Tuesday, April 27, 2004
A different approach to selling on reputation
There has been a good amount of discussion recently about designing products for the "Edge case" (read: Diehard junkies) of the market, particularly in regards to devices such as digital cameras and portable audio players. Robert Scoble has this to
say on the topic (read some of the previous responses linked as well):
One thing, though. I used to sell cameras. I can't tell you how many Nikons I sold because "that's what the pros were using." So, by designing for the edge case (the pro photographer) Nikon got the amateur, who liked the brand name and the cachet of carrying around a camera that a "pro" would use.
A company with an established reputation like Nikon for their high-end products can sell their lower end stuff on their reputation like this. But what happens if you're in a crowded market, and don't really have the chance to build this reputation? For an example of another approach to this, take a look at Dell. At the surface, there is little to distinguish their products from those of any number of other major OEMs in the PC marketplace. Nobody is going to buy a Dell because all the cool kids use them. In fact, it is unlikely that many people on the "Edge case" of the PC market would even consider buying a Dell for one of their desktop systems, primarily as a result of their proprietary architecture and accompanying lack of easy upgradability. So what can a company like Dell do to earn status in the crowded field? Keep in mind that there's a number of enthusiasts out there who want to be on the cutting edge, but generally don't have the disposable income that it would take to do so. As a rule, these people have a tendency to be bargain hunters. Whole sites have sprung up where people can find and share deals they may find, such as FatWallet, GotApex and other boards. These people, upon finding what they consider to be a "hot deal", will usually jump on it and impulse buy, especially if it's a limited time offer. The trick is to not only give these people some "hot deals," but also to give them the ability to get something nicer than they may be used to.
Take, for example, the Dell 2001fp, a 20.1" LCD with 1600x1200 resolution. As a general rule, big LCDs tend to be expensive, out of reach of the normal user. At the usual going rate of $1049, the 2001FP isn't exactly the cheapest thing out there either, but it is cheaper than its nearest competitors, the ViewSonic VP201b and the Samsung 213T. It also has a 16ms response time panel (the 213t has a 25ms response panel, and the VP201b has the same panel as the 2001fp, but doesn't handle non-native resolutions as well.) The 2001FP also adds composite and S-Video inputs, features that the competitors don't have. This means that you're getting a monitor with extra features for less than you would pay for the competition. (Note: I recently purchased one of these myself, should my description seem more hubris-laden than one might expect.)
Of course, $1049 still isn't exactly a bargain, and you're not going to get a lot of users willing to drop that much money on a monitor, no matter how nice it is. It's when Dell starts running specials, as they have done on a fairly regular basis, that this starts to get interesting. If you know where to look, you might be able to find one of these for as much as 25% off the regular price. When I purchased mine, Dell was running one of these specials, which resulted in a final cost of $750 plus tax (total cost about $820) with free shipping. $1049 for this monitor is a moderately warm deal. $750 for this monitor, at least to the bargain hunters, is a blazing hot deal. Dell may be taking a hit on the cost by running specials, but they're also putting their product into the hands of a number of enthusiasts who probably wouldn't otherwise consider such a purchase. They'll be talking about it, and generating buzz about Dell's products. And all this is coming from people who probably wouldn't even think about buying a Dell desktop system (and probably still won't,) but who then finding later that they need another product (say a PocketPC or a notebook) will then have Dell in mind, and recall the good value of their 2001FP.
The same thing can be said about Dell's Axim PocketPCs. In my opinion, the Axim X5 was one of the best things that has happened with the PocketPC platform so far. (Disclaimer: Yes, I own one of these too, but you probably knew that already if you actually read this thing.) Before the Axim showed, PocketPCs were something of a luxury item. At the time, you would have been hard pressed to find a PPC for much less than $300 (and that was on the low end,) putting PocketPCs firmly on this edge market in the PDA arena, basically conceding the lower end to Palm. Along comes the Axim in late 2002, starting at $199 (even lower with discounts), with specs that allow it to easily hold its own with the higher priced models from Compaq/HP and Toshiba. Suddenly, you have a significant number of enthusiasts that can now suddenly afford your product. Dell quickly grabbed a nice little chunk of the PPC market for itself with the X5, which the other PPC manufacturers then had to make lower priced models to compete with, and bringing PPCs firmly into territory formerly occupied almost completely by Palm. I still use my X5 on a regular basis (mostly for lack of much innovation in PocketPCs within that time, but that's another rant entirely, and I think the added features of Windows Mobile 2003 Second Edition will drive the addition of new features too.)
So in response to the question of the value of the edge market, I say that it's there (Where's the innovation going to come from if nobody focuses on anything but middle-of-the-road products?) but companies shouldn't underestimate the effect of selling to the not-quite-edge market.