[Marketing] Eric Shih - The Good-Enough Market
- Eric Shih
|Title||The Good-Enough Market|
Huawei launched its budget smartphone Y6 in Korea in mid-December, 2015. According to LG UPlus, within 6 days, it recorded 10,000 sales. By the 11th day, sales reached 20,000. Certainly Huawei Y6 is not the best phone on the market today. It does not have the most features, nor the sharpest display, and definitely not the best camera. But it is highlighted as the least expensive smartphone in the domestic market with a factory price of ₩154,000 won. The telecom surveyed customers to list reasons for their purchase decisions. While most were buying the smartphone for the cheap price, a significant number also mentioned the "not bad" performance of the device, compared to the price. Welcome to the world of “good-enough” market.
Historically, companies often see the market as two extremes, a narrow high-end premium market as a way to realize solid margins and rapid growth, and a vast low-end market as a means to gain market share and scale. Unlike the premium market where high-end products are purchased by discerning customers with significant purchasing power, low-end markets are filled with non-differentiated products of lower quality meant to meet only basic needs. However, in between the two is a rapidly growing “good-enough” market where products of good quality are being produced for value-seeking consumers with midlevel income. The “good-enough” market is growing for many reasons, including the slowing down of the premium market as marginal consumers are more accepting of less expensive products without all the bells-and-whistles, and trading-up from the low-end segments for features that were formerly found only in products priced beyond their reach. The increasing popularity of a “good-enough” market is evident in just about every market around the world. In developing economies like Indonesia, “good-enough” brands already account for nearly half of the revenues for some companies, and even more in the massive markets of China according to the consulting company Bain & Company.
Large companies in the premium space are often leery about entering the “good-enough” market. They fear that it might cannibalize their high margin products, devalue their hard-earned brand reputation, and they may not even have the marketing capacity required to profit in such a lower-cost environment. While their fear is well-founded, the “good-enough” market is an opportunity that they cannot afford to ignore because companies from the developing countries that traditionally produce low-end products are already exploiting this growing market.
The most obvious way many multinational companies are attempting to enter the “good-enough” market is by streamlining their supply chain and source lower cost components to stay price competitive. Some will only market their “good-enough” products in developing countries far from their home market to minimize cannibalization. Companies have had mixed success implementing these traditional strategies, and it is increasingly apparent that lower cost may not be enough to win in the “good-enough” market. After all, there is only so much a company can do to cut down cost to compete on cost against low-cost producers from developing countries like China who are aggressively improving their products’ performance.
Developing unique value in “good-enough” products will be key to gaining traction in this challenging market. What works is not necessarily a lesser version of a company’s premium product which often times are over-engineered, over-featured, and over-priced for this particular market. Simply developing a lower cost version of a premium product will not reduce risk of cannibalization and still leaves a product with too many lower quality features that customers do not value or want to pay for. Instead, product adaption strategies need to focus on delivering a clearly differentiated product that steers clear of the premium business and offers a set of uniquely relevant features tailored for the “good-enough” market.
Successful “good-enough” products often deliver higher value because they are designed to do one or two things exceptionally well. A classic example is GE’s Mac 400, a popular, low-cost, portable ECG (heart monitor) developed in India that costs a fraction of what a typical ECG unit costs in developed countries and is one-fifth the weight. While it does not have all the features and advanced diagnostic capabilities of higher-end ECG units, it gets the job done. The appeal of Mac400 is that it is light weight enough to allow rural physicians to carry it to remote villages. By using existing components, such as the printers used in Indian bus stations which can withstand dust and monsoon rains, GE further managed to increase Mac 400’s functionality while further decreasing the cost of the device.
Being close to the customer and understanding gaps in the market are essential to any “good-enough” product strategy. This means companies need to develop market intelligence capability and actively monitor product usage to gain the necessary insights. Product design decisions should be driven by results from field research of actual users as opposed to R&D centers that are far from customers. Distributors also play an important role. Imperfect products are acceptable if customer service is on stand-by to fix problems should they arise.
Lastly, speed to market is critical. The good-enough market is fast moving with variations of new products being introduced in quick succession. To keep pace, companies need to be flexible and responsive to consumer requirements, and decisions need to be delegated to lower levels in the organization instead of waiting for responses from senior management.
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