GROWTH OPPORTUNITY IN PRODUCT EQUITY
Updated: Mar 17
As a reminder from last week’s article, product equity is the tangible and intangible value a buyer receives from his perception of the product/service “asset”, including technical specifications, quality components and construction, functional performance, design, fit-for-purpose, etc.
So, how do you grow product equity?
Every company is trying to grow in product equity; companies continuously search for ways to cut costs, increase efficiency, and deliver high-quality products to customers. Take a bushel of corn for example. The corn is fresh, it weighs 56 pounds, and it costs about $4.00 in today’s market. Let us assume you are in the market for a bushel of corn. In this case, what you get (the bushel of corn) is your asset and what it costs you (the $4.00) is your liability; the difference between the two represents your remaining “product” equity. Therefore, if you buy that same bushel of corn for $3.00, your perceived product equity would go up. At the same time, if that bushel of corn costs you $5.00, your perceived product equity would go down.
Any sale in product equity is driven by price, with the ultimate goal being to buy the same product at the lowest price possible. Most products and services nowadays resemble the bushel of corn scenario. This is part of the reason why selling products in mature markets is extremely difficult: similar products are being sold for competitive prices. Ultimately, almost no one is going to buy a product based on product equity alone. The result of this is companies fighting for customers, leading to low market returns.
One way to avoid this is by differentiating your product from the rest. However, this can be pretty difficult. You have to create a differentiation that customers care about, and that can be expensive to maintain. Many times, companies think that customers will care about product differentiation, but in reality, people rarely do. Additionally, it can be tough to sustain a differentiated product. In today’s fast-paced, interconnected world, there will likely be a more innovative product in a matter of months.
Patent protection can help for a little while, at least in the United States. Yet, as soon as a product loses its patent protection, there will be dozens of competing products in the market. Without investing heavily in research and development to figure out the next best product, profits would plummet. But, even with patent protection, creating product equity as a strategy for profitable growth typically fails. Ultimately, relying on product equity to grow your company is difficult, and typically unprofitable, especially with B2B products, as it almost always leads to commoditization and price-based competition.
How have you practiced product equity as a growth strategy? Let us know in the comments below! Stay tuned for next week’s article about brand equity as a growth strategy! In the meantime, follow us on Linkedin at “The Brookeside Group” and “Encompass CX!”
Co-written by Alexis Audeh