Bottom-up tweaking - or top-down defeaturing?
Is it possible to defeature a product created for a developed world market – a top-down approach – or should you start bottom up? Or put in another way: Is it in fact possible to change a high-end product solution to a mid-market product solution?
This is a critical question when a Danish company sets out to target the Chinese mid-market.
Western companies are trying to lower their prices in order to compete in the Chinese mid-market. Chinese companies are trying to raise the quality of their products to compete with imported brands. The prices and quality of Western and Chinese products are converging – but they arrived at the same level from different directions.
A western company that wishes to adapt or change its existing product to make it better suited for a lower cost market – in emerging markets or in the West – often finds this difficult, painful and not sufficient to lower prices substantially.
“Transplanting” a western product 1:1 for production in China can give some savings due to lower cost of manual labor, etc., but often not enough to compete in the local mid-market.
Defeaturing the product by removing specific nice-to-have features and functionalities can bring down costs further, but likely still not enough for the product to become competitive in the Chinese mid-market, where prices are typically 50% lower than in the high-end segment.
One reason could be that the original product and the entire value chain, which surrounds it, are ”native” high end. The functionality, the quality, the supply chain, the marketing, and the development efforts are all rooted in the Western culture and economy, and the various elements have been optimized as a system for this context.
Individual elements may not be easily removed, and even if they are, the result may not affect costs substantially.
What’s really needed is a radical re-engineering of the product and the processes to eliminate the things that...