Posts Tagged ‘product quality’

“It’s The Worst Product But It’s The Cheapest” Isn’t A Viable Strategy

Tuesday, December 31st, 2013

Given the developments in data science, it was inevitable.The worst product but the cheapest - not a viable strategy

After spending 7 or 8 years building databases and algorithms, Thomas Thurston has determined the factors that are common to businesses which succeed – and those which fail.

His models can now be used to predict the outcome of investments by
•  Mid- and large-size companies in business development, and
•  Venture capitalists in startups and early stage companies.

Clayton Christensen who, in my opinion, is one of the best thinkers about business today, has recognized Thurston’s research and predictive models.

So you have to take them seriously.

Thurston says that a company’s strategy is where they find most predictive variables. He doesn’t say whether it’s the strategy itself, the way in which it’s executed, or both, that matters.

He does, however, make a couple of interesting points about strategies which work and those that don’t.

For example, brand new startups, which claim to have the best “widget” on the market, fail about 90% of the time. On average, however, “only” 70% – 80% of businesses fail in their first 10 years.

Thurston claims the best widget startups face worse odds than average because, if they are right and their product/service is the best available, bigger competitors, with deep pockets, put them out of business.

His favourite strategy is to “go to market with the worst product but it’s the cheapest”, citing Walmart, McDonalds and Southwest Airlines as examples.

I take his point but have a problem with calling them all the worst products. If that were the case, for example, Southwest Airlines would have a much worse safety record than other airlines.

He seems to be suggesting low cost automatically means low quality which is not necessarily the case.

Walmart stocks brands that are perceived as offering quality at a lower cost i.e. better value than at other stores. Walmart keeps those costs low by the way it redefined the traditional retail model.

McDonalds, Southwest and Walmart may have grown by taking value-conscious customers away from their larger competitors, leaving them the customers they perceived as “best”.

But I dispute that any consumer adopts the worst product on the market simply because it’s the cheapest. If they did, they’d try it once – and never go back.

That’s my view. What’s yours?

You can see the article, which provoked my little rant, here.

If you enjoyed this post you’ll also enjoy Prices – 6 Reasons to Keep Them Up.

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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