The Long and the Short of Fidelity and Convenience Traps

In introducing the concept of Fidelity and Convenience Traps, I wrote that traps are where a firm is stuck in when its strategy and innovation are aligned with one factor while the market as a whole prefers another. These traps are a result of relatively stable preference (stable over a longer period of time)  of large segments of the market for fidelity or convenience while the firm’s resources are committed to and tied up with convenience or fidelity.

I also hypothesized that the market’s needs switch between  fidelity and convenience over time. This is not a high frequency switch that happens over a very short period time. The switch happens over a relatively long period of time (1 to few years) and in between switches there is a stability. It is the stickiness of the preference and the slowness of change that cause the traps.

These long run trade-offs are much different from the short run trade-offs we make everyday. These short-run trade-offs do not result in traps. Take for example eating pizza. It is a Friday evening, you and your family of four are considering dinner options. Your children decided it is going to be pizza. On a 0 to 100 scale, rate each of the following options (0 – extremely undesirable, 100 – extremely desirable)

1. Pizza  delivery from local pizza chain for $25, delivered in 30 minutes
2. Two frozen pizzas at $5 a piece, that you already have in your freezer, add fresh toppings of your choice. Total time 30 minutes.
3. Make pizza from scratch, with all fresh ingredients including fresh buffalo milk mozzarella for a total cost of $12. Total time 2.5 hours.
4. Head out to a highly rated pizza place that serves authentic Italian thin crust pizza in a wood fried oven with all fresh ingredients. Total price $55 and drive time 30 minutes, waiting time 30 minutes.
5. Head out to local all you can eat pizza buffet place with all standard pizzas made with packaged and frozen ingredients. Total price $28 and drive time 5 minutes with no wait time

You can see that high quality ingredients and  special oven make the pizza very high quality – or high fidelity. A frozen pizza or a delivered pizza are not the highest quality but provide great convenience. There is also the price – that pushes people to til either towards the fidelity or convenience end of the pizza spectrum. The score people assign to these options is referred to as its totality utility. Different people get different utilities from the same option and even for the same person the utilities for a given option will vary with context. The choices are not stable, highly unpredictable and vary over short time periods (even within a week).

In other words different segments of the market, at different times (within a short time frame) switch between fidelity and convenience.  This is the short run cycle and does not represent a stable preference by a large part of the market over a relatively long period of time and hence there are no traps.

Short run cycles do not cause traps, only the long run cycles do.

In the coming weeks, I will write more on modeling the short run and long run cycles.

The Fidelity Trap

iPhone has  less than 3% of the market share of the total mobile phone market but is the reason for the higher churn among mobile subscribers. None really lived up to their title. Verizon Wireless saw its new subscribers additions shrink past quarter compared to past year numbers. Customers either chose AT&T for its iPhone 3GS or T-Mobile for it low prices. Verizon is fighting back with two marketing campaigns:

1. There is a Map for that! – This is in the same class as their “Can you hear me now?” campaign, highlighting their network coverage, except it also shows the lack of national 3G coverage in AT&T. The veracity of the claims are under debate and is beyond the scope of this article. The core message is – our competitors may have cool phone with thousands of App but it is all useless if the network is bad. Verizon had always claimed it had the best in class network, and yet it was not enough to stop the churn. Will the new message succeed?
2. Everything iCan’t Droid Does: This campaign is for the new Droid smart phone positioned against iPhone. Verizon Ad highlights what iPhone cannot do – like taking pictures in the dark of 5 Mega pixel camera. Since Apple introduced iPhone there has been several iPhone killers. Will Droid be able to take on iPhone?

Take the case of Blu-ray players. Sony won the hard fought format battle against HD and yet the winner has not found firm foothold in the market. With the Beta Max memories still fresh in their minds, Sony did everything right this time – building a coalition, marketing, and most significantly lining up content. According to Nielsen, Blu-ray sales remain a small fraction of the market.

Why did Verizon lose subscribers despite their best coverage?

Why did iPhone succeed?

Why do the Blu-Ray makers cur prices drastically or include capability for on-demand video in order to sell the players despite the promise of high quality video playback?

Why some innovations catch on while others fail?

Does the failure or success of a product in the market depend singularly with the firm’s ability to innovate,  build and dominate the ecosystem, its quality of products and its marketing prowess?

In the book Trade-Off: Why Some Things Catch On, and Others Don’t,  Kevin Maney offers an explanation based on fidelity vs. convenience offered by the products. In their model, there is a Fidelity-convenience frontier (Maney  calls it the Fidelity Belly) and customers make trade offs between the two.  Fidelity refers to richness of features and quality and convenience is how easy it s to get what you want.

I agree with the trade off argument but I hypothesize this choice is not static. Market preference switches back and forth between the need for fidelity and the need for convenience. Over time, as the customer needs evolve and usage scenarios change their preference for fidelity vs convenience changes as well. The reasons for these shifts are exogenous to the product – disruptions and lifestyle changes introduced by other products even from those unrelated to the product in question. Take the case of Blu-Ray, despite the high fidelity, it has not gained firm foothold because of the market’s shift towards on-demand video.

This means whether a product will succeed in the market place or not is determined not by the trade off made by the customer but by the congruence between the market needs and the product purpose (fidelity vs. convenience) at the time of product introduction.

Take a look at the 2X2 matrix. Products that fall into the lower left and upper right quadrants are in congruence with market needs and most probably will catch-on. However, on the top left and bottom right are the traps. Fidelity trap is when the firm’s innovation, product strategy and marketing are all aligned with delivering high fidelity products but the market needs convenience. Convenience trap is the opposite.

Products do not stay in Congruence or Traps over their entire life cycle. A firm that found success with  a convenience (or fidelity) product may not continue to succeed with its next version if the market shifts. A prime example is Motorola’s RAZR. On the same note, a firm stuck in the traps has the opportunity to achieve congruence in the next cycle.

This is not to say marketing strategy, innovation and product quality are not important but to highlight the need for congruence between the product and the market needs. A failure will lead to unsuccessful products that are are stuck in one of the two traps.

Disclaimer: This is a work in progress. I need to provide you more theoretical framework and data for the Fidelity trap hypothesis. This inspiration for this concept came from Modularity trap theory put forth by  Henry Chesbrough, author of Open Innovation. If you peel the layers, the core concept is segmentation and targeting – ultimately there is nothing new under the sun.