Developing a sustainable customer value proposition today can be very difficult. In English that means matching up what you are offering versus what the consumers actually want. Most of us are familiar with the term 'Value for Money' i.e. it's about price. However that's only one factor in the equation.
Whenever you see anybody use the word 'Premium' it means: we aren't the cheapest, but we are better than them in some objectively identifiable way - better fabric, better whooshing noise, go faster stripes etc. Basically it is about definable product attributes. When it comes to services you have a whole set of other emotional triggers - do you trust them, is it easy, do they help me, is it for me, did I enjoy it etc.
The relative weights of all the factors, which make up your relevance to the consumer, are constantly shifting, and apparently insignificant tweaks can lead to complete failure if you aren't careful. It's one of these things you see every day and yet brands and services keep falling into the same trap - sometimes because of greed, others just circumstance.
It's worth reminding ourselves that the Holy Trinity of 'Company', 'Brand' and 'Product' have become mashed together in consumers minds. Corporate behaviour influences consumers in far more profound ways than could ever happen in the pre-web world, and so the value proposition goes far beyond just the product at hand.
I thought it would be interesting to look at a few current examples of how and why these changes occur and what the impact can be.
Adobe Creative Cloud
What did you used to get?Every other year Adobe would release a suite of design software (at various price points) that you would then 'own'. This would be updated sporadically over that cycle, usually doing a feature bump about a year in. You would then be charged an upgrade fee for each 1.0 upgrade (and the odd 0.5 one too). If you are a business owner this model is bittersweet - you need enough licences for all your bums-on-seats. Buy to many it's not efficient as you have spares or too few and it’s expensive as it’s a significant upfront cost, especially if you only need them in the short term. It should be noted that software can be depreciated for tax purposes over time, so there is a bit of a break there.
What's changing?Recently Adobe created a great deal of noise when it announced the end of its 'Creative Suite' as a boxed product, instead moving to a subscription model. Microsoft has been doing the same, if a bit more cautiously, with Office 365. It makes a huge amount of financial sense for them to shift to these kinds of models as you can get more cash from the consumers, for longer, and reduce their bi-annual big marketing spike in favour of drip feeding feature upgrades.
What do you get now?Convenient access to most up-to-date software, a teeny tiny bit of space on the Adobe Creative Cloud, and some online services.
What you give?An ongoing subscription. Your freedom of choice when it comes to how and what you buy. You give up the inability to buy the suite or individual components and the inability to depreciate your investment against tax.
What's the consequence?For the professionals who use these tools everyday, as part of their workflow, there are massive advantages to the subscription model. However, if you use the applications infrequently it becomes a very real tax. Many out there are having a long hard look at their own requirements, and realising that they don't need the cannon when a peashooter will do. There are many alternatives out there in the market like Pixelmator, which costs a tenner, has many of the same features as Photoshop, but is squarely aimed at pro/amateurs. It opens up the ecosystem for smaller players to sneak in, as has already happened on iOS.
What could they have done better?Followed Microsoft's example and had a transitional period. Potentially stop selling the Suite but continue selling the individual applications.
Tumblr
With the recent purchase of blogging platform Tumblr by Yahoo things are very much up in the air as far as what changes are likely to happen to the service. The general tone from the new owners is 'Keep Calm and Carry On. We won't break it, we promise'.
What's changing?High profile acquisition by a 'legacy' digital business who has a well documented history of 'breaking' their newly integrated services.
What did you used to get?Ease of use. Blogging for folk who be bothered writing loads. They seem Open and non-judgmental. No ads or any real explicit business model. Young, independent, and thankfully not Facebook. A great way to collectively share obsessions without overt commerciality.
What you give (currently)?Pictures of cats. White men wearing Glass. More Cats. Basically lots and lots of content. And Trust of course.
What's the consequence?Significant but not catastrophic, as yet, but migration from the service principally to Wordpress, is a possible outcome. Unsurprising really as for many (especially the younger audience), the content creation route has been Twitter --> Tumblr --> Wordpress. But still, why the panic? Let's just give Yahoo the benefit of the doubt and assume they won't wall it off and kill it the way they did with Flickr and Delicious, and do in fact keep it exactly the same. The key part of the value proposition that has changed is Trust. Yahoo didn't spend a billion on it to let them just do what they do on perpetuity. There needs to be some commercial flavouring mixed in, because it’s such a big bet on Yahoo's behalf, that they will need to show a return pretty damn quick. We know this, everyone knows this, and poof, all that earned trust will be replaced with suspicion and revulsion.This provides great opportunity for others in the space to hoover up the disenchanted. I'm actually really surprised that Wordpress hasn't launched an 'ImPRESSion' product, using a simplified skin or app that sits on top of their existing software. They could out Tumblr Tumblr in a heartbeat if they wanted.
What could they have done better?They got a BILLION dollars. The owners don't really care do they? If they did, they would have spent more time upfront working with Yahoo to agree a commercialisation roadmap, and share it with their users. It would be more intellectually honest and in tune with the spirit of Tumblr. Time will tell whether the migration away from the service continues.
Star Wars: The Old Republic
About a year and a half ago, with great fanfare there was the launch of 'the old republic' a massively multiplayer game based on the smash hit star wars series 'Knights Of The Old Republic'. With over a million initial sign-ups it was the fastest growing MMO [Massively Multiplayer Online] game in history.
What did you get?This was the first major licensed Star Wars MMO since Star Wars Galaxies, which whilst popular with the very hardcore didn't really gain traction with the masses, especially in a post Warcraft World. The game had high production values, was multi-platform, easy to get into, and even apparently fits within Star Wars cannon for the ubergeeks.
What changed?Whilst adoption was extremely quick, so was drop off. Everyone appreciated that it was 'Star Wars', but the content didn't match the expectations of a typical MMO user. Instead of, as is often the case, killing it, they recognised the need to engage a new audience. Whilst maintaining their subscription option they opened the game up as 'free-to-play', charging micropayments to advance quicker and open new areas.
What's the consequence?As a result they went from half a million players to 1.7m in a few weeks, and doubled their revenue at the same time. It introduced a whole bunch of people who haven't played MMOs before but are susceptible to 'get them hooked and jack up the price'. Nice one. Of course it's not all roses, the hardcore players who have been paying the whole time are now inundated by 'a bunch of noobs' who are more likely to dip in / dip out, which can be frustration. Hopefully they will recognise that it will increase the longevity of the title and provide funds to create more content.
What could they have done better?They probably could have moved to the new model sooner. Complaints about the game started appearing within a few months of launch and they had a hard time developing sufficient content to keep the hardcore amused.
So what does it all mean?Again, what the business and the consumers’ want can easily get out of whack. Every time you tweak your offering, never mind transforming your model, service or general proposition, it’s just worth having a chat with your customers first. It’s perfectly reasonable to prioritise one customer over another – you are running a business after all – however before doing that understand why they are actually engaged with you as opposed to what you imagine want them to feel. You may find your biggest payers are actually not your biggest advocates, and all those quietly content folk can make an awful din when riled.
Jon Bains is a partner at business futures practice Atmosphere
