December 19, 2008
2008 saw the $4 gallon of gasoline and the start of the current recession. Although car sales are down from last year, millions of vehicles were still sold.
What car do you think was most popular? A hybrid? A fuel efficient car? An ultra-inexpensive car? A reliable import?
Interestingly, the two most popular cars were the Ford F150 (16 MPG) and Chevy Silverado (17MPG) pickup trucks with combined sales of nearly 1 million vehicles.
Why would people buy gas guzzlers when fuel prices are high and economic woes are running rampant?
According to Jeff Bartlett, deputy online editor of autos for Consumer Reports, when times are tough, “Buyers shift from what they want to what they need.” He continues to say that, “Pickups are a solution to a need” because they can be used for towing, off-roading, and cargo-hauling.
This is a fascinating point.
In a previous blog entry, I discussed how making your products/services more affordable and accessible is one way to beat the recession.
Focusing on what is needed versus what is wanted is another; sell the features that solve specific problems rather than the “nice to haves.” In the chart above, you can view the left part as the “needs” and the right part as “wants.”
This also plays nicely into my research on pains versus gains. The premise is that people take massive risks to eliminate their pains/losses yet will play it safe when it comes to increasing their gains. When times are tough, you must solve the pain first before the “extras” will be attractive.
What problem does your product solve? Can you provide a no-frills version of an existing product/service that focuses purely on eliminating a pain? In doing so, can you make it less expensive?
December 4, 2008
I am sunning myself with my family in Florida right now, hence the shortage of blog entries. We have been busy every day, so today has been my first day to relax and think. And no surprise, I have been thinking about innovation.
The balcony of my timeshare overlooks the water with boats (the picture left is our view). I always wanted a boat, but am often reminded of a joke. “What are the two happiest days in a boat owner’s life? The day he buys his boat…and the day he sells it!”
Boats are expensive and a pain to maintain.
In my previous blog entry, I discussed ways of making products and services more accessible and affordable. One idea was to “productize” a service. The question of the day is, how can boats be made more affordable and accessible? Maybe the answer is to “servicize” a product. Let’s look at a few options…
Option 1 – Make Product Cheaper: If you want to make boats more affordable, you can make them less expensive and maybe easier to maintain. As an owner this gives you the greatest flexibility and unlimited access to your boat. Of course, you need to do all of the work.
Option 2 – Timeshare: Most people only want a boat from time to time. So another logical solution is to create a boat timeshare. A quick Google search shows that there are quite of them out there. With this model, a corporation owns the boats and sells “slices.” Yesterday I met a couple that get to go on a yacht for one week each year in a different location. This is nice if you only want a boat infrequently.
Option 3 – Fractional Ownership: Another option is “fractional ownership.” Instead of a corporation owning the boat, the individuals that use the boat own the boat. They split all costs. This gives you greater flexibility with potentially more work.
Option 4 – Netflix Model: The most interesting option is one that uses the Netflix model. This gives you unlimited access to a number of boats. You get two reservation slots. As soon as you use one, you get another. This gives everyone equal access to the boats they want, yet does not restrict how often they can be used. You are also not limited to one boat or one location, but rather have many to choose from. The company that owns the boats maintains and cleans them. The only additional cost to the renter is fuel. The total cost per year is less than the cost of the boat slip dues. One company that offers this is the Freedom Boat Club.
There are pluses and minus to each model. Different options will appeal to different people. The key is to recognize that there are many ways to sell and price your products and services.
I love the Netflix model and believe that it can be applied to many different businesses. I am in the process of creating a Netflix consulting model that will give clients unlimited access to me for one monthly subscription fee. It will be designed in such a way that everyone gets equal access.
What other creative options are there for offering affordable and accessible products and services?
November 25, 2008
One of my last blog entries discussed the need to create affordable and accessible solutions as a way of staying competitive. Given globalization, cheap labor, and a damanged economy, this makes more sense than ever.
Here are three starter questions to ask to help you generate new ideas:
How can you productize a service? One way to make a service more affordable and accessible is to turn it into a physical or digital product; something that requires little or no human intervention. In my earlier entry, I talked about Cybersettle automating insurance claims processing. My Innovation Personality Poker enables people to recreate one of my most popular speeches/workshops. Self-assessment tools can reduce reliance on consultants. Remote diagnostic technologies can speed medical exams and pre-qualify patients before they come to the doctor. Legalzoom.com offers affordable legal advice for people who might otherwise not seek counsel. TurboTax simplifies tax filing. Experts convert their intellectual property into books, mp3s, DVDs, digitally delivered training (including eLearning) systems, or online databases. The possibilities are endless.
How can you offer a low-cost product/service? In an earlier blog entry, I quoted Antoine de Saint-Exupery, author of The Little Prince, who once said, “Perfection is finally attained not when there is no longer anything to add but when there is no longer anything to take away.” I love that. Ask, “Why are people really using our products/services and what are the bare minimum ways of delivering the desired outcome?” $300 netbooks are stripped down computers because most people want to do word processing and surf the net. Tata is offering a $2,000 car in India (ok, maybe that is a bit too scaled down). Ernst & Young Consulting (now Cap Gemini) once offered a subscription service, Ernie, which provided small businesses with a low-cost alternative to high priced consulting. Dow Corning, the maker of silicone-based products, created Xiameter, an internet-based division that sells product only in bulk… with no call centers. Which features, services, or qualities can be reduced in order to tap into a new market?
How can I make my product addictive? Drug dealers know that if you get someone hooked on your product, they will come back to buy more. This strategy can be useful for attracting – and retaining – customers. Last month I spoke with the CEOs of three software companies. The one strategy that was pertinent to all three was the development of a stripped down version of the software…and potentially offering it for free. The idea is to get the customer hooked and using the software on a regular basis. Then as the customer’s needs grow, they will need to upgrade (note: this is not the same thing as offering something free today and then charging in the future). I worked with a major computer manufacturer many years ago where this concept was applied. Their flagship computer was (let’s call it) the “F” series. But that was too expensive for most companies, so they introduced a much slower and less expensive computer – the “E” series. Interestingly, the two models were 100% identical except a computer chip was added to the “E” to slow it down. The company knew that many customers would eventually want an upgrade, and they simply pulled out the chip and charged an exorbitant fee.
All three of these strategies move your innovation to the left-hand part of the bell curve (above) rather than the right. All three can be used by any company to augment their existing products and services. The point is to make your “core competency” available to a broader market – without negatively diverting energies.
I will be including more strategies in future blog entries.
November 20, 2008
Clayton Christensen, in his book The Innovator’s Dilemma, discusses how disruptive technologies will kill incumbent technologies. Basically it is about how the crappy and cheap will eventually take over the sophisticated and expensive.
The well-worn example is in the computing world. The PC (which until recently cost thousands of dollars) killed the dominance of the mini-computer and mainframe (which then cost tens of thousands of dollars). The new $300 netbooks may eventually become the dominant computing platform. Or maybe a $100 mobile phones will eventually replace computers altogether.
The dilemma arises because most companies focus their innovation energies on building faster and more sophisticated technologies: becoming bigger and better. That is, they move towards the right of the graphic above. Unfortunately, the newer, cheaper developments – even if they are lower quality (in the beginning) and don’t perform as well – will ultimately be the winners. Or in other words, the left part of the graphic above.
The US Economy Dilemma
March 21, 2008
Which will help your business be more successful: statistics or probability?
Underwriters at insurance companies use statistics to assess future risks. This is based on years of collected data.
Probability is what card counters in Vegas use to increase their odds of success. This is based on real-time, real-life experience.
If you want to play it safe, use statistics. If you want to win big, use probability.
There Are Lies, Damned Lies, and Statistics – Mark Twain
Businesses are increasingly using statistics to manage decision making, as evidenced by popular books like Tom Davenport’s Competing on Analytics and the boom in CRM system usage.
The belief is that if we gather more data we can make better decisions. But this may not be true when it comes to innovation.
If you are crunching numbers, you are probably gathering information from existing customers. This will give you insight into their buying habits, usability behaviors, and other patterns. But most likely you are only gathering data on YOUR customers. This represents the middle of the bell curve or the norm. This information may be useful in “incremental” improvement, but it will rarely lead to significant innovations.
When you move beyond the norm to the far ends of the bell curve, you will find the real interesting ideas.
Being normal is not a virtue; it denotes a lack of courage
On the far right-hand side of the curve are the market leaders; the advanced users. They may not be your customers because you can’t meet their high-end needs. Or maybe they were once your customers and they left. When someone is not a customer it is difficult to gain insights into their wants and needs. If you could somehow understand their perspectives, you may find opportunities for “advanced” innovation and insights on where the industry may be going in the near future. These innovations would be more radical, yet continuous in nature. Think of this as the Blu-ray improvement on the standard DVD (we’ll save a discussion on the demise of HD DVD for another time).
On the far left-hand side of the curve are the laggards; the less sophisticated users. Your products/services may be too advanced, too complicated, or too expensive for their needs. Again, you are probably not gathering statistics on these individuals or organizations. But here lies the greatest opportunity for discontinuous innovation. Or as Clayton Christensen would call it, disruptive innovation. If you can find a way of “dumbing down” your offering, you might find new and untapped sources of revenue. Quite often these products become the de facto standard, much like when PCs replaced the more sophisticated mainframes and mini-computers.
The problem is, it is very difficult to get data about the ends of the bell curve. Focus groups, surveys, and other traditional data gathering techniques are useless. I love this quote from Scott Cook at Intuit: “For every one of our failures, we had spreadsheets that looked awesome.” We can use numbers to justify anything we want. But quite often they justify the wrong actions.
The Probable is What Usually Happens – Aristotle
If a statistics-driven innovation model does not work, what would a probability-based model look? Probability tells me that if everything is equal, the more bets I have, the more likely one will be successful. The odds of 1 success out of 200 are greater than 1 success out of 20.
But how can you have more bets without diluting your effort and potential returns? The key is to learn as you go. This is exactly what card counters to.
Let’s contrast a more statistics-driven model with a probability-based model. To do so, we will use two exceedingly simplistic examples. With innovation model #1, you make a few “big bets” based on analytics you gathered from your customers (a statistics-driven model). Innovation model #2 is a more experiential “learn as you go” model (a probability-based model).
In both examples, let’s assume you have $100 million to bet, woops, I mean invest in innovation.