There are two components of a product or service, the core product or service and the product or service surround. Most strategies focus on the core product or service yet it only generates 20% of the benefit to the customer whereas normally the product surround contributes the remaining 80%. In this article we will show you how to develop a strategy that takes into consideration both components. There is significantly more benefit in improving your strategic performance in the product surround.
With the rate of change increasing, the product mix of your business in two years’ time will be a combination of some of your current products and services and some new products and services. You can assume that the balance can be 50:50.
In each product or service there is a core product, the substance. This core is normally 80% of the cost but provides only 20% of the impact. It is the product surround, which is only 20% of the cost, which contributes 80% of the impact. Where is your strategy focused, at the core or at the product surround? Often most Management attention is focused on the core product. Keep in mind that this is only twenty percent of the impact. You are best focusing on the product surround.
Can you define what is core and what is surround for each of your current products and services? Can you do this for your future products and services? Which of your products will still be in your portfolio in two years’ time? Which ones will not make it? How much re-engineering will be required?
Think about the Pareto Rule (sometimes called the 80:20 rule). Which twenty percent of your products are contributing eighty percent of your sales? Can you make a list? Which twenty percent of your products are contributing eighty percent of your margin? Can you make a list of these? Which twenty percent of your products contribute to eighty percent of your problems? Can you make a list? Finally, which twenty percent of your products are contributing eighty percent of your teams’ job satisfaction? Compare all the lists and you will probably know which products will succeed and which will fail.
The product surround is where the customer value comes from. It is harder to define because it often includes benefits such as peace of mind and self-esteem. Take a BMW motor vehicle, what is the product surround? The answer you will get from a BMW owner is quality, reliability, style, retained value and image. These benefits take decades to develop.
Step 1. Outline the core elements of one of your product or service offerings.
Step 2. Have a discussion about the current target markets key issues, opportunities and needs yet to be addressed.
Step 3. Now review the product surround as you have it now and add elements that can have a dramatic impact (and relate to the target market issues/opportunities that were previously discussed) on the perceived value but may not add much direct costs.
Step 4. Determine what 20% of new ideas will add 80% of the benefit to the product or service as a whole and confirm the actions you will implement to improve the product or service value to customers.
Step 5. Repeat for further products and services you have.