Product Patterns: Identifying Profitable Strategies

Prior to the mid-1980s the product was king, with profitability directly linked because of the functionality that was important or unique. Recently, however, profit and value have begun to migrate away from the product along several dimensions via different patterns. The common denominator across these patterns is that the value that had existed in the product has now moved to new assets such as brands, blockbusters and solutions.

Product to Brand • Product to Blockbuster • Profit Multiplier • Product to Pyramid • Product to Solution

Product to Brand

The more consumer advertising there is, the smaller the window of exposure per product. Time is scarce. People want to find a product that they know will satisfy their purchasing goals and they want to find it immediately. This combination of too many options and absence of differentiation creates levels of buyer frustration and triggers the brand pattern.

Brands provide an answer by providing differentiation and the promise of customer satisfaction. In many categories, customers pay less attention to the product than to the brand that has been built around it. As the brand becomes a proxy for the product, decision time is reduced from several days or hours to a few seconds. As a result, profit and value have started to migrate away from individual products toward the brands themselves, which provide customers with a perceived guarantee of quality. Manaufacturers and retailers, aware of this, realize they are selling an image, a message and a promise rather than a product. The sale is not just a transaction, it's part of a relationship.

Despite the migration of value away from products, countless branding opportunities remain untapped. Many companies are simply afraid to make the investment. Others believe they own a brand, based on high awareness. Awareness, however, is just the first metric. More important are: unique position and preference that is powerful enough to drive behavior. Most important is the ability to achieve and protect a meaningful price premium.

The biggest barrier to exploiting the shift from product to brand lies in not really understanding the customer and therefore not being able to create a brand that has high meaning and motivational power for the buyer. Three rapid changes in the marketplace — the advent of new technology, the formation of networks and user groups, and new modes of buyer behavior — all triggered by the Internet, have dramatically changed the competitive landscape for the brand-building process. As a result of these conditions, it is now possible to construct a brand in ways that were unavailable just a decade ago. It's not only how much you spend that counts, it's the whole system you build around whatever amount you spend.

What do you do to move from a Product to Brand strategy? Realize that customers want and need valuable brands. Bite the bullet. Build the brand.

Product to Blockbuster

In many industries, profit migrates from a balanced portfolio of products to a few blockbusters. This usually is brought about by two conditions:

1. Deteriorating economics of development and production, which make the "average" product a money loser.
2. Increased variability in the outcomes for any product.

This results in the profit that used to be in a portfolio now being concentrated in blockbusters. The key issue is how to create a system that consistently delivers blockbuster results.

What do you do to move from a Product to Blockbuster strategy? Work on the system. It's impossible to produce a consistent series of blockbusters without a carefully developed and nurtured system.

Profit Multiplier

The profit multiplier pattern is a shift from single product focus to a system that reuses that product many times, creating multiple revenue streams from a single source. The pattern is triggered by businesses that successfully recognize their customers' perception of their "winning asset" relative to their competitors, and successfully reuse the asset to generate tremendous value.

A profit multiplier strategy is in its essence a platform strategy. Platforms are assets that have been created or designed specifically for multiple uses. The platform multiplier is complementary to the blockbuster. Each has the same goal in mind — to amortize the increasingly high cost of developing proprietary assets. They just approach the problem differently:

• The blockbuster aims to amortize fixed costs all at once through a giant commercial success.
• The platform aims to reuse an asset several times to generate multiple, moderate commercial victories. Is is a blockbuster on an installment plan.

Examine your company's assets from a profit-multiplier perspective. There are likely to be several unexpected opportunities for your assets, tangible or intangible, to do more for your customers and your company. Someone once articulated the spirit of the profit multiplier as "making the company's assets sweat from exertion."

What do you do to create a Profit Multiplier? Challenge your organization to identify all the possible vehicles through which your product, brand, or skill can be sold. Pick the best seven. Build a system that puts them to work.

Product to Pyramid

A product pyramid consists of multiple product levels with different price points, brands, styles, designs, functionality and performance attributes. All of these levels are managed as a systems, to maximize and protect profitability.

The product pyramid pattern can be triggered when markets experience increasing customer ssophistication and income stratification. The goal of the pyramid is to have a company use its knowledge and experience to serve both the low end and the high end of its customer spectrum in very different ways. Channel relationships, operations experience, component volumes, and brand names can sometimes be leveraged to compete in both segments. On the high end, the pyramid provides profits. On the low end, it serves as a firewall to build strategic control and keep the competition away. Some pyramids take the form of product-line extentions at different levels. Others are constructed of different brands that work together to give a company a system that protects its profits.

What do you do to move from a Product to Pyramid strategy? Build a firewall at the bottom. Build the profit maximizers at the top. If necessary, create the key layers in between.

Product to Solution

The product to solution pattern is triggered as customers begin to understand their systems economics and as suppliers struggle to differentiate themselves. Great product functionality is no longer enough to solve customers' problems. Innovative providers develop bundled offerings of products, services and financing which create more value for both the customers and the suppliers than merely selling "boxes." This shift to solutions demands a new language, a new set of metrics, and a new way of thinking.

Solutions are often difficult to develop. They require learning customers' economics, and going beyond the product, to create services and systems that add value far beyond the functionality of the object itself. Value is measured not only in functionality terms but in economic terms. By anticipating the evolving systems economics of its customers, a company can exploit the solutions pattern, create a unique offering and achieve strategic control in the marketplace.

Despite their value to customers, solutions are not "forever." Like products, they will commoditize. Moreover, customer needs will continue to evolve, rendering today's solutions incomplete in tomorrow's market.

What do you do to move from a Product to Solution orientation? Study your customers' systems. Know their systems economics better than they do. Create unique solutions to improve their systems.

Page content is based upon Profit Patterns, written by Slywotzky, Morrison, Moser, Mundt and Quella, published by Times Business, Random House, copyright © 1999 Mercer Management Consulting, Inc.