7 cases of strategic product operations!

In practice, product operators often face many problems, such as high unit prices and low frequency of products; old basic products have been in operation for many years and are in urgent need of finding new growth points; the original product lines are complex, bloated, and there is room for re-disassembly and re-sale operations.

The author first introduces the definition of complementary products, and then hopes to give some inspiration to product operators through 7 complementary product cases.

Definition of complementary products

Complementary products are goods that are consumed together in a certain ratio. For example, glasses and lenses, substitutes and complementary products are a pair of relative concepts. So how do substitutes and complementary goods affect each other's prices and demand? Let's look at the following two demand curves:

Assume that the price and demand of Xiaomi mobile phones are as shown in D1.

If the price of Huawei phones drops significantly, many users will think that since they are both domestic phones, using Huawei phones instead of Xiaomi phones can significantly reduce purchasing expenses, so why not?

So even if the price of Xiaomi phones remains unchanged, demand will decline. This results in a parallel shift of curve D1 to D2.

Assume that the price and demand of air purifier filters are as shown in D1.

If retailers promote air purifier hosts by reducing prices, some users who originally did not plan to buy air purifier hosts will buy them with the mentality of getting a bargain. In this way, users who buy air purifier hosts will most likely also buy some air purifier filters by the way.

Therefore, even if the air purifier filter element does not change, the price reduction of the air purifier host still increases the sales volume of the air purifier filter element, causing the demand curve to move parallel from D1 to D2.

In product strategy, the so-called complementary product effect is a product operation strategy that aims to improve users' views on basic products with a dominant position. Often, unexpected results can be achieved by enhancing complementary products with an auxiliary position.

Then product operators must understand the correspondence between basic products and complementary products, and carefully identify complementary products that have important connections with basic products. The essence of the product strategy relationship between basic products and complementary products depends to a large extent on user views and consumer cognition.

Generally speaking, basic products and complementary products are interrelated. Often, when one prospers, all prosper, and when one suffers, all suffer. They influence each other and jointly determine the market image of the product portfolio and the overall perception of users.

The complementary product effect will also change with the changes in market demand, and different synergy effects will occur in different industrial cycles and different industrial structures. For details, please see the following successful cases of complementary product effect:

Case 1: Razor and Blade Splitting Strategy

More than 100 years ago, King Gillette, the founder of Gillette, discovered that if a set of products consisting of a razor holder and multiple blades were sold in the traditional way, sales would often be poor because the overall price was too high for customers to afford. So King Gillette found a way to sell the set of products separately, and set the price of the beautiful and durable Gillette razor holder very low. Moreover, the price of 55 cents is much lower than the cost of $2.5 for a Gillette razor holder. However, since the investment for the first purchase of a razor holder is relatively low, users will generally accept it.

So the number of users of Gillette razors has increased significantly, and we can all immediately realize that users of Gillette razors must continuously replace Gillette blades. Then Geely can raise the price of Gillette razor blades and sell the razor blades that cost only 1 cent for 5 cents. Then the continued revenue from the blades not only makes up for the initial loss from selling the knife holders, but also significantly increases overall profits.

In fact, what is more important is that this pricing strategy of splitting the product matrix has helped Gillette monopolize the razor market for a long time. After Gillette razor, this pricing model of Gillette razor was later learned and applied by many companies.

We found that we could split this product portfolio into a basic product and a complementary product. Moreover, this complementary product is manifested as consumables and subsequent continuous services. Whether it is printers and ink cartridges, optical cameras and films, game consoles and corresponding game software, elevators and elevator maintenance services, software and software upgrade services, as well as water purifiers and water treatment services, etc.

Many products have achieved success with the help of this pricing model. This pricing model is collectively referred to by the market as the razor and blade strategy, which sells basic products at cost price or even far below cost, with the aim of encouraging users to purchase more complementary products with higher profits in the future.

Once the basic product drives the complementary products, that is, a razor drives the blades, profits will roll in. The key to the fact that blades can become the company's main source of profit is that blades are not only consumed repeatedly, but also difficult to be replaced by other companies' products due to patent issues.

Case 2: A coffee company that sells capsules

Green Mountain Coffee Company is a company that has taken the razor and blade strategy to its extremes.

Green Mountain Coffee Company was founded in the United States in 1981. Listed on NASDAQ in 1993. If Starbucks sells feelings. Green Mountain sells cups. The founder of Green Mountain Coffee has a famous saying: Why brew a pot of coffee at a time? I only drink one glass at a time.

This idea prompted them to invent an important product - the K-cup capsule that only brews one cup of coffee at a time. The so-called K-cup, also known as coffee capsule, is a unique patent of Green Mountain Coffee. It is a container that looks like a paper cup, with a smaller paper cup-shaped permeation device inside. The unique design that can only allow liquids to penetrate can greatly preserve the aroma of coffee and is therefore popular.

To match this K-cup capsule, Green Mountain Coffee Company developed a special Keurig coffee machine. Put the K-cup capsule in this coffee machine for one minute, and a cup of fragrant coffee will appear in front of you. And there’s no need to grind coffee beans, weigh them, or clean them. There is no residue at the bottom of the cup and each time you make just one cup.

Each Keurig coffee machine produced by Green Mountain is sold at around US$100, which is the cost price or even a slight loss. But once consumers spend a hundred dollars to buy a Keurig coffee machine, they will keep buying the K-cup coffee capsules that go with it. Green Mountain Coffee Company has applied for multiple patents related to K-cup capsules and opened them to all beverage companies, allowing other coffee, tea, hot cocoa and other beverage companies to produce these K-cup capsules and use them in Green Mountain's Keurig coffee machines.

These companies only need to pay Green Mountain a patent royalty of 6 cents per cup. Even the famous Starbucks has launched such a Starbucks coffee capsule. After consumers purchase Green Mountain coffee machines at low prices, they will not only buy its original K-cup coffee capsules, but also purchase K-cup capsules in the form of tea, hot cocoa, etc. from other beverage manufacturers, and even Starbucks K-cup capsules.

The synergy brought by this complementary product operation approach is that approximately 3 million K-cup capsules are consumed every day in American homes and offices.

Green Mountain Coffee has further developed its razor and blade product strategy, using a so-called razor to be compatible with more types of so-called blades. It uses its specially manufactured Keurig coffee machines to be compatible with different types of K-cup capsules from different beverage manufacturers, occupying more market space, and then charges other K-cup capsule manufacturers through patent licensing. This is the so-called product strategy of making money while doing nothing.

Case 3: Reverse innovation using complementary products strategy: Apple iPod and iTunes

Apple's iPod and iTunes are business examples that maximize the effect of complementary products.

Apple launched the iPod in 2001. Almost every product operator remembers Steve Jobs’ famous slogan at this famous launch event: “Put 1,000 songs in your pocket!”, which is still very cool.

In fact, early MP3 players could only store one hour of music, while the first iPod could store 1,000 songs; but what really pushed the iPod to the top was its complementary product, iTunes.

Although most competitors could compete with the iPod in terms of hardware, once Apple's iTunes was launched, other competitors found themselves at a huge disadvantage.

Apple has iTunes desktop software that allows iPods to sync with computers and allows cheap downloads of legitimate music. The iTunes store was also the first legal website where users could pay for and download songs on a per-song basis, with users only having to pay 99 cents per song.

These songs come from the five major record companies and thousands of independent musicians, and they charge 99 cents for each song; 70 cents goes to the record companies that own the copyright to the songs; 20 cents goes to the credit card issuers that process the payments; and although Apple bears the operating and maintenance of the payment website and other indirect costs, it only keeps about 9 cents in revenue for each song.

Although there was no direct profit from iTunes, it quickly became an extremely effective complementary product to support the base iPod product. Within three days of the launch of the iTunes music download service, computer users downloaded 1 million copies of the iTunes desktop software and paid for more than 1 million songs. As a consumer, you will definitely love the ability to freely choose from a wide variety of songs and then download them online in real time; and the price is so low, you can get your favorite song for only 99 cents.

In this case, iTunes became the world's largest music store. The launch of iTunes had an extremely amazing impact on iPod sales. Before the launch of iTunes, Apple sold an average of 113,000 iPods per quarter. After the launch of iTunes, iPod quarterly sales soared to 733,000 units. The iPod eventually captured 70% of the US MP3 market, and Apple began to truly embark on a path of explosive growth at the hacker level.

In essence, the complementary product effect created by Jobs is a business model that is the opposite of the traditional razor blade strategy, which is to sell cheap blades to boost razor sales. The key point is that what is sold here are other people's blades, songs from the five major record companies, and users can download a song they like very much after careful selection for only $0.99. The razor that pulls the trigger is its own. An iPod product costs at least $399, and iPod products at each price point are often $50 to $100 higher than its competitors, but its market share is as high as 70%.

Case 4: Low-frequency breakthrough complementary product strategy: IKEA Home and IKEA Restaurant

IKEA is the world's largest furniture supplier, with 1 billion customers visiting its stores every year. When you mention IKEA, you will not only think of the simple and natural Nordic style furniture, but also unconsciously think of IKEA restaurants and the food stores outside the checkout area.

Users who have been to IKEA restaurants all have an impression of it. IKEA’s beef balls and ice cream are must-order items. Meatballs are a specialty food of Sweden, but IKEA has developed a variety of products such as vegetable meatballs and chicken meatballs for consumers in different regions, so much so that today's consumers prefer to call them IKEA meatballs rather than Swedish meatballs.

The reason why ice cream has become a marketing tool for a restaurant. The key is that it is the cheapest ice cream on the market. You only need one dollar to buy an ice cream on weekdays and only two dollars on weekends. In essence, IKEA is not just a restaurant that doesn't make money.

There is a broad complementary effect between IKEA restaurants and IKEA furniture. We all know that furniture stores are usually located far away from the city center because the rent is cheap; IKEA is no exception. For example, in Beicai, Shanghai, due to the cheap rent, IKEA can have a larger scale and a more complete range of furniture, and also provide free parking; but because it is far away from the city center, the surrounding supporting facilities are definitely not perfect.

On the other hand, furniture shopping is very time-consuming, and everyone may have had the experience of buying furniture on an empty stomach. When the founder of IKEA first started his business, he said: You can't do good business on an empty stomach. IKEA restaurants meet the needs of users at specific times and places.

Furthermore, the consumption frequency of furniture is relatively low, so how can we attract customers to visit IKEA more frequently?

In the minds of users, IKEA restaurants have become a very influential restaurant chain. Together with the food stores, about one-third of customers come to IKEA specifically to dine and visit IKEA home furnishings. Careful customers will also find that IKEA’s user traffic flow design is very unique. Generally, users will be guided from the parking lot to walk through a section of IKEA shopping route before reaching the IKEA restaurant! During this walk, users will be unconsciously attracted by the products along the way, stop to appreciate and choose IKEA furniture, and the desire to shop and willingness to pay will naturally form.

IKEA starts from user needs and cleverly links furniture and catering, which seem to have no direct dependence. This product strategy of using high-frequency catering business to drive low-frequency furniture business is the complementary product effect; it is reflected in the use of IKEA restaurants and food stores to solve the discomfort of customers buying furniture on an empty stomach, and this kind of special catering provides a great value experience, which will continue to attract customers to patronize frequently.

By driving relatively low-frequency furniture consumption through high-frequency consumption such as catering, we seem to have found a counterexample of the so-called "not doing one's main business" in IKEA. Sometimes the more unique and attractive your side job is, the more successful the main business will be.

Case 5: Low price for traffic, high price for value-added: Alibaba basic services and value-added services

We all know that in the beginning, anyone could open a store on Taobao without paying any fees. However, when Taobao had the amount of data it has today, it not only charged service fees for basic product technical categories, but it also developed more charging modules for value-added products. For example: Taobao Express, Diamond Exhibition, full-width ads, Alimama ads, word-of-mouth and other value-added product modules.

So it is no exaggeration to say that Alibaba’s start-up is also a model masterpiece of razor and blade application. Alibaba's basic products attract merchants for free, fighting against competitor eBay while accumulating its own traffic pool; when the user base reaches a certain size, it begins to sell a matrix of value-added products.

Case 6: Splitting a bloated product: a restaurant in the sky

In the fiercely competitive aviation industry, airline catering service is an auxiliary function. However, it is generally in a weak position in the overall operation of the airline.

In the past, we often complained about the bad taste of airline meals, and there was not even an explanation for why they were not tasty. However, in the past year, we found that some airline meals have improved a lot. For example, Sichuan Airlines' Lao Gan Ma, brown sugar buns and baked potatoes are very popular. Xiamen Airlines orders meals online, and even economy class passengers can choose from nearly ten special meals in advance online. Hainan Airlines specially provides yellow chili sauce, highlighting the local characteristics of Hainan. In the past year, we often saw friends waiting at the airport sending photos of pickled mustard greens and shredded pork noodles, spicy pork noodles, and China Eastern noodles on WeChat Moments.

Through discussions with senior professionals and further analysis of airline catering, I found that airline catering is actually extremely complex, as reflected in the following points:

First, there is the time limit. Since food is not easy to store, it must be fully distributed within 24 hours, which requires an efficient cold chain logistics system.

Second, food hygiene and safety are more stringent and even demanding on airplanes;

The third is facing the uncertainty of demand, because the number of passengers on each flight is uncertain.

On the one hand, the taste of airline meals is bound to be affected after secondary processing, cold chain processing and several twists and turns; on the other hand, with the improvement of living standards, users' taste buds are becoming more and more picky, and ordinary quality meals can no longer meet the needs of passengers.

In fact, compared to the basic service of flight, whether it is providing catering or luggage services. In fact, they are complementary services that are sold in bundles, and this bundled sales can actually be separated, which means that the complementary service of airline catering can be released. Then the next step is to choose between two completely different changes:

On the one hand, since airline catering is complicated and often complained about, it would be a good idea to learn from some foreign airlines and cancel catering services and give up bundled sales.

The other side is to improve the quality of airline catering and thus enhance the overall experience of air travel services to strengthen bundled sales. On the other hand, the increasing number of internet-famous foods on airplanes is also a result of airline catering companies seeing the pressure and crisis of being abandoned.

Case 7: Artificial intelligence is born from complementary products

Artificial intelligence has three core elements: algorithm + data + computing power.

On the one hand, companies and individuals who are good at algorithms are often proficient in machine vision, but not also in machine hearing; on the other hand, companies and individuals who are good at business analysis in vertical fields and have countermeasures for the weak links in their own business often do not have both algorithms and data. Thirdly, companies that make computing chips focus on the versatility of their chips, but have to lower the performance in the vertical field of their chips.

Based on the above characteristics of artificial intelligence products, artificial intelligence products often start from one point. For example, Google starts with TPU+TF and uses TF as a free product to build a user pool; Amazon uses MXNET as an open source framework, allowing users to join its own artificial intelligence camp at the lowest cost, and then sells Echo smart speakers and AWS services.

Thoughts

To achieve product complementarity and increase efficiency, we can learn from Gillette and split products with a high total price into one high and one low, and use the low-priced products to drive sales and drive the high-priced products; we can also learn from coffee capsule companies and use basic products to drive the demonstration of value-added products; we can also learn from Alibaba and use low-priced or even free stores to gather traffic pools; we can also learn from IKEA and use high-frequency catering to drive low-frequency furniture sales; we can also disassemble the product modules of airline catering and optimize them and sell them.

It is still very difficult to realize the complementary product effect in product strategy. Behind every successful application of the complementary product effect there is almost always an extremely wonderful product story.

Author: Lian Shilu

Source: LineLian