Who is your competition?

Apple Watch is not a threat to us –Fitbit CEO 

Pencil and paper is our competition – Intuit

I always say that our real competition is Netflix – Soulcycle CEO

standoutfromthecrowd1What do you think of how these businesses define their competition? If you rank these statements in terms of

  1. Relevance
  2. How actionable they are

How would you rank them?

After writing down your answer ask yourself the question – Do we get to decide who our competition is or do we simply recognize what customers reveal as our competition?

Before answering the competition question we need to start with our target customers. Starting with customers first tells us what problems are customers trying to solve or stated another way like Clayton Christensen did, “what job are customers trying to get done and hence hire a product for that job”.

If the customer job to be done is not that clear to find your competition or there are other confounding factors just ask the simple question – If customers hires a product, will they still hire yours? If the answer is no, then that is your competition.

A moment’s reflection on the customer focus and that we are solving a customer problem will convince you that we do not get to pick the competition but the customer does. With that in mind then look back at your ranking of the three statements.

The first and to this day the best in customer centricity remains Intuit’s definition. If you look their manifesto on the competition, you will notice how they describe what customers are doing now rather than what other products like theirs are doing in the market.

The other two, should not get any ranking because they are neither relevant nor actionable.

In the case of Fitbit,  they refuse to see beyond fitness and tracking as customer job to be done. They treat as if customers have a separate budget for wearable devices that just track activity and another pot of money for Apple Watch. That leads them to incorrectly state their competition. We can only hope this is stated for external consumption and internally they do understand all their real competitions.

In the case of Soulcycle, they defined it too broadly and hence ended up with Netflix. The reasoning likely is based on their thinking that customers hire Soulcycle as entertainment and anything that competes for customer time and attention is their competition. But it is easy to see that context, time and job-to-done are completely different for Netflix. More importantly the rule of exclusive hire does not apply here. If you look closely at from what budget are customers pay for Soulcycle, you will not find Netflix but fashion, food and pop culture. Saying Netflix as competition makes the strategy irrelevant and unactionable.

How did your ranking compare to this?

How do you define your competition?


What is the Point of Continuous Measurements? Fitness Edition

If you are one of tens of millions of people who bought some kind of activity tracker in the past years, you are into continuous measurements.

You are told to take 10,000 steps everyday. You take that as gospel or indisputable scientific statement (spoiler: it is neither). You squeeze in extra steps throughout the day or stay awake trying to hit the mark before the midnight strikes. You feel elated when the band on your arm vibrates to tell you that reached 1000 steps. Goal achieved.

You wear the band in bed. The band apparently tracks your sleep pattern throughout the night. You are happy to see a graph the next day morning and feel proud when you shove that graph in the faces of your co-workers, mostly to say how little you sleep. Goal achieved.

The two metrics are not enough for some. For additional $50  you can get devices that continuously measure your heart rate. It gives you such joy to see heart rates measured every two minutes and mapped as time series graph. Congratulations, you are alive. Goal achieved.

For another $100 more you can measure even more, like the GPS coordinates of your movements. May be you are a runner or cyclist and like mapping your path. Everyday you run the same path and collect GPS metrics and see the mapped path on your smartphone. Can we say goal achieved?

l_mobile_fitness1200What you see here is activities and measurements get confused with goals and the very act of continuous measurement becomes the goal. Stop for a moment and ask

  1. Why is 10,000 steps a goal? Why not any other number? If 10,000 is good is 12,000 better? Does that make me fit? Fitter? Fitter than those who do not wear the band and count steps?
  2. What is the point of seeing a graph on how I slept? Is there anything I can do to change a particular duration when I tossed and turned?
  3. What am I doing with heart rate measurements from every 30 seconds? Why should I measure it so frequently if I am not under observation for some medical reason? What do I do with measurements from yesterday, and the days before that all look the same?  Is one measurement per day not enough?
  4. I run the same path everyday or may be same 2-3 paths. Why am I collecting GPS coordinates everyday?

Since most do not ask these questions, nearly 100 million of them, I am here to help raise awareness on the futility of measurements for measurement sake. Let me categorically tell you that none of these are goals and none of these measurements are relevant.

First you need to ask what is the real goal. The goal should be about fitness and living healthy. Then we ask, how do we measure fitness. The Mayo Clinic gives us simple metrics and methods to measure our fitness. None of those involve continuously counting steps or sampling heart rate. Then we find out what are the options to improve your fitness, weigh the pros and cons of those options and pick the best possible under constraints.

When you look at options available, there is really only one — 60 minutes of activity at elevated heart rates. Once you do that at the beginning of the day, you can get on with rest of your day without distractions. That is the path to your fitness.

Finally you may ask what is wrong with counting steps if it gets me moving? The problems are multifold – you are measuring the wrong thing, you are optimizing for wrong metric, you mistakenly convince yourself you are improving and you miss out doing the right thing. All those forced walks to get a few steps do not elevate your heart rates and hence do not help you get fit.

It is time for you to toss that activity tracker (don’t you dare call them fitness bands), give up your obssession with contunuous measurements and start with right fitness goals.

Focus Groups Fall Out of Favor – That’s a Good Thing

focus-groupLet us ask a focus group for our product features, shall we?

Did you utter these words or hear someone else do so recently in deciding the next step of product development or market development? It is not all bad because at least they considered taking some input and collecting some data before making decisions. But this is also totally wrong approach if you think 10-20 people talking a room under observation can help you decide.

The recent Journal Report from The Wall Street Journal had a very good piece titled, “Focus Groups Fall Out of Favor”. The article makes the case that in the present day Big Data and social media there is no role for focus groups. Reading the article, it was clear why – as suspected most people were using focus groups incorrectly for making big decisions.

I have written in detail in the past about how focus groups are misused. I recommend you read

  1. Anyone can convene a group, ask questions and write it up
  2. Watching a focus group going horribly wrong
  3. Who makes the hypothesis?

I will add to those key mistakes pointed out in the Journal article. In many of these cases the focus group is not only a poor fit but also the wrong tool.

  1. The focus-group approach famously went awry for Coca-Cola Co. in the 1980s when extensive—and pricey—focus-group testing and market research led the company to replace Coca-Cola with a New Coke formula widely rejected by consumers.”
    We do not know for sure Coke used focus group to decide New Coke. If they indeed did only use focus groups then we know why it failed. Stated preferences of extremely small samples is not reliable method to change taste of billion dollar business.
  2. a moderator would ask a room full of moms which of the company’s products they liked most. The moms always responded that they fed their children the company’s healthiest offerings when, in fact, the best sellers are high-calorie snack food.”
    If the goal was to find which product performed better, why would they ask that from a focus group? Shouldn’t they look at the sales data, by geography, by stored and combined with store card data to see cohorts and distribution? Not only were the moms stating what made them sound better moms but also the required data is readily available with better accuracy and precision elsewhere.
  3. “Kathy Fish, Procter & Gamble Co.’s chief technology officer, says that men, when asked how many swipes it takes to shave their face, will usually estimate 10 to 15. In reality, it’s more like 30 to 40. “
    Even if the participants gave accurate response that would have been useless as the sample size is too small to draw any meaningful conclusions. This again is wrong use case for focus group. If P&G needed this data they should have used large panel of users who would log this data daily. Or in the world of IoT (Internet of Things) a connected razor that can collect this data easily.

Finally I will leave you with a big learning from the Journal article.

It’s very expensive to find that progressive-leaning, millennial new mom who has the time to attend a focus group,”

This is indeed a very profound statement. This tells you why focus groups do not provide enough data to move on to decision phase. Focus groups only help you uncover hypotheses that you can test with larger group of people.  The people in focus groups are not going to be the target segment. And that is perfectly okay if you are going to test the hypothesis you developed with the right target segment in a simpler manner.

How do you make decisions?

Echo Dot – Product Unbundling Done Right

echodotLast year I told you about Price Unbundling and Product Unbundling. The former is more commonly used to punish the customer. The latter however is an incredibly effective way to focus on the one thing your product can do better than others and play well within a ecosystem.

Price unbundling is driven by business needs, product unbundling starts with customers and taking away every feature that is not essential to deliver best customer experience.  Here are key aspects of product unbundling done right:

  1. You are not driven by cost economics – it is not about punishing customers, reducing or managing cost to serve customers.
  2. You are driven by growth economics – your current product has great product-market fit for certain segment but you are looking to reach adjacencies.
  3. You start with customers – understanding the current segment and its needs, understanding the adjacencies and what is needed to serve them.
  4. It is a continuous process – If you are not actively seeking to unbundle the product, your competitors will – that is how disruption happens. Disruptors are not better innovators than you are but just better at customer segmentation.
  5. It is where product management matters – Product unbundling is driven by product managers with focus on customer preferences and armed with data and analytics.

The opposite of product unbundling is throwing in every feature and  a connected kitchen sink (of course IoT) because we think that is the right technological solution. This is what I call the upside down product development. This leads to cars with Wifi hotspot, fridges with tablet functionality and toasters with radios.

For product unbundling there is no other perfect example than Amazon’s Echo Dot. It is the $50 unbundled version of Amazon’s first product in this category,  Echo that sells for $180. Let us see how Echo Dot did in the five metrics I stated above.

  1. You are not driven by cost economics – This is not about finding ways to sell extras to customers. In fact by delivering the core function of Artificial Intelligence Assistant (Alexa) at $50 price point Amazon stands to cannibalize its full featured $180 version.
  2. You are driven by growth economics –Echo is a great product but right sized Echo Dot at $50 is attractive to far more customers than higher priced Echo. The growth can come from same customers buying more of it (Amazon sells this in six packs with sixth unit free) and bringing in newer customers into the mix.  For platforms like Alexa that drives Echo and Echo Dot, there are other ecosystem benefits to expanding the footprint.
  3. You start with customers – Echo Dot does not have the full featured speaker that Echo has. This is not about punishing customers with cheaper speaker but understanding that speaker is not the core feature but the AI is. Most customers have better Bluetooth speakers and sound system in their homes. Echo’s speaker anyway never measured up to those speakers. So Echo Dot unbundled the non-core feature to play well with existing ecosystem.
  4. It is a continuous process – This we will have to wait and see as products evolve.
  5. It is where product management matters – We do not have visibility into  this but can see the role of effective product management in this. Most people think a visionary product manager is like Steve Jobs or Amazon’s own Jeff Bezos,  coming up with a product that did not exist before. More often than not an effective product manager excels not by visionary products but by helping scoping the product right, unbundling it as needed to achieve growth. We see that at work here.

How do you build products?


7 Observations on iPhone Average Selling Price History

090716-apple-airpods-6906Apple announced its newest iPhone dubbed iPhone 7 (and iPhone Plus) last week. The new phones will go on sale starting September 16th.  Let us look at that phone and product decisions in the context of average selling price of iPhones.  Average selling price is calculated as the total hardware revenue from iPhones divided by the total number of iPhones sold (all models offered). It takes into account the final phone price Apple takes in after promotions and channel discount and the the mix of different models at different price points sold during the period.

Take a look at these iPhone Models. Apple sells phones priced from $399 to $969. These are list prices, what Apple gets for each model can be lower than the list price for it from different sales channels.


These are the current models, over the past few quarters the models and mix were different but the math and definition apply. Now using data that Apple reports in its quarterly earnings reports let us see the Average Selling Price (ASP) changes over several quarters.


Let us note a few key things in this history that will help point to iPhone7 product decisions and the future.

  1. Despite all the threats of budget models from competition, Apple was able to keep its ASP and post higher profits. The lowest ASP was $561 that was attained during the quarter before iPhone 6 and iPhone 6 plus.
  2. There is seasonality in the ASP. It is always highest in fiscal Q1, the first full quarter following new phone release. Then it trickles down. This is because fans buying new phones right away and likely buying higher capacity models at higher price points.
  3. ASP drops right after the fiscal Q1, which is also the Holidays quarter, and reaches lowest the quarter before new release.
  4. Apple got one major bump in ASP with iPhone 6 release. There are two major product decisions for this bump. One is sticking with 16GB base model and two is offering iPhone 6 Plus.
  5. Before iPhone 6, the drop in ASP in periods following new models was steep. It dropped close to $75 with iPhone 5s. But with clever design of 16GB base model and lure of bigger iPhone 6 Plus Apple was able to stem ASP erosion. Between iPhone 6 and  6s the drop was only $28. And this matters not just for revenue but for profits.
  6. This changed with the introduction of low-end iPhone SE models which come only in one size and two capacity points. It is arguable that if not for these models Apple could have retained higher ASP but at the cost of lower sales (units and revenue). On the other hand these phones pack so much features that the lower price points tempted customers who otherwise would have picked pricier iPhone 6s.
  7. This one is on iPhone 7’s features that will affect ASP. Finally,  Apple had no option but to up the base model capacity to 32GB from 16GB.  Until now this was an effective lever in keeping ASP high but will definitely put pressure as more will choose 32GB than those who did 16GB. Apple made two changes to offset this.
    One is to get more to choose the pricier iPhone 7 Plus by offering dual cameras only on that model. Two is the $159 AirPods. While AirPods are optional, we should look at that as part of iPhone hardware and incremental to ASP.  There is only one immediate reason for AirPods – add to ASP.

So what can we predict about ASP next two quarters?

The current one is too short and is already baked in by lower priced models. So you should expect close to $600-$620 range.

For the next full quarter more of the sales mix will have iPhone 7 and iPhone 7 Plus models. But given the reviews declaring the new phone to be less than stellar and that there is far more value from $449 64GB iPhone SE we cannot expect ASP breaking $650 and definitely not reaching the high of $695 set last year.

How Apple Will Handle Price Erosion with iPhone 7?

Apple is set to announce on September 7th  the next generation of its flagship iPhone. There are several rumors about the new model which no doubt will be called iPhone 7. I am not interested in the specific design changes, lack of headphone jack or any of the myriad subtleties that will get Apple fans excited. I am more interested in the most important part of the product – its price points. What are the different price points will its models be offered at to maximize Apple’s profit?

IKEA, which operates in a different domain and at the opposite end of price spectrum than Apple, says,

At IKEA we design the price tag first and then develop the product to suit that price.

Apple is no different because like IKEA, Amazon and Starbucks Apple is a Price Setter. With that let me make some predictions for iPhone 7 models and price points.

First prediction is a certainty at 100% confidence level. There will be two major models based on screen sizes – iPhone 7 and iPhone 7 Plus.

Second  prediction has more than 90% confidence level. Apple will announce 3 models under each screen size. The rule of 3 has been seen consistently throughout iPhone lifetime and we can safely say the same now.

Third  prediction has close to 90% confidence level. The price points of 3 models will be exactly same as the previous generation iPhone 6s as seen below.


Fourth prediction has higher than 90% confidence level.  The lowest capacity point will be 32 GB. There has been significant heartache among Apple fans and users on the capacity of lowest model. The 16GB has not been enough to store all the bloated OS, Apps, photos and music.

But that had served Apple well in delivering significant ASP (Average Selling Price) upside and profit. The table below is from opening weekend sales of iPhone 6, the first time Apple made the capacity points as 16GB, 64GB and 128GB.


As my previous analysis showed, Apple made about $4 billion additional profit per year by not offering more than 16GB for the lowest priced model. With iPhone sales slowing, Apple cannot allow for ASP erosion and profit drop because of 32GB model.  Which leads us to final prediction.

This final prediction has just 60% confidence level. There will be another feature that separates the iPhone models than just capacity. If Apple succeeded in the past by getting more to choose the 64GB version at higher price point by crippling the lowest priced version with 16GB capacity, it needs another way to make the lowest priced model unattractive to those who are tempted by the thinking 32GB is good enough at $100 less than next model.

The implied assertion here is the models won’t be simply 32GB, 128GB and 256GB but 32GB, 64GB and 128GB with a tweak to 32GB model.  The reasoning is based on Apple’s philosophy of giving customers just enough and nothing more. That is changing 16GB to 32GB does not mean the other too capacities double as well.

So expect the lowest priced 32GB model to lack a vanity feature that will prevent those who can afford to pay the additional $100 from choosing it, thereby help Apple keep its higher ASP and current profit levels.

If this prediction turns out to be false then you must start worrying about drop in profits the following quarter.