I honestly can’t tell you how many bad product experiences I’ve had, but it’s countless. It feels like I encounter some frustration every single day—and that is not an exaggeration. I have a ”smart” TV with an annoyingly clunky app store, a ”smart” speaker that never understands my Irish accent, and a “smart” vacuum cleaning robot that keeps getting stuck under my exercise bike!
I’m not the only consumer suffering from poorly executed next-gen products. These experiences have become so common that a hilarious Twitter account dedicated to cataloguing such “smart” product blunders has amassed almost half a million followers.
All this at a time when it seems like every product company is digitizing its portfolio. I’ve seen home appliance companies tackling the smart home opportunity and tobacco companies shifting from traditional factory-rolled cigarettes to connected hardware-based stimulation devices. Smart, connected product design and development is a growth business for our clients and Accenture.
Why companies fail to deliver experiences customers want
Many companies miss the mark even though delighting your customers, or simply not irritating them, is super important. Besides having unhappy customers, there’s a risk for bad reviews or social media exposure that will amplify any negative perception.
Why do so many companies get it wrong? This was the question Phil Vann, Raghav Narsalay and I asked when we sat down with more than a dozen senior product executives from Fortune 500 companies transitioning their product portfolio from dumb + passive to smart + connected. We published the findings in a report called “Shifting to Experience First.”
One important set of findings was around stale product management orthodoxies. To keep this blog reasonably concise, let’s take two of the most over-managed aspects of product management: time-to-market and bill-of-materials. Coincidentally, they are often in most danger of being mismanaged as companies embrace next-gen product strategies.
Chasing time-to-market is
often rushing to fail
The first doctrine that needs to be confronted is the over-emphasis on time-to-market.
Smart connected products represent a substantial operational change from simply developing passive electro-mechanical products. Artificially rushing out a product release to stock shelves for Christmas is doomed to be three months out of date when it’s first used. Furthermore, it also promotes the wrong development mindset that once a milestone is reached, that’s it, the job is done.
Delighting your customers is an ongoing process. There should always be another release with a delightful and surprising experience. (As my co-author Phil Vann likes to say: “It should be Christmas every day!”).
Be willing to surrender hardware margins for service margins
Another doctrine that needs to be rethought from a digital economics perspective is the over-emphasis of product managers on bill-of-materials (BOM).
Most industries are still driven by profitability—the difference between the average selling price (ASP) and the BOM. They ignore that most successful companies that have transitioned to a service business have a much higher gross margin on the service than product sales.
Peloton Interactive Inc. provides a nice example where over the lifetime of a product—the unit selling price becomes a diminishing proportion of the total net income. The service margin in 2020 was a whopping 57%. We worked out that every $1,000 spent by consumers with Peloton Interactive Inc. in 2018 generated around $350 in gross product margin. However, every $1,000 spent by consumers with the company over the three years between 2018 and 2020 generated a cumulative $279 in service margin.
The company’s beautifully integrated fitness devices and software-powered services enable the company to capture significant cumulative service margin over the lifetime of the customer – not just upfront on the treadmills and bicycles hardware. I pulled data from public filings to illustrate how this works in the chart I created below.[I
Product companies should realize that by achieving a harmonious mix of physical and digital services customers fall in love with, a diminishing portion of their overall product revenue will come from selling the hardware itself. Companies should be open to accommodating a higher BOM or a lower ASP to help democratize the product and seed a stream of repeatable revenue from digital services. This can be a big mindset shift for companies that have sold vacuum cleaners, thermostats, exercise bikes, and other durable consumer goods for decades.
How to put customer experience first
Perhaps if the company that built my robot vacuum cleaner had adopted these approaches A) I wouldn’t have ended up with a sub-standard product that wasn’t ready for market; B) I would perhaps be able to avail of a subscription service where I could occasionally receive obstacle detection and routing updates for a small fee.
The story doesn’t end there. Our report identifies a much broader set of interlinked interventions to help traditional product executives transition their companies into “Experience First” businesses. Read the full report to learn how to drive greater smart connected product success and avoid being highlighted by undesirable Twitter accounts!
[i] Data sources:
Peloton Interactive Inc. Form 10-K 2020;
ResMed Form 10-K 2020
Apple Form 10-K 2020
Trimble Form 10-K 2020
Arlo Form 10-K 2020