Strategy Dynamics Briefing 33: The resource quality-curve and product functionality

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When introducing new products and services, firms race to provide sufficient functionality to make them useful enough for customers to buy. As usage rises, suppliers compete by “improving” their products — adding to the sheer number of features included (figure 1). In effect, functionality for such products and services lies behind the user benefits captured by the value curve of reasons why customers choose the product and stick with it rather than switching to rival products.

Figure 1: Increasing functionality by
adding features.

Increasing functionality by adding features

In many cases, this feature-war results in products that have many, many more features than most customers will ever use or even understand, such as the ‘outlining’ tool or macros in word-processing software or 3-way calling in cell phones. But if a supplier stops participating in this improvement race, their once exemplary product becomes merely average, and then obsolete. They are left behind, not because their offering has actually become worse, but because customers’ expectations have risen. This happens because users become accustomed to what is currently offered, and because suppliers try constantly to rise above their rivals by offering more. The cell phone industry has been a powerful illustration of how this race can develop into desperation as firms explore every possible avenue for providing more reasons for customers to take their products and services.

Figure 2 illustrates how this might play out over time. Market research for a consumer electronic product indicates that without a minimum of four specific features no one will find the product useful. Product development efforts make progress in raising the product’s features, resulting in a useable product after one year. During year two, added features make the product more appealing so the product’s sales rate escalates. By year four, the product has been made about as useful as can be to likely customers, and uptake slows down.

Figure 2: The dynamics of product adoption
as features are added.

The dynamics of product adoption as features are added

Several further factors may be involved:

  • The price must be sufficiently attractive, awareness must be built with marketing, and the product must be available for customers to find.
  • There will likely be a diffusion effect, with uptake being accelerated by word of mouth from existing customers, and increasingly limited by the declining pool of potential customers who do not yet own the product (see the Bass diffusion framework in briefing 20).
  • In the case of consumable products sales clearly continue after all potential customers have been captured, but durables too may to continue to sell as users replace or upgrade products.

Until next time…

 

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Strategic Management Dynamics book cover
Disruptive technologies and the innovator’s dilemma

It is tempting for companies with a successful stream of products to continue pursuing the process described above time after time, with each new release of a product raising functionality so as to appeal to more and more customers and fulfill more and more of their needs. However, this can leave them vulnerable to innovations that may at first seem to be no threat, but which emerge to overtake the established product type so comprehensively as to make them obsolete. Well-known historical examples are numerous: gas lighting for homes and streets became obsolete as electric lighting developed, propeller engines for aircraft reached a limit that jet engines could surpass, and some readers may remember the Sony Walkman—a small portable tape-cassette player that allowed users to listen to 100 hours of music whilst on the move, provided they could carry 100 tape cassettes!

The dilemma for established product providers is whether and when to switch to the disruptive technology themselves—if they can. A company that has built massive scale and driven down cost in the old technology will have grown sales and strong cash flows from that product. Why would they deliberately accelerate the replacement of those sales and cash flows by introducing a product that will cannibalize them? The answer is often that if they don’t do it themselves, others will do it to them. Difficulties arise when the threatening technology is one in which the incumbent firms have no significant capability.

For more on this topic, see Christensen, C.M. (1995) Disruptive technologies: Catching the wave. Harvard Business Review, 75(1), (January–February), 43–53. Two books expand on these ideas: Christensen, C.M. (1997) The Innovator’s Dilemma, Harvard Business School Press Boston, MA, and Christensen, C.M. and Raynor, M.E (2003) The Innovator’s Solution, Harvard Business School Press, Boston, MA.

This briefing summarises material from chapter 5 of Strategic Management Dynamics, pages 294-297.

Read more about the book on the Strategy Dynamics website

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