trendwatching.com: FOREVERISM

trendwatching.com’s June 2009 Trend Briefing covering FOREVERISM.

I like the trendwatching briefings: they’re actually insightful rather than wishful thinking; they seek to recognize trends rather than create them. (I’ve always wondered about that particular issue in the fashion world — do designers discover hot colors or try to make a color hot?)

In this discussion of foreverism, which is a little broad, there is a subsection on Forever Beta. Maybe that’s the world’s new take on planned obsolescence. After all, if the software is regularly upgradeable on my phone, maybe you don’t have to make the phone break after all. This approach could clearly be more consistent with improving free cash flow, since software typically has a higher gross margin and, for a company in the marketplace today, they already have to expend the capital to create competitive software in the first place. Sales to people with older phones really exist on the margin, and they can therefore deliver even higher profitability. (Of course, this is one example; tell me how it would work for your field in the comments.)

Another way I think of this is in terms of companies using their brands to create value for customers rather than to take or destroy value for customers. I’ve long said that there are two types of companies: those that make money by giving more to customers and those that make money by giving less to customers. (Put your matched pairs in the comments!)

If you stop breaking your products but let customers use what they have, you’re at least not destroying value (Dell, you failed me when you changed the power connector on the same model number laptop AFTER I bought your extra charger!, and Fujitsu, when you changed the main battery design on your T4xxx series convertible tablets). Companies that use nonstandard power connectors, chargers, interface cables, and so on are showing us exactly what they think (revealed preferences: Economics-speak for “actions speak louder than words) about customer: suck them in with low price main object and charge more than value for accessories.

What companies don’t seem to grasp is that it’s this strategy that creates markets for competitive/knockoff/third-party accessories such as chargers, cellphone batteries, headsets, and so on. Who wants to pay $100 for a single-purpose Fujitsu laptop power cord when I can buy an iGo and extend it across all my devices? Heck, Fujitsu — if you made the universal charger, I would probably invest in your brand since I’m already springing $3-4k for the tablet!

In the olden days, i.e., when I was still in high school, information costs were far too high to undertake the sort of product searching that is now virtually automatic with, e.g., Amazon’s “people also bought…” section on product pages. Companies don’t seem to grasp that consumer behavior is changing rapidly because of the huge drop in costs.

The response from companies is that “our customers are searching on price, not value, and so we have to keep the price of X low like our competitors and make up the difference somewhere else.” Not only am I unsure of whether this is really true (as opposed to, for example, a rational response to high information costs of comparing products), but my sense is that it’s an effect, not a cause, of the fuzzy price-gouging that I’ve described. If customers aren’t seeing the value of your product, I have two questions: 1, do you know what the value of your product is TO YOUR CUSTOMERS, not to you, and 2, are you really communicating the value to them or hiding the ball with easy to sound important lists of specifications that don’t mean anything (like iLink (r) or FireWire (r) as branded names for a standard 1394 port)?

Apple has spawned a big ecosystem of people selling accessories for the iPod. But none of those people are really competing with Apple. I’d have to look for some numbers to justify my conclusion here, but I don’t think that Apple’s pricing policy is built around being able to sell Apple-branded chargers for iPods vs charging a healthy price for an iPod and looking elsewhere for something to sell that adds more value. Say what you will about iTunes, but it provides a lot of value to me, and the Amazon MP3 store doesn’t really match up quite as well, even at a (now-floating and fuzzy) 20% discount to a $0.99 song. In this respect, at least, I think the iPod and its relationship with accessories is a good example of how companies can compete where they want to compete and leave the extraneous stuff to others, deliberately.

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