Monday, April 29, 2019

How Products Are Evolving Into Outcomes

There are two companies. Let’s call them Company A and Company B. Company A has been in business for decades. It makes hundreds of kinds of toothbrushes, from the cheapest kind to the most expensive motorized and rechargeable electric toothbrushes. On top of this massive variety of toothbrushes, company A also launches at least three or four new products every year. These new products claim different features like new brushing action, massage for gums and the promise of better, shinier teeth. Additionally, the company also makes many types of toothpaste and markets them globally. These toothpastes also boasts different kinds of benefits, from all-day protection, and whitening, to fresh breath, germ protection and more.

The company spends millions of dollars every year on advertising these products. They use healthcare professional-like personas who expound the benefits of their products. The company is a household globally. Barring slower growth in the last few years, business has generally been good. There is only one problem. Users of these products don’t really experience all the benefits that the product claims. Also, with so many different types of toothpastes and toothbrushes, many buyers are lost. They don’t know what to choose and why. The supermarket oral care shelf is dizzyingly complex and it is not just because of  

Company A, there are many competitors that make near identical products as company A and all of them are vying for shopper attention on the store shelf.
While company A's advertising has always talked about the superiority of its products they have never really invested time and resources to monitor how, and if, their products are really helping the customers who use them. So in a way, while Company A calls itself the oral care expert, it has hitherto focused mainly on selling more products.

This brings us to Company B. They are new to the market with no expertise or experience in making or marketing toothbrushes or toothpaste. But this company thinks differently. Before making a product, they looked at opportunities offered by Internet of Things (IoT), seamless wireless connectivity and computing. Together, these technologies enabled them to innovate a new business model. This new business model is all about delivering an outcome for the end user. The outcome being better oral health. (Better oral health = measurable improvement in oral health). Only when they deliver this, can they make money.
This is how their business model works:
1.     When you join an organization, you sign up for your employer’s dental insurance plan.
2.     As a part of your plan, you get toothbrush heads, toothpaste and other refills delivered to you every three months, just the way your dentist recommends.
3.     You are also reminded and encouraged to follow a regular oral care regimen like brushing for the required two minutes, flossing regularly and visiting the dentist once every six months.
4.     Regular oral care routine coupled with dental check-ups can be tracked with a simple mobile app that syncs with your toothbrush via Bluetooth. 
5.   Regular oral care leads to better oral hygiene, which finally translates into fewer dental problems.
6.   Fewer dental problems reduce the ultimate cost of dental care thus leading to savings for you and your employer.
7.   Lower cost of dental insurance is where the company actually makes money. The lower the cost of dental care, the lower the insurance payout, the lower the insurance premium, the better the margins.

Unlike company A, Company B makes money from user's superior oral health (and not by selling toothbrush or toothpaste). In sum, the healthier your teeth, the more money they make.
Can it get better than this?
Did I mention that Company B also wants you to save money on purchasing a toothbrush, toothpaste and dental floss by giving out all of these as a part of an annual subscription plan. Company B views free product and free shipping as customer acquisition cost. This cost is a fraction of what Company A invests in things like advertising, sales promotion and retail-listing fees, etc. Company B knows that when people get results, they will help spread the word. The company also has a referral program.

The primary difference between Company A and Company B is acknowledging the fact that oral health is not about products, it’s about outcomes.

So, as a customer, who would you prefer – the product company or the outcome company? 
You can learn more about company B here

As for Company A, you already know who they are and there are many of them out there.

Company B is able to achieve outcomes because it succeeded in embedding an additional layer of information on top of the physical product. The best part is that this approach is not limited to oral care. Many new businesses are trying to do the same across diverse industries. With more and more data and information available about the usage behavior of products, there are many new opportunities springing up all around us. And in most of these cases the physical product has ceased to be central to the discussion. Value is being created and delivered in entirely new ways beyond making a product and marketing it.
As I shared in Branding Beyond Storytelling, sensors are adding a layer of information on top of all kinds of physical products. Once digitized, products and services start adapting to the user. Adding this layer of information is being enabled by three factors:
1.     Sensors
2.     Connectivity and
3.     Computing
Together these three help in augmenting the product and make it capable of delivering tangible outcomes for the user. Today, there are many different kinds of sensors available to us. Deloitte has done a great summary of these sensors.
Each one of these sensors represents an opportunity for a new kind of outcome for the end user and a new kind of business model. New innovations will happen, when these and many other sensors are paired with different kinds of products. Which product we make intelligent and which two, three or more industries we will create value across, is entirely up to us. 
So what does all this mean for us?
  1. For business owners – Be open to reimagine your business from the ground up, or at least hedge your bets by incubating or investing in entirely new business models. (Do not try to create a new business inside your existing system. It almost never succeeds.) It’s important to understand the full spectrum of all the IoT tools available so that they can be used to orchestrate a real outcome for the end user. Think in terms of network of partnerships. It’s impossible to do everything yourself. And even if you can it will not be the best in comparison to what’s already out there in the market.
  2. For marketers – You now have the chance to be an entrepreneur and networker inside the company. You are close to customers and thus best positioned to understand and utilize customer needs to shape new outcomes. Also, your close partnership with manufacturing and product development puts you in a great position to be able to visualize and orchestrate a complete customer centric solution. If you understand the opportunities thrown open by IoT, you can actually create a customer centric outcome that can augment or complement your existing product or service. (Steer clear of gimmicks, and think about delivering real long-term value for your users).
  3. For talent – Both new and old talent need to study subjects seen formerly as disjointed. Employability and growth will come through cross-discipline knowledge. Now, technical talent needs to understand new technologies and their potential applications in different customer scenarios. At the same time, technologists need to understand the human and social context of their technologies. No matter what kind of specialization you might possess or want to pursue, you absolutely need to possess creativity, empathy and critical thinking. These traits* have never been more valuable. (*McKinsey).     
  4. For Government – They need to be on top of potential challenges related to data security to ensure people’s privacy. With so much behavioral information being gathered, there needs to be clear definitions and stipulations to help people take charge of their own data. People paying for products or services through their personal data is not a problem as long as everyone is aware of its implications and has a choice to opt out. 

Evolution of products into outcomes will be more rapid in developed and more digitized markets. It will be relatively slower in markets with poor or expensive wireless connectivity and lower literacy rates. All this notwithstanding, this change is inevitable. Companies like beam technologies may or may not grow to become the biggest or the most successful, but market will never be the same again. There will be many new players with many new propositions, and some of them will strike it big either by scaling rapidly like Uber and Airbnb or by being acquired by one of the larger platform players like Alibaba and Tencent in China and Amazon, Google, Facebook and Apple in the rest of the world.
The only question that really matters now is what outcome do you want to deliver for your users?
Read how a better business model trumps even the best of products:

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