There are two companies. Let’s call them Company A and Company B. Company A makes many of kinds of toothbrushes, from the cheapest all the way to the most expensive rechargeable toothbrushes. The company also launches at least three or four new products every year. These new products claim new features and the promise of shinier teeth. Additionally, Company A also makes many types of toothpaste, and markets them around the world.
The company, which is a household name across the world, spends millions of dollars advertising these products. Barring slower growth in the last few years, business has generally been good. There is only one problem: most of their users don’t really experience all the benefits and promises that the product claims. And with so many kinds of toothpaste and toothbrushes, customers are lost. They don’t know what to choose and why. The supermarket oral care shelf is dizzyingly complex because like company A, there are many others marketing similar products in as many variants.
Company A has always talked about the superiority of its products in TV commercials but they have never really tried to understand if their products are helping the customers. Company A calls itself the oral care expert, but what it actually does it make and market products.
This brings us to Company B. They are new to the market with no expertise in making or marketing toothbrushes and toothpaste. Company B thinks very differently. Before making another product, they looked at opportunities offered by new technologies like sensors, Internet of Things (IoT), seamless wireless connectivity and computing. Together, all these things enabled them to innovate a new business model. The new business model delivers an outcome for the end user. The outcome being better oral health that can be measured. Company B makes money only when their customers have better oral health. This is how it works:
1. When a customer joins a company, they sign up for their employer’s dental insurance plan.
2. As a part of the plan, they get toothbrush, toothpaste and other refills delivered to them every three months, just how the dentist recommends.
3. Customers are also 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 smartphone app that syncs with the 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 leading to savings for the customer through lower dental premiums on the dental insurance.Lower cost of dental insurance is where Company B actually makes money. The lower the cost of dental care, the lower is the insurance payout. The lower is the insurance payout, the better are the margins for Company B.
"Company B makes money on your superior oral health via their arrangement with the insurance company. In sum, the healthier your teeth are the more money they make."
This can be a great proposition for everyone, especially the end user. And, by the way, 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 costs. This cost is a fraction of what Company A actually invests in for things like advertising, sales promotion and retail-listing fees. Company B knows that when their customers start seeing the outcomes, they'll help spread the word.
"The primary difference between Company A and Company B is acknowledging the fact that oral health is not about products, it’s about a certain kind of behavior and habit where you take care of your oral hygiene, get yourself checked regularly and stay healthy."
By tracking your oral care habits, reminding you about regular dental check-ups and attaching the ‘savings-carrot’ to it, Company B delivers a tangible outcome.
So, who would you buy from – the product company or the outcome company?
Assuming data privacy, I would certainly sign up for Company B.
You can learn more about company B here. There is another company, though with a slightly different business model but interesting nonetheless.
Screen Grab From Beam Technologies Website
As for Company A, you already know who they are : )
Company B is able to do what it does because of the additional information layer embedded on top of the physical product. This approach is not limited to oral care. Many new businesses are trying the same across different 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 important. Value is being created and delivered in entirely new ways that go far beyond making and marketing a product.
As I shared in Branding Beyond Storytelling, the additional layer of information is making all kinds of products "wake up". Once instrumented, products and services start adapting to the user. Some companies call this phenomenon the rise of living services.
This instrumentation has been enabled by three factors:
1. Sensors
2. Connectivity and
3. Computing
Together these three things help in augmenting the product and it becomes capable of delivering tangible outcome 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 consequently 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 instrument and which two, three or more industries we will create value across, is entirely up to us. We are free to innovate our own business model. And no matter which business we choose to focus on, the result is the same – instrumentation will turn the product into a tangible outcome.
This focus on outcomes is not just limited to consumer goods. It also works in the enterprise context. In fact many believe that this revolution will start with enterprises and move to consumer facing businesses. Even Company B, in spite of having a consumer facing product, is taking the enterprise route to enter the market. A recent HBR article talked about how large engineering companies are re-imagining their business to move beyond supplying components and instead start delivering outcomes.
Instrumentation also has far-reaching implications on traditional definitions of product categories and industries, brand differentiation and even concepts of pricing and distribution. (More on this in a separate post :).
So what does all this mean for us?
1. For business owners – Re-imagine your business from the ground up, or at least hedge your bets by incubating or investing in entirely new business models. It’s important to understand the full spectrum of all the technologies and tools available so that they can be used to orchestrate a real outcomes for the user. Think in terms of network of partnerships. It’s impossible to do everything yourself.
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 customer-centric solution. If you understand the opportunities thrown open by IoT, you can actually create a customer-centric outcome that can complement your existing product or service. (Avoid gimmicks and think about delivering real value for your customers).
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 technologies. No matter your specialization, you absolutely need to possess empathy, creativity, 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 privacy. With so much behavioral information being gathered, we need 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 have the 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 by scaling rapidly, or by acquiring companies.
The only question that really matters is what outcome are you delivering for your users?
More:
Read how a better business model trumps even the best of products: http://techcrunch.com/2016/04/12/what-can-a-toothbrush-teach-us-about-iot-business-models/
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