Simply an issue of willingness to pay

A key issue for firms is ensuring they deliver a product consumers find attractive, i.e. something for which they are willing to pay. When we discuss the generic business strategy choices (i.e. differentiation, low-cost, focus), we are principally concerned with whether firms have the product features that best match with consumer preferences. To differentiate is to find those dimensions consumers will pay more for. To build a low cost advantage is to understand the minimum requirements consumers have and making sure you at least meet these.

wtp2Firms too often, in the face of lower sales growth and market maturity, try and add more bells and whistles in the hope of attracting upgrade purchases.

This feature inflation approach is fraught with danger, as any such adjustments are likely to be generating unnecessary costs, thus reducing margins or forcing a higher price. Indeed, with many goods, the new attributes may reducing the consumer experience.

This article argues that 2008 has seen the rise of the simpler product. It argues that consumers have chosen those goods that trimmed back a lot of the standard features and focused on what consumers most wanted. The two examples given are the Nintendo Wii (which I have discussed before) and the Flip video camera. The latter retails for around $130 in the US and is ludicrously simple to use (that’s it on the left).

This is a more subtle approach than some dichotomous low cost vs differentiated world. The firms involved here have calculated the willingness to pay along a variety of features and responded by removing the costly and underutilised. The streamlined products have become more attractive to a bigger audience. This is the approach being taken by netbook manufacturers (the nifty shrunk laptops) and Tata with their Nano car.

What’s next for simplification?

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One Response to “Simply an issue of willingness to pay”

  1. Steve Sammartino Says:

    I agree that there is far more opportunity for cut through and quick addoption of new products which focus on ‘one downsmanship’ as I like to call it. In fact we could look at many technologies/products and just deliver the core element, charge a lot less and at the same time increase our margins.

    I still think there is a gap for a ‘smart mobile phone manufacturer’ to deliver something in this area for older folk – like my dad who only knows how to make calls (not even text) and doesn’t care for anything else. Imagine a phone with a huge screen display (for his failing eyesight) with numbers, call & hang up features. That’s it. He’d buy it.

    Here’s some more stuff on it for those who are interested. http://startupblog.wordpress.com/2008/06/11/watch-this/

    Steve.

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