Monday, February 1, 2010

HBR Article - Combining Products and Services

A Practical Guide to Combining Products and Services  by Venkatesh Shankar, Leonard L. Berry, and Thomas Dotzel, from the November 2009 issue of the Harvard Business Review.
Combining products and services into a hybrid offering, can help companies improve their bottom lines, provide better service to customers, and arrest declining market shares. In other words, as close to a panacea as you could hope for. However, achieving a successful hybrid offering is easier said than done. Tivo is one successful example. But for each successful example there are dozens of failures. What is the key to success here?

The authors state that "Two underlying characteristics determine how customers
will value and use an offering. The first is
complementarity, or the degree to which the value to the customer increases when the product and the service are used together. ... The other is independence."
Examined through the lens of complementarity and independence, the authors list the following types of hybrid offerings:
  1. Flexible bundle
  2. Peace-of-mind offering
  3. Multi-benefit bundle
  4. One-stop bundle
It is not obvious how distinct and non-overlapping these bundles are. It seems that many offerings could arguably be put in one bundle or the other without too much fuss. More details would have helped.

The authors list four rules to keep in mind when evaluating options:
  1. Differentiation - for commoditized products, the key is to develop a high quality services. Or, "enhance its value through the addition of a high-quality service, or vice versa." - whatever that means. Do the authors mean that if the product is not commoditized, the company should launch a low quality service? I hope not.
  2. Scalability - "scope the service and scale the product". Gillette is a classic example of a company that is able to achieve massive scale of its hybrid offering, the razor and the blade. Another question to ask is whether the service can be centralized, especially for people-intensive services.
  3. Pricing - figure out which half is most profitable: the product or the service, whether the product or the service should lead the purchase, and the frequency of purchase of the product and service.
  4. Branding - the authors argue "Be prepared to invest in branding activity that promotes the link between the product and the service and enhances the company’s credibility. Brand investment is particularly important for hybrid offerings with a high degree of independence."
A useful article that makes extensive use of lists and enumeration to help organize the content in the article and to make assimilation easier.

© 2010, Abhinav Agarwal. All rights reserved.