Sunday, March 06, 2011

The confusion of choice

I've been asked many times whether there are any mechanisms to slow down, prevent or reverse commoditisation? Well, there are a long list of techniques which can be employed and to explain them let's just revisit the lifecycle approach.

Figure 1 provides a visible representation of the evolution of an activity from innovation to commodity. It should be noted that what drives the evolution of an activity through its lifecycle is both user competition (the drive for something which is useful i.e. has utility) and supply competition (the drive to provide a better way of meeting users need over competitors).

Figure 1 - Lifecycle
(click on image for larger size)

Furthermore as an activity transitions from one phase to another such as custom built to products or products to utility services, a number of factors are required for the transition to occur. The factors include:-
  • Concept : e.g. the idea of providing something in that format such as computing infrastructure through a utility.
  • Attitude: a willingness for consumers to accept the activity in the new format.
  • Technology : the technology to actually achieve this.
  • Suitability : the activity to be widespread and well defined enough to be suitable for provision in that format e.g. a utility format requires a well defined and ubiquitous activity capable of supporting the volume operations needed.

So how do we counter this?

Don't Sell it to Everyone: One of the simplest ways of ensuring that something doesn't become a commodity is to not sell it to everyone i.e. prevent it becoming ubiquitous and well defined. Unfortunately competition applies here, so you have to find a way of preventing others from selling - i.e. patents give a time limited opportunity to do this.

Create Confusion: If you can't prevent everyone selling, then create a confusion of choice. The purpose of this is to reduce certainty over the activity in order to persuade consumers that it is more of an innovation. The most profitable scenario is to have every consumer buying it and believing it is highly innovative to them alone - the "designed for you" meme.

Examples of confusion of choice can be found from light-bulbs to mobile phone contracts. Walk into your average electrical department store, go to the light bulb counter and ask yourself - "Do I really need a choice between 200 lightbulbs and bewildering array of styles, plug formats, power outputs, swirly bits of glass, shapes etc? Didn't we use to have less choice and wasn't it easier to make a decision then?"

This abundance of choice is not designed for your convenience but to prevent you from making comparison. It's the same with the plethora of designed for you mobile phone contracts or insurance instruments or ... the list is long. Why else do you think we now have a vibrant price comparison industry countering this.

Association: one of my favourite examples of manipulation is to try and install a hidden meaning to an activity i.e. to create an association between this particular brand and either a lifestyle choice or some other implied benefit. If you're lucky, turning an ordinary activity into a status symbol can reap huge dividends. This sort of manipulation can be most easily recognised by switching on the TV and watching adverts - most of which rarely discuss the activity itself but imply a consequences of choosing this particular brand. Using this brand of soap will transform you into a glamorous person, whisked away to shower in a tropical forest surrounded by other glamorous people? The use of this deodorant will make you instantly appealing to huge numbers of the opposite sex? The purpose of these acts is not to cause confusion but to fundamentally add a hidden utility to a particular brand of the activity and to disassociate it from the rest.

Complexity: Another tactic is to reduce certainty through the introduction of visible engineering i.e. make the device look more complex than it is. It's actually a combination of confusion of choice, association and complexity which turned the humble vacuum cleaner into a space age construction. It doesn't matter that the activity is ubiquitous, well defined and commodity like nor that the latest range of cleaners may be no better at cleaning. Today, vacuums have new properties such as "doesn't lose suction", they use visible engineering and a bewildering array of choice and associations to lifestyle. All of this is designed to persuade consumers that there's more to a vacuum cleaner than cleaning the floor. Kerching!

Bundling: Another favourite of mine is to bundle many activities together. For example, the iPhone is not a phone but a wide range of activities bundled into a single device - calculator, phone, camera, calendar, alarm clock, browser, email, time recorder, map etc. Bundling provides ample opportunities for confusion and dissociation, i.e. you can't easily compare one smart phone to another and certainly not the pricing tariff of a standard phone to a smart phone. However, through Android, Google has aggressively commoditised most of these bundled activities with the use of open source and open ecosystems and hence cornered Apple into a very high risk, constant innovation game. So as well as tactics to counter commoditisation, you can also use counter tactics to force it and your competitors into tricky positions.

I've always been a big fan of Apple, however this is the second time in my opinion that they've been seriously outmaneuvered and the root causes of this appear to be the same - a poor understanding of change and how to play the game. They're great at innovation but that's only part of the battle. Time will of course tell, but I don't see Apple's future as rosy.

I won't go on as there's a whole mass of techniques and counter techniques in this space. However to the question can you slow or reverse commoditisation - well you can certainly persuade consumers of this.