Why Better Products Don't Always Win
We've heard a number of CEOs say, "Our product is more advanced than anything else on the market. How can we fail?" Unfortunately, you don't have to look far to find great products that were commercial failures. Take for example,
- Betamax vs. VHS
- Sony Playstation 3 vs. Nintendo Wii
- Android (4G) phones vs. iPhone 4 (3G)
- The Slanket vs. The Snuggie
In each, the creators of the first product believed they were creating a better product, but the market proved, through better customer adoption, that the competing product created more customer value.
When does the better product win?
Better products win when the total value - that is, the benefits minus the cost - is clear and measurable to the customer and creates more value than comparable offerings.
Unfortunately differentiating factors aren't always clear, and consumers don't always get the right to choose. Consider the battle between Blu-ray and HD-DVD; while consumers could buy either product, ultimately the war was fought over which content providers would exclusively back each format. Since more content was available on Blu-ray, it ended up creating more customer value, despite the possibility that HD-DVD was a technically superior product.
So when is better just not good enough?
- When your superior features don't satisfy customers' needs
- When consumers can't observe and easily quantify these "better" features
- When the benefits don't outweigh the incremental costs - whether they be cash costs or indirect costs (e.g., total cost of ownership)
What's the lesson for entrepreneurs here?
Entrepreneurs building a new business often falsely assume that their novel product will succeed based on its great new feature set or superior technology. While the next great technology may in fact sell regardless of the competition, few products are so lucky. In most cases we need to shed our rose-colored glasses and instead focus on building what the customer wants.
How can an entrepreneur build a great business around an average product?
- Only build the features that customers want and are willing to buy.
- Make your product's value proposition a clear comparison to the market alternatives, and work to lower barriers to acceptance.
- Build a complete business model, including sales channels and distribution partners that allow you to deliver on the value you aim to create.
- Understand the underlying economics of your business model, and build them to scale up as your business grows.
- Build an investment plan that will fund your business growth and allow you to drive customer awareness, trial and adoption.
Are you trying to build the "next best product?" Share your questions and best practices with us at email@example.com.
Avondale Associate Chris Lyman contributed to this article.
KARL STARK AND BILL STEWART | Columnist | Co-founders, Avondale
Karl Stark and Bill Stewart are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.