Yesterday, at its Steve Jobs Theater in their new headquarters, Apple CEO Tim Cook announced what he referred to as “the biggest leap forward since the original iPhone”, the iPhone X.
"Ten years later, it is only fitting that we are here in this place, on this day to reveal a product that will set the path for technology for the next decade," Cook said, calling the iPhone X "the biggest leap forward since the original iPhone."
The amazing device has a “super retina” display with unprecedented resolution, it unlocks with facial recognition, it’s faster, it charges wirelessly, it’s configured for augmented reality, and yes it makes phone calls. And it also starts at $999.
Apple has been testing the top of the market for a long time. From its original workstation computers in the 1980’s to the luxury versions of the Apple Watch, the company clearly seeks to intersect its status as an ultra-premium brand with demand for exclusive technology and brand affinity. After all, brands like Louis Vuitton get $2500 for a handbag based on their brand and one could argue Apple’s brand is more popular—why not try for the same thing?
It will probably work.
The first market that the $1000+ iPhone may appeal to is the enterprise market, a B2B audience that Apple has slowly won over since Blackberry started ceding market share a decade ago. Advanced security and performance features may align with this market.
The second market is the more oft-discussed market for the premium phone, affluent buyers purchasing on status and a love for amazing technology. With a pretty strong economy in the US and abroad, it seems like a good time to go for the top of the market once again.
There is no doubt that there will be lines and the product will sell quite well.
But as a marketer, if you evaluate the sales and marketing of the iPhone X, and its unparalleled technology and features, look for the potential for ‘overserving’ the market to take place. This can occur when a product is, well, too good!
Overserved customers consume a product or service but don't need all its features or functionality. Three specific indicators point to this customer group:
- People complaining about overly complex, expensive products and services.
- Features that are not valued and therefore are not used.
- Decreasing price premiums for innovations that historically created value. An overserved customer will say, "Sure, I will take the next version of your product, I just won't pay anything extra for it."
To begin asking whether the iPhone X may overserve the market, it’s important to first ask whether the market is largely satisfied with the current solutions. Premium existing Apple phones like the iPhone 7 Plus, for example offer stunning retina display, immaculate performance, strong battery life and a beautiful camera. It is likely that customers are or would be satisfied with this performance for the demands they have for their phone.
And if you are reading this, your demands for a phone as a marketer are probably higher than the mass market. Don’t think of the market’s demands for features based on what you require or are interested in, think of more broad use cases in varying economic market segments around the world. Calls, texts, photos, internet, social media – if the status quo is satisfying or even overserving the market, then conditions exist for disruption.
It’s hard to imagine disruption and Apple and not have Apple playing the disruptor. After all, Steve Jobs was a student of Clayton Christensen, the acclaimed Harvard Business School professor who pioneered the accepted schools of thought related to ‘Disruption’. And Apple is unlikely to be truly disrupted in any case, especially since they defend lower ends of the market with lower-cost offerings.
But the iPhone X, could be a textbook example of a product that could be disrupted by a lower-end product—possibly even Apple’s other iPhone launches from yesterday, the iPhone 8 series.
Again from HBS:
A low-end disruptive innovation meets the needs of overserved customers by providing them adequate functionality in return for lower prices. The technology of this sort of disruptive innovation offers "good enough" performance along traditional metrics and is supported by a business model that generates attractive financial returns at low prices. Discount airlines, discount retailers, and index mutual funds all created growth by offering overserved customers "good enough" functionality at lower prices.
Key words and phrases in that passage are “adequate functionality”, “lower prices”, “disruptive innovation”, “good enough”, “discount” and “low-end”.
A lower-end disruptive product can win customers from a product that is overserving the market, simply by being “good enough”—it’s not abstract. We choose “good enough” products every day. Just going to McDonalds is an exercise in ‘good enough’. And like McDonalds, low-end disruptors tend to be more easily distributed, easier to consume and faster than their overserving, upmarket rivals. There is a lightness to the lower end disruptor. David and Goliath isn’t just an underdog story, it’s an example of someone with “good enough” technology defeating a behemoth whose strength was overkill; speed and guile would have served him better.
Based on this analysis, it is easy to see how the conditions exist for the iPhone X to overserve its market. Whether that happens, or whether developers, consumers and enterprise customers respond with new demanding applications that fully-utilize the product is yet to be seen.
And pioneering an ultra-premium technology at the top of the market has other tangential benefits as well. Mercedes-Benz sells the majority of its cars in the upper midmarket, but every enthusiast of the brand also drools over its AMG, McLaren and Maybach models—these pinnacles of performance and innovation add to the mystique and brand equity of Mercedes-Benz which translates into durable demand in lower-end markets.
The innovations associated with the iPhone X also represent good differentiation, a core component of anti-commoditization strategy. It is true that Apple has lost market-share in the phone market. Just this month it was announced that Huawei, a brand without nearly Apple’s name recognition sells more phones than Apple. And instead of ceding market share and innovating in a new category as Apple did when it phased out the iPod, the company is clearly ready to go to war in the phone category, probably because the overall economics of the phone are too important to pass up—things like iTunes consumption, the app store and diverse current and future revenue streams phones enable for Apple.
Otherwise, they might refer to their playbook and innovate in a new category. But, as they fight to win in the phone market, the innovations of the iPhone X do represent technical differentiation, and the unprecedented features of the device will eventually be passed down to their mass-market products, much in the way Tesla is democratizing its technology by starting at the top of the market, and sequentially launching more affordable vehicles.
As a B2B marketer with a say in market research and product development, consider all of these factors when you position your products in the market. Are customers satisfied with the technology that is currently in the market? If so, the conditions likely do not exist for a more sophisticated product – in fact, a low-end, disruptive product sell better.
Better is not always better. More affordable, simpler, more easily distributed can win as well—as can a focus on customer service.
In fact, B2B brands tend to win on three fronts: Price, Service or Product Leadership. That means that if you choose not to try and win with innovation and product leadership—and risk overserving the market—you still have two of three options to go to market with.
There can be peace in letting more complex products pursue the top of the market. If your products come with superior service or a lower total cost profile, you could have an equally effective strategy, without requiring the capital and invention associated with product leadership.
Take for example Lexus. In our Mercedes-Benz example, we referred to three world-leading brands cultivated by Mercedes. Lexus has none of the above. But they have a beautiful business model by focusing on service over product innovation, and maintaining industry-leading customer retention through “good enough” luxury cars with features their customers really value like safety, comfort, audio and navigation, while letting the other guys add horsepower and 3 second 0-60 mph times.
Regardless of your company’s position in the market, it’s useful to evaluate how your products, or competing products may be “too good” for customers. You may find equilibrium by deploying products that are “good enough” and sold at the right price. Through this, you might just find a fresh new strategy to approach the market from a different angle by focusing on price, or your service offering, to create a new connection with prospects and customers, and enjoy profitable growth by better serving the market and avoiding expensive product development.