by Ian C. MacMillan and Rita Gunther McGrath
A simple matrix helps you identify the attributes that will make your goods and services most competitive.
Why did a minor math error that would occur only once every 27,000 years so enrage customers that it briefly threatened to derail Intel’s Pentium chip? And how could a feature as trivial as an inexpensive cup holder swing millions of customers to purchase a $17,000 automobile—particularly when only three years later, the same cup holder had become almost invisible to buyers? Is it possible to develop rational product strategies in the face of apparently irrational customer behavior? The fact is that every product has more attributes than meet the eye. Profitable product strategies are built around giving customers the exact mix of attributes they want but no more. Companies that underinvest in attributes that customers value will lose customers; companies that overinvest in attributes that customers don’t value will lose money. Managers must find the best fit between a product’s bundle of attributes and their customers’ needs—and doing so is an endlessly iterative process because competitors innovate and customers’ needs change. To help managers track and evaluate this dynamic fit between the needs of their customer segments and the attributes of their products, we have developed a simple analytic tool. We begin with a discovery-driven process for uncovering salient product attributes—those that, all other things being equal, will swing a purchase decision. Then, we map salient attributes onto what we call the ACE Matrix (Attribute Categorization and Evaluation), a grid that highlights the competitive imperatives for each attribute. The matrix shows what action a company must take in response to each attribute. Step One: Uncover Salient Attributes
In any population of customers, there are concentrations of people whose behavior sets—patterns of why and how they use a product, how they purchase it, and how they perceive the risk of purchasing it—differ distinctly. These segments are not defined simply by demographic differences such as age and gender. Demographic differences are merely correlates of real behavioral differences, which are a source of opportunities for optimizing the fit between product attributes and the needs of customer segments. Observing customers as they buy and use a product is the first step in discovering its salient attributes. Sometimes the attribute is a part of the product itself or its packaging. At other times, it is less obviously associated with the product; for example, it may have something to do with the purchase experience. Watching closely helps uncover unexpected attributes. Consider the example of John Sculley’s marketing team at the Pepsi-Cola Company and how it rethought the cola market in the early 1970s. For the first time in years, at the instigation of the Sculley team, Pepsi took a serious look at how consumers behaved when they bought and drank Pepsi-Cola. The company conducted an in-home consumer research study, giving 350 families the chance to order Pepsi and any competitive product weekly at discounted prices. Much to the surprise of the marketing team, no matter how many bottles of Pepsi were purchased, consumers emptied them. Furthermore, the total amount of soda purchased was limited not by consumers’ taste preferences but by their ability to bring the product home. Customers bought as much as they could comfortably carry and no more. That insight led Pepsi to focus on packaging as a way to challenge market leader Coca-Cola. Plastic replaced glass, and multipacks replaced the six-pack. The distinctive Pepsi logo guided consumers to the product. More important, the packaging strategy converted a major Coke strength (its small, distinctive hourglass bottle) into a liability: At the time, plastic bottles in that size and shape were very expensive to produce. Pepsi-Cola...