Strategic Planning Analogy #458: When Superior is Inferior

THE STORY
It seems like it isn’t good enough to just build an automobile.  Now it has to be an automobile plus something else.  Some cars are both automobiles and entertainment centers.  Some cars are both automobiles and communication/computer centers.

How about a combination car and kitchen?  After all, a high percentage of meals are already eaten in a car.  Why not cook the meals in the car as well?

I can see it now…When you try to start up the car, the dashboard has dozens of cooking icons all over it.  It takes forever to find the icon for driving.  And if you want to heat the car, you have to be careful, because if you turn the heating dial the wrong way it will turn on the oven or the stovetop coils above the dash.  And the legroom is cut in half to make room for the refrigerator.  And every time you press on the brakes, the dishes fall out of the cupboards and the saucepan falls off the stovetop, spilling hot liquid on your lap.  And if you want to cook at home, you have to do it in the garage, because all the appliances are in the car.

On second thought, the combination kitchen and car is not such a good idea after all.  Maybe the “More Features” approach doesn’t work so well afterall.

THE ANALOGY
In the business world, there is a strategic approach which I refer to as “More Better.”  The idea is that if you take the status quo and either a) add more features, or b) make the current features perform better, then you have something superior to what you had before.  And this superiority will drive great market share gains and great profit improvements.

Sometimes, the More Better approach works.  However, in a large percentage of cases, More Better fails miserably.  You often end up with something like my kitchen car.  Sure, the kitchen car can do more than just a kitchen or more than just a car.  But is it really a superior offering when you put them together?

The combination kitchen car makes both driving and cooking a disaster.  Instead of making everything better, it has made everything worse.  It is now an inferior option.

But what about the “Better” approach?  What if we made the engine a lot better, so that the car could go 700 miles per hour (or about 1,125 km per hour, or roughly 3 times the average speed of the drivers of the Indianapolis 500)?  Does that really make the car better?  First, there is virtually nowhere where you could safely or legally drive at that speed, so the feature is pretty useless.  Second, the engine would weigh so much and be so inefficient that it would waste a lot of expensive fuel even at normal speeds.  And to fit such an engine in the car would require eliminating half of the car interior space.  And you probably couldn’t afford a car like that or its insurance.  So, in this case the “better” approach isn’t really better.

Yes, these may be ridiculous examples, but as we will see, even more seemingly rational attempts at More Better can create a disaster.

THE PRINCIPLE
The principle here is that true superiority must be defined from the perspective of the consumer, not the product.   More Better is focused on WHAT THE OFFERING CAN DO (more features, better performance).  This does not necessarily lead to higher share or higher profits.  No, true superiority comes from convincing a customer that his/her problem is solved better.  It focuses on WHAT THE CUSTOMER EXPERIENCES.   And this includes the whole experience of purchasing, price paid, usage, maintenance, upgrades, feeling of status, and so on.  And in many cases, the customer experience is improved when the offering is less and not as advanced.

There are three main reasons why More Better frequently does not lead to increased share and increased profits.

1) Diminishing Returns on Investment

Back in the 1980s and 1990s, each new advance in the Intel chip and the Microsoft operating system were quantum leaps of improvement for the computer.  The usefulness and productivity enhancements with each stage were so large that people would rapidly abandon the old and adopt the new. 

But after the Windows XP era, things started to change.  Many businesses found out that the hardware and software associated with XP did pretty much everything most people needed to do in the office in a pretty efficient way.  As a result, when the next generation Vista came out (Windows Vista), a lot of companies did not automatically upgrade everything as they would have in the past.  They decided the XP was good enough for their needs and stayed with the old.

That’s part of the problem with focusing on improving features.  Eventually, the features get pretty good…good enough that additional improvements to the features have very little impact on consumer experience. 

Since XP, most of the Microsoft improvements have either been cosmetic or have involved tweaks on the fringes for features the majority of people do not regularly use.   It’s hard to justify purchases when the additional benefits have such little impact on an experience which was already good enough.

This is also happening all over the place with CPG (consumer packaged goods).  How much better can you make canned vegetables or peanut butter?  Will anyone even notice the difference in a taste test? 

In a lot of mature categories, needs are already met.  Spending tons of money on R&D to create small improvements may not be a good return on investment.  There’s a reason why P&G has sold off a lot of its mature categories—they no longer reacted well to the More Better mindset.

And the situation can be even worse when you try to add more features, because the new features can cancel out the old features.  There’s an old saying that you cannot excel at all three features of cheap, quality, and fast to market at the same time.  The reason is because becoming superior in any two of them makes it impossible to also excel at the third, because the very structural requirements needed to meet the two work against being able to attain the third.

In other words, the more features you add, the more your offering gravitates towards average across the board.  You no longer excel at anything, because the added features cancel out the consumer experiences.  You have actually made things worse.

2) Increasing Hurdles to Switch

Not only are there diminishing returns to improvements, there are increasing hurdles preventing consumers from wanting to adopt those improvements.  These hurdles include:

a) Pricing – The improved products usually cost more.  When you factor in the price, the total value experience may be worse than before.  Private labels are exploding in growth because consumers see a superior value.  The name brands cannot create enough superiority to justify the higher price.  P&G discovered that recently when they tried to raise prices and saw volume drop.

b) Switching Costs – Switching to the new item may require consumers to create new vendor relationships, learn a new way to operate, have difficulties in getting rid of old products and a warehouse of obsolete replacement parts, experience near-term cash flow issues, a loss in productivity as they learn the new product, and so on.  A product has to be more than a little bit better to overcome all of the negatives associated with switching.  Just ask the people competing against John Deere farm machinery.  The users love their relationship with the local John Deere dealer so much that even modest improvement by a competing brand leads to little market share movement, since the customers do not want to switch away from the dealers they love.  That is a key to total experience.

c) Added Complexity – “More” often means “more complexity.”  Complexity rarely improves consumer experience.  The complexity of a kitchen car makes cooking and driving worse.  Ford’s reliability ratings have recently gone down.  Is it because the cars don’t drive as well?  Actually, most of the decline is due to problems with all the added computerized communication features being added to the car.  The complexity is weighing them down.  Branding genius Al Reis says that convergence products rarely excel in the marketplace when compared to narrowly focused products.  The focused brands are the ones that win the war.

3) Consolidating Markets

Increasing market share requires lots of market share available to take.  In mature markets, that is not usually the case.  First, you already have a sizable share of the market (less available to incrementally gain).  Second, the weaker players are already gone.  The remaining share is mostly in the hands equally strong players who are doing More Better about as well you are.  Large, lasting, sustainable superiority is almost impossible to come by.  As a result, large sustainable gains in share are hard to come by.  So all that work and money on More Better doesn’t lead to corresponding gains in share or profits.

During the great recession, Walmart tried a massive price rollback to gain share.  The problem was that they already owned most of the customers most susceptible to low prices.  So very few new customers were added by the move.  And since the current customers also benefitted from the lower prices, the total sales per store went down.

SUMMARY
So when you add up these three factors—decreasing returns, increasing hurdles, and consolidating markets—you can see how the More Better strategy by itself can destroy value.  It leads to products that may have more features and better specs, but often diminishes the value to consumers while increasing your costs of business.  Rather than trying More Better with status quo offerings, you may be better off moving to totally new approaches which use a wholly different business model to solve customer problems.

FINAL THOUGHTS
Digital downloads of music are replacing sales of music CDs, even though the music on a CD is of a measurably superior audio quality.  Even though New Coke had superior specs when it came to taste, it lost out to the supposedly inferior tasting Classic Coke.  In both cases, the superior quality product lost out because it did not create a superior total consumer experience.  Never forget that.    

Strategic Planning Analogy #340: The Box vs. The Contents

THE STORY
A short time ago, I bought a fancy new water dish for our cats. It came with an electric pump. The pump pushed the water up over the outside of an inverted bowl. The cats were then supposed to lick the water as it ran down the bowl.

The manufacturer claimed that cats would love this fancy device. After all, cats are supposed to prefer gurgling running water over still water. In addition, this fancy device increased the levels of oxygen in the water, which is supposed to make it tastier.

I assembled the fancy water dispenser and waited for the cats to show their loving approval by instantly licking the water off the inverted bowl. Instead, I found one of the cats crawling into the box the product came in and playing with the cardboard flaps on the top of the box.

Apparently, the box was more interesting to the cat than its contents.

THE ANALOGY
This experience with my cats should be familiar to anyone who has given gifts to small children. Quite often, they find the gift box to have greater play value than the toy that came in the box.

I have seen many parents get upset when the expensive toy is tossed aside as preference is given to the cheap box. But I say so what if the box is getting more attention than the contents. The child is happy and having fun. Isn’t that they whole point of giving in the first place?

Many business people also find themselves like those gift givers. They struggle mightily to create a superior product that their customers are supposed to love and then are disappointed when the product is ignored because the consumers are more interested in something deemed by the manufacturers as “superficial.”

“What’s the matter with these stupid customers?” they may ask. “Don’t they realize that my product is superior? Why are they distracted by these superficial things?”

My response? If something other than the actual product is what is making the customer happy, then perhaps you should be paying attention to more than just the product. Consider the entire package when developing your strategy. The whole idea is to make the customer happy, and if happiness comes from something other than the product itself, then that’s okay…just figure out a way to win on these non-product attributes.

THE PRINCIPLE
The principle here has to do with recognizing the difference between a focus on the product and a focus on the customer experience. A focus on the product tends to be internally oriented—a focus on what I do to make the product superior. A focus on customer experience is externally oriented—a focus on how the customer interacts with the product. If you focus on the customer experience, you may find that the customer is not looking for ultimate product superiority. What they want is a better total experience, and that can only be improved by looking attributes external to the product.

Bleach
For example, consider bleach. The purpose of bleach is to cleanse and disinfect. Therefore, one might think that to make customers happy, one should focus on making superior bleach—one that is the absolute best at cleaning and disinfecting.

The problem is this…it is difficult to make any one formulation of bleach meaningfully superior at cleaning and disinfecting. They all perform pretty much the same.

So what did Clorox do? They focused on the packaging. They created a unique spout on the top of their bleach bottle which reduced splashing. This made it easier to pour the bleach and less likely that any of the bleach would accidentally spill onto the person doing the pouring. Like in the story, they focused on the box (the bottle) rather than the contents (the bleach).

From a consumer experience perspective, this was a huge benefit. If bleach accidentally spills on a user, it can ruin the clothes they are wearing. By reducing the risk of ruining clothes being worn, Clorox made a superior user experience. Even though Clorox did nothing to improve the performance of the product (the bleach), they made the customer happier. And isn’t that the point?

Beer
I was working on a project one time to try to do some business in Mexico. During my conversations with one of the Mexicans, he made the following comment. “I don’t understand you Americans. Here in Mexico, we consider Corona to be one of the lowest quality, poorest tasting beers available. Yet, Corona is the beer you Americans decided to import, and you treat it like it is a premiere, high quality product. And by the way, everyone knows that the US has higher quality water than Mexico. So why are you importing beer, which is mostly water, from a place known for having inferior water?”

The problem with my Mexican friend’s logic was that he was product focused. He assumed that superior sales should go to superior products. He saw Corona as an inferior beer product. First, it came from a nation with inferior water and second, among other beers using that same water, it was considered by locals to have an inferior taste.

Here in the US, however, the major concern was not the quality of the liquid in the beer bottle, but the experience the customer had when holding that Corona bottle. Shortly after the conversation with my Mexican friend, I was on a camping trip in the US. On the campsite next to mine, a group of status-conscious Yuppies set up for the night. It’s hard to say they were “camping” because they brought all the creature comforts of their city life with them, including large propane street lights.

They decided they were going to have a party all night (which made it hard for my family to be camping next door). Everything about their party broadcast to the world their attachment to anything regarding status consciousness, including the way they dressed, the way they talked and the way they acted. And, as part of this status conscious behavior, they only beer they had was Corona.

To these Yuppie “campers,” it was almost irrelevant how the Corona tasted. It was just one more prop to enhance they experience of status-conscious lifestyle (and a darn good prop at that). Crown Imports, the firm that imports Corona to the US, apparently understood the importance of the packaging over the contents. They spent their time positioning Corona as the perfect beer for the status-conscious beer drinker. At the time they introduced the US to the beer, it was uniquely positioned as the beer where you put a lime wedge in the mouth of the bottle (how’s that for unique status packaging?).

There are lots of ways to improve the consumer experience that have nothing to do with the quality of the product itself. You can make the product easier to use through packaging (like Clorox). You can package the product inside better customer service (see this blog on gravel). You can connect the use of the product to charitable or social causes (see this blog on Toms shoes). You can improve convenience through the choice of delivery schedules or distribution channels. You can imbue the product with a status appearance (like Corona). You can take the same contents and customize them through packaging for different end users (consider Tide to Go stick versus Swash Get it Out stick).

You can position the product to be more fun to use (like McDonald’s Happy Meal packaging around a regular hamburger). Having watched how some kids “consume” a Happy Meal, this is a true case where the contents (the food) are often thrown away and the packaging (box and toy) is what is really enjoyed. This is very much like the story of my cat and the box.

So What have we Learned?

1) Don’t Just Focus on the Product
I’ve seen many business people get overly focused on the product and ignore almost everything else. The strategic emphasis is only on those internal product issues—improving production, improving quality. This is the “est” strategy. If I can only make my product the big-est, fast-est, cheap-est, strong-est, or some other “est,” then I am all set.

Unfortunately, the winner is often someone whose product is merely “good enough” but is packaged in a superior way.

I’m not saying to ignore the product. Product functionality must surpass certain minimum thresholds. But obsessing on complete product superiority to the exclusion of all the other factors important to the consumer is a mistake.

If you must focus only on the product, then define the product broadly, to include the packaging, the positioning, the image, the service behind the product, and so on. This is where key strategic choices can really make or break your business.

2) Focus on the Customer
Products must be seen within a context. That context is the way in which the customer will interact with that product. Improving that experience is more important than just improving the product. The goal of customers is not to make your production manager happy. It is to make themselves happy. And that happiness comes from having happy experiences. The more you can package your contents to accommodate and reinforce happy experiences, the better off you are—even if the actual functionality of the contents in that package are merely “good enough.”

If you want to focus on functionality, look at the functionality of the customer rather than the product. Are the customers functioning at a higher level of satisfaction (which could be rational or emotional)? If not, what can I modify in the entire package to improve their functionality?

SUMMARY
Winning strategies look beyond merely seeking superiority in product function. They look at the entire package surrounding the product to ensure that the company is superior at creating consumer experiences with the product. These superior solutions may have little to do with the actual contents of your product and more to do with how it is packaged.

FINAL THOUGHTS
Don’t be upset if your customers act like my cat and ignore the product in favor of its box, so long as they are satisfied. And maybe you should spend more time on making your “box” more enjoyable.