From Atoms to Bits: Digital Transformation for Physical Incumbents
kHUB post date: February 4, 2022
Read time: 7 minutes
In his talk at PDMA 2022, Alan Cucknell discusses how physical product companies should approach connected product innovation, with a practical step by step guide. While media hype is focussed on the new digital offerings from Start-ups and Unicorns alike, many physical incumbents – companies delivering off-line products, services and experiences - risk being left behind. Should they follow the pack, or should they focus on continuing to deliver what they do best without the distraction of digital technologies? The challenge is not just technologies – for organisations used to working with ‘atoms’, the new world of ‘bits’ requires new capabilities, mindsets and tools. This article summarises Alan’s talk with actionable insights and is a must for any company looking to grow through connected products in the future.
1. What is a connected product?
Connected products add sensors to gather data, connectivity to transit data to the Cloud, processing power to make that data useful and often provide an interface for information or control. But beyond the technology connected products move businesses from a ship and forget model to a relationship based one.
A connected product can give you direct access to your customers, what they do, when they do it and how they do it. By nurturing that relationship to improve their experience, you have an opportunity to build unparalleled consumer understanding, resulting in a longer customer life cycle and repeat sales. The data about every interaction gives you valuable insights into their needs (and importantly for a more sustainable economy, what they really don’t need). Done well, who else would be better placed to serve those needs?
But take note! Managing a connected product ecosystem can requires a serious mindset change.
2. Why do you need to change your mindset?
With real world data from your products you can make much more informed decisions. You can base your product development – new and existing – on what people really do (and not just what they say they do). This is transforming how some companies make decisions across the organisation.
Connected products allow you to launch earlier in a product lifecycle, giving you a chance to test and optimise in the market – then upgrade software or functionality during the product life cycle. You can perform diagnostics and preventative maintenance at a distance, meaning it’s much more convenient and cheaper. But more significantly, it enables rapid adaptation to changing circumstances. And as we’ve seen over the last 18 months the resilience that adaptability enables is more important than ever. Smart phones are an example of products that are well placed to do that – the software can be updated remotely and the functionality changed over time and customised through Apps. While I don’t know what will happen to the world next – I do know that those businesses with platforms that are able to adapt will ride through the storm the strongest.
As championed in Lean Start-up, no amount of prior analysis, consumer testing or deep thought will replace what you learn when you launch a product. Generally, the more breakthrough the idea for your business (and especially for your customer), the more this holds true. With IoT products, it’s no longer a case of developing the complete final solution before launch – get it as good as you can, then be prepared to test, launch, adapt, and innovate on a perpetual cycle that responds to the changing world around you.
We’ve found connected product innovation is critical for physical product companies to:
- Protect and grow the top line
- Improve your relationships with customers
- Give you better data for making decisions
- And creating a more sustainable, resilient business
3. What creates a compelling experience
Many innovation leaders we talk with are clear on the value of connected products and the Internet of Things (IoT) for their company, but they tell me their real challenge isn’t the corporate motivation. It’s finding a value proposition that customers really care about. IoT systems need to detect, collect and share data about people’s environments, activities or information. So if the benefits aren’t compelling, why should people ‘connect’? There has to be a two-way benefit for the technology to gain traction.
How to make your offer attractive
Most successful connected products don’t offer people something new they didn’t need yesterday. They deliver on something consumers already want to do (a core Job to be Done) – but they do it better, easier, faster or cheaper. It will be different depending on the category, but start with the needs you are already trying to deliver on for your customers.
If by being connected, you save the customer enough time, or enough money, then you also have a strong offering. But for cost, focus on affordability, not price. How can connected products allow consumers to spread their finances over a longer period of time (a subscription model), or exchange a fixed cost for a variable one (pay per use model) or pay based on outcome (rewards model)? The benefits of remote diagnostics and predictive maintenance both of which reduce the frequency and cost of field service interventions – might save you money and improve customer experience and allow you therefore to reduce price. There is a model that’s right for most businesses, but it’s not the same model for all.
Bundles. A start-up which takes high end washing machines, dishwashers and dryers (the most efficient and durable they could find) and offer them on a monthly subscription basis or on a cost per wash.
While these models are not new, connected products make these easier than ever to engage with these alternative business models. And in our experience, a change in business model is often critical to allow the connected proposition to succeed.
The boundaries of life are increasingly blurred. Home, work. Personal, professional. Physical, digital.
Consumers (and especially Gen Z) don’t want to think about distinctions, they want seamless “omnichannel” experiences. Meaning they want to be able to easily access what they need anytime, from anywhere. Whether that’s checking their home security from the office, automatically backing up photos to the cloud to avoid losing them, or accessing blood glucose levels via an app. The need for remote connection can provide valuable confidence and control anywhere and anytime.
From connecting things to connecting people – connected products can be a window through which consumers access their community – those people who share their values and interests – and you can enable this.
For you, the benefit might be brand loyalty or frequency of interaction. For them, it’s a place to belong. How can you brand use connectivity to create a community of customers? How can you be the platform?
I’m a person
We’re all individual, and as such, one of the most important benefits of connected products is personalisation. Whether this is achieved through our own input or automatically based on sensed data, we want “perfect for me”.
Customisation is not just about personalisation to WHO I am, it is also about WHAT I am doing now – we might want products to behave differently in morning vs night, week vs weekend, at work vs rest vs sports….
Your role as a brand is not to be all things to all people – but to figure out which potential customisation factors matter and then deliver them in a way that works seamlessly.
The way the Apple Watch has developed is a really good example of this – the interface allows me to change the aesthetics, the functionality for me as a person – and then it takes on different forms depending on my activities. How can your product do something similar so it is always “perfect for me”.
4. Commercial Value
We’ve covered the types of value that connected products can provide to customers, but what about value your business?
All in, at the end of last year HBR reported that platform firms compared to industry controls had much higher market values ($21,726 M vs. $8,243 M), much higher margins (21% vs. 12%), but only half the employees (9,872 vs. 19,000).
They concluded that too many product firms start from the bad habit of asking “How do we make money” when instead they should start by asking “How do we create value?” and “How do we help others create value?”
Initially, don’t focus on conventional ROI models as you would for a sustaining innovation. Remember for most companies this might represent a transformative innovation. You need to consider the longer-term and non-monetary gains too – for example the value of the real consumer data, the internal savings connected products can provide and the value of the business resilience that connected platforms enable.
Incidentally for most connected products my experience suggests that so-called “freemium” models are great for driving high adoption rates and large networks, but for most businesses are difficult to convert to revenue.
You will need to be equally creative and analytical to find the model that’s the best fit for you – and if you’d like to discuss how to find the right model for you – get in touch!
For organisations used to working with ‘atoms’, the new world of ‘bits’ requires new capabilities, mindsets and confidence. If you would value further guidance as your develop your transformational innovation roadmap, please get in touch.
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