When thinking about your product’s future, it seems only natural that you invest in making your product better. After all, the better the product, the more customers you’ll win, right?
Be careful though with what you believe to be “better”. “Better” doesn’t have to mean bigger, faster, or whatever an increase in performance looks like. “Worse” can also be better. You don’t always have to join the performance arms race to win more customers. There are other options too.
These options become apparent if you use customer needs instead of product features to segment your market:
If you want to win more customers by making your product get the customer’s job done better, you’ll either:
serve customers who are looking for the best performance and are willing to pay a premium for that;
serve all types of customers and charge less.
Both options carry significant risks: to win and keep underserved customers you’ll need to invest heavily in continuous performance improvements. The upside is that you can charge more to these niche customers (but beware of making the niche too small).
If you try to win and keep all types of customers with a better performing product, your margins will erode. Niche customers want the best of the best and are happy to pay a premium. But targeting all customers means price becomes a significant factor in their decision process. There are competitors who charge less for doing the job a bit less good than you, and non-niche customers weigh all of these factors in deciding whose product to use.
Making your product worse opens up two more options.
You could make it so that customers have no choice but use your product and have them pay through the nose for it. Your reputation may go down the drain though, because this quickly becomes unethical, illegal or scummy. So it’s a risky bet.
You could also escape the “more is better”-mantra by targeting overserved customers and non-consumers.
Suppose you’re a telco and you’ve been battling your competitors with ever-faster internet services. There’s a whole market out there of:
overserved customers who do not need high-speed internet and would be very happy with a lower-speed internet at reduced prices;
non-customers: people who were never interested in high-speed internet (because they don’t need it or because they can’t afford it). These customers could be won by a lower grade internet at a lower price offer.
Using the Kano model to discover new markets
When Noriaki Kano started developing his model, he did so out of frustration with the idea that more is always better. He wanted to categorize how customers perceive the value of a feature to decide whether the feature should be built or improved upon (or just dropped).
By applying the Kano model and categorizing how people feel about a feature, you can make better decisions and find underserved and non-customers.
Suppose you’re a company making software for municipalities. Your software has an API that allows customers to integrate it with other software. Updating and maintaining the API is costly, so you’re wondering whether you should continue doing this.
(I recently did a stint for a similar company with a similar question. A Kano study was part of the process and the survey results were similar to what I'm describing next).
Suppose the responses to the API feature are mixed: about two-thirds of the customers consider it a Performer feature (“more is better”), and the other third doesn't care about it (Indifferent). This suggests that:
There’s a segment of customers underserved by the market but that you are servicing well now with the API: that segment is probably open to paying for the feature;
There’s a segment of overserved customers who don’t want the API1 and would prefer not to pay for it.
Based on these results, it’s evident that there are two options:
Remove the API from the standard package and create a premium, higher priced package that includes the API;
Sell the premium version at the current pricing and create lower priced package without the API.
What option is preferable depends on the market: if your pricing is already the highest, it would be dangerous to raise the price for the premium package. In any case, the software must be split up in two tiers. Just adding features and periodically raising prices not the optimal strategy.
Customers who don’t (think they) need the API will be better served with the non-premium product. There’s even a big chance that customers who didn’t consider buying the product (because it was too pricey as it contains features they don’t need) become more interested in the non-premium product without the API.
Using the Kano model can help you win markets that are better served with a product that performs worse than your (or your competitor’s) current offering. Always make sure you add features that you think are a natural given in your surveys. The results may be eye-opening and you may find veins of gold in places no-one else bothered to look.
Or they don’t see its value yet.