Canon created a new market of personal copiers by targeting the users - the secretaries. 

This opened its eyes to the importance of distributed copying with small machines, low price, and smaller copying needs. Today, Canon sells more copiers than any other company in the world. 

In contrast, SAP, the German business software group, created the integrated, real-time software market by shifting the focus from traditional departmental users to corporate IT purchasers. 

In industry after industry, the room to create new markets and recreate existing ones by shifting the focal buyer group is tremendous. To apply this to your business begin by asking: Who is the focal buyer group of your industry? Who could, and should, be the focal buyer group of your industry? 

The aim is to break out of industry-convergent behaviour by shifting the focal buyer group among users, purchasers and influencers to create value in fundamentally new ways. 

Next week, we discuss moving across substitute industries: how companies as diverse as Southwest Airlines, Home Depot, Intuit, and the Belgian cinema group Kinepolis applied the same underlying pattern of strategic thinking to create powerful new market space.