How Products Will Evolve Into Outcomes

Every year Company A spends millions of dollars on advertising their products. They use healthcare professional personalities who expound the user benefits of their products. Today, Company A is a household name in most parts of the world. 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 different types of toothpaste and toothbrushes, buyers are lost. They don’t know what to choose and why. The supermarket oral care shelf is dizzyingly complex because of not just Company A, but many others like Company A who are also making similar products with tens and hundreds of variants.

Company A has always talked about the superiority of its products on TV and via social media promotions. But in spite of all these claims, they have never really invested time and resources to monitor how, and if, their products are really helping the customers who actually buy them. So in a way, while Company A calls itself the oral care expert, it has hitherto focused mainly on selling more of their products.

This brings us to Company B. They are new to the market with no expertise or experience in making or marketing toothbrushes or toothpaste. But Company B thinks very differently. Before making another product, they looked at opportunities offered by new tools and technologies like sensors, Internet of Things (IoT), seamless wireless connectivity and computing. Together, all these things have enabled them to innovate a new business model. The new business model is based on delivering an outcome for the end user, rather than making yet another product. The outcome that Company B wants is better oral health for you — one that can be measured in tangible terms. Only when this happens will they make money.

This is how Company B’s IoT enabled business model works:

1. When you join a company, you sign up for your employer’s dental insurance plan.
2. As a part of your plan, you get toothbrush heads, toothpaste and other refills delivered to you every three months, just how the dentist recommends.
3. You are also reminded and 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 your toothbrush via Bluetooth. This regular oral care leads to better oral hygiene, which finally translates into fewer dental problems.
5. Fewer dental problems reduce the ultimate cost of dental care leading to savings on your (and your employer’s) dental insurance premium.
6. This lower cost of dental insurance is where Company B actually makes money. The lower the cost of dental care, the lower the insurance payout, the lower the insurance premium and the better 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.

Can it get better than this?

I mean, other than for your dentist and the pharmaceutical companies, 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 people sign up with them the outcome they get will help spread the word about the efficacy of Company B’s offer.

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 and get regular check-ups. By tracking your oral care habits, reminding you about regular dental check-ups and attaching the ‘savings-carrot’ to it, Company B delivers the final outcome — better oral health for you.

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 an example of Company A, you already know there are many of them out there.

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 diverse 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 central to the discussion. 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 bringing about informationalization of all kinds of physical products. Once informationalized, products and services start adapting to the user. Some companies call this phenomenon the rise of living services.

This informationalization 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.

Types Of Sensors And Representative Examples (Deloitte University Press)

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 informationalize 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 — informationalization 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 reimagining their business to move beyond supplying components and instead start delivering outcomes.

Informationalization 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 — Be open to reimagine your business from the ground up, or at least hedge your bets by incubating or investing in entirely new business models. (Do not try to create a new business inside your existing system. It almost never succeeds.) It’s important to understand the full spectrum of all the IoT tools available so that they can be used to orchestrate a real outcome for the end user. Think in terms of network of partnerships. It’s impossible to do everything yourself. And even if you can it will not be the best in comparison to what’s already out there in the market.
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 complete customer centric solution. If you understand the opportunities thrown open by IoT, you can actually create a customer centric outcome that can augment or complement your existing product or service. (Steer clear of gimmicks, and think about delivering real long-term value for your users).
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 their technologies. No matter what kind of specialization you might possess or want to pursue, you absolutely need to possesscreativity, empathy 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 people’s privacy. With so much behavioral information being gathered, there needs to be 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 has a 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 either by scaling rapidly like Uber and Airbnb or by being acquired by one of the larger platform players like Alibaba and Tencent in China and Amazon, Google, Facebook and Apple in the rest of the world.

The only question that really matters now is what outcome do you want to deliver 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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