To take full advantage of the opportunities presented by the Internet of Things, companies will need to rethink many aspects of new product development — including the definition of a new product.
Not long ago, companies had to rely in large part on surveys and focus groups to understand what customers liked and didn’t like about their products. In recent years, social media and online ratings have given businesses new ways to learn about customers’ opinions about their products. Today, however, some of the products themselves — at least those devices that are part of the connected world of the Internet of Things — are starting to provide unprecedented levels of information that can be used to improve both the products and the customer experience.
In particular, information from connected devices offers companies three tremendously important core pieces of contextual information that were previously unavailable: where the products are being used, how they are being used, and which customers are using them at any given time. Some companies use this information to modify their products to meet customer needs and improve revenue. Others go even further, taking the information gathered from their products and connecting it with other shared data they own or access. This combined intelligence allows them to design and create the next level of products, with enhanced features and services.
What once may have been considered mundane devices (washers, dryers, and refrigerators, to name a few) are now turning into sophisticated, technology-driven products. Agricultural equipment makers, for example, manufacture GPS-driven tractors that provide farmers with data that can help improve their planting decisions.
Going forward, we expect that companies that manufacture smart, connected products will have an advantage in the market. What will be important to success is not only building smart, connected products, but also starting to listen to them. Such “listening” changes the perception of what constitutes a product; instead of just being a physical device, a product becomes something that provides valuable information for companies and their customers. We think this new perspective will change the way products are modified and monetized and how customer support is provided.
For instance, a company does not have to wait until a customer calls with a complaint to know that a product connected to the Internet of Things is not working correctly; the product has already communicated the information. With this advance knowledge, the company can report an issue to a customer and seek to address it before it becomes a bigger problem. This service call could also turn into a sales call if the company not only fixes the problem but also activates a new feature that gives the product additional capabilities. The advantage of such proactive service is that a company can start to prevent product failures before they happen — and, in the process, create more loyal customers.
So by listening to their products, a company can both improve them and provide better service. Equally important, it can better monetize these products over their life cycles. Typically today, revenues rise during a new product’s introduction and then flatten. By listening to their products and modifying them when customers start to use them differently (or not at all), a company can introduce upgrades that generate mini-revenue boosts and further extend the life of the product. While this action may come at the expense of some product-introduction revenues, we believe the net result will be greater overall monetization opportunities across a product’s life cycle.
Building responsive products creates tremendous opportunities, but it also comes with significant challenges. They include:
- Setting a Product’s Price The way a company thinks about setting a product’s cost and extracting lifetime value will be significantly different and more difficult. The company must consider not just the initial cost of the physical device, but its overall lifetime value created by the information it provides and the modifications made from this information over the product’s life cycle.
- Designing a Product Since products will likely be modified as more information is collected about how customers use them, certain features kept dormant initially may be activated as the user needs or wants them. This approach moves designers further away from working on physical products and more toward building software-driven products — even for historically electromechanical devices like washers and thermostats.
- Innovating The current model of innovation is that a “new product” is a new physical device. But once products are connected to the Internet of Things, a new product could be an existing device with new software downloaded. Going from the first perspective to the second requires a mindset change, away from one in which a company needs to sell a new physical device to increase its revenue. That mindset is a strong barrier to developing smart products; it will have to evolve into one that sees a continually modified product as a revenue generator over the product’s life cycle.
- Rethinking Product Design Processes Right now, too many companies see the software and information component of a product as an afterthought rather than an integral part of the product. This perspective must change. If your product is “talking” to you and providing important contextual information, then technology plays a critical role in product design, and IT must become an equal part of the product development group.
It will not be easy to overcome any of these challenges. But doing so can lead a company into the connected world of responsive products. These products have something important to say. Is your company ready to listen?