CREATE VALUE

For a product to be successful, it must create value. And value is created only when sufficient performance is delivered by the product at a price point that is reasonable for that level of performance, for that segment.

Performance

Performance delivered by a product depends upon

Quality of the output. For a speaker, this is the quality of the audio. For a camera, this is the image quality of the photograph. For a VR headset, it is the image quality of the display and also the content viewed. Gear VR and Google Daydream VR headsets are examples of devices that never really took off because the quality of the content for consumption was not up to the mark

Interaction of the user with the product. Is it easy to set up? Is it easy to use? How responsive is it? Does it work when you need it to? How easy is it to carry around? How often does one need to charge it? The original iPhone with its intuitive 3.5" touch screen that allowed for zoom, scroll, and opening of an app with the flick of a finger, is a great example of delivering significant improvement in interaction over an incumbent. Another anecdotal example of the superior interaction that the original iPhone delivered was that it only took 1 click to open up Google maps on the iPhone versus 11 on the Nokia N95.

At the other end of the spectrum, the original Google Glass experience frustrated immensely owing to its constant overheating, lag between input and response, and power drain.

Benefit delivered by the product to the target customer segment. The benefit delivered -use cases addressed/problems solved- is made possible by the feature set. If the product is software or connected in nature, the benefit can grow over time.

The benefit that Apple’s iPhone delivered at the time of its release was that it was a Phone plus iPod plus Internet in one’s pocket. The features that made that possible were 2.5G Edge (while inferior to N95’s 3G), Wi-Fi, Built-in iTunes, and Safari web browser.

Price

Innovation must be built around the price for it to be successful.

When the first iPhone came out, Apple was able to create value right off the bat. The iPhone was actually a bargain at $599 when compared to the Nokia flagship N95 at $700. Apple was able to do this because it focused on the key differentiating feature — 3.5-inch multi-touch screen- and ruthlessly cut inconsequential features. The iPhone carried a 2MP camera versus 5MP for the Nokia N95, and didn’t have any of GPS, Video capture, loudspeaker, FM radio, IR port to name a few that added to the N95’s high price tag.

Apple was able to introduce disruptive innovation successfully in the established flagship category without altering the price point upwards. What is even more noteworthy is that the performance delivered by the iPhone made it appealing to a broader audience beyond the flagship phone-carrying businessman. By getting the mass market to upgrade to the smartphone, Apple unlocked new value.

If the performance (quality, interaction, and benefit) doesn’t meet a minimum threshold, it doesn’t matter how cheap the product is, it won’t sell. It also won’t sell if the price is too expensive for performance delivered even if that performance is above the threshold. The performance can be assessed during the development phase using prototypes through qualitative research. Quantitative research methods such as conjoint analysis can be used to hone in on the optimal feature-price combination.

CAPTURE VALUE

For a product to be successful, it must create value and it must be able to capture a significant portion of the value that it creates. In other words, the product must be defensible from the competition. This defensibility depends on

Installed base A large installed base could deliver network effects in which case any new user will find more value in adopting the product over one from a competitor with a smaller installed base. This is indeed the case for social media products like Facebook and LinkedIn. It is also true for products such as Peleton, Fitbit, and even Apple with features such as Leader board, Challenges, and Facetime that allow one to compete with/call friends. Growth in the installed base also drives eco-system development which leads to delivering more value to the customer

Eco-system For Apple, it isn’t just the eco-system of apps but is also the eco-system of Apple devices and services that work in unison with each other to deliver an elevated consumer experience. Similarly, an eco-system for a camera manufacturer will consist of the different lens options available for purchase either from the manufacturer or 3rd party lens makers

Switching cost Another example with Apple as the protagonist. With my whole life in the form of music and photos sitting with Apple, I like many others am loath to switch. While it is very much possible to extricate my data from Apple’s clutches, I’m intimidated by the presumed effort

It is apparent therefore that in the consumer electronics space, Apple’s position is very defensible.

Any competitor, therefore, has only two approaches a) Be first to market with a unique proposition and b) Be budget priced. An example of a company to have done this in recent years is Fitbit. They were 1st in market with Fitness bands, and also continue to thrive in the lower priced lower featured bands segment.

DELIVER VALUE

Once we have established that a product has potential for success, what’s left is to assess its ability to deliver it i.e. go-to-market. The choice of channel needs to be the right one for the product/Brand, and if no existing one is a fit, you will need to create your own path to market which is usually a significant investment of time and money. Maybe you rethink the product to use existing channels. Maybe there is enough potential return on the investment on the original value proposition to justify a direct channel. Take Peloton for example. As the company that’s leading the transformation of the fitness space by selling premium-priced connected exercise bikes, the differentiated purchase experience to justify a premium price point cannot be delivered at a Best Buy where all the commodity/me-too options line up under one roof. Hence the Peloton stores. The same is true for Bang & Olufson, the premium audio equipment brand that is one part speakers and another part gorgeous furniture. While iPADs and iPhones can be purchased at any Best Buy, the retail and support experience delivered at an Apple store, one of being part of a movement, has been as instrumental to the success of the brand as the products.

In Conclusion

1. The potential for success of a product idea must be assessed rigorously prior to building. This can be done using a mix of qualitative and quantitative research. You can find more information on research methods here
2. The output of your research on the product idea should help you put a number to the “Value” created, and you can use this to benchmark against other successful products in the market. In other words, quantify it (an exercise of another post). This should help inform you whether the idea is worth pursuing
3. All of this assumes that you have selected the right target segment to go after. The market potential should be such that delivering value results in a sustainable business (profit)

Sources:

[1] Nokia N95 versus iPhone here & here

[2] Problems with the Google Glass here

[3] Quantitative research methods to identify feature set and price here