ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Alison Beard.
The iPhone is no question one of the most interesting and successful products to be launched in the past two decades. In one sense, it’s amazing how it grows with you. Regular operating system updates, an app store that lets you install new content and tools, accessories like AirTags or AirPods you can add to it. At the same time, a lot of us find we want to buy new ones every few years to get the latest camera technology or longer battery life or some other new feature. Apple is walking a very fine line between what product marketers call planned obsolescence, forcing us to continually buy better versions of what we already have, and adaptability, ensuring that we can improve and extend the use of our purchases. Our guest today says that the latter category of products is what will drive consumer spending and loyalty, as well as corporate value going forward. He’s here to explain why and offer insights on how organizations can make the shift. Vijay Govindarajan is a professor at the Tuck School of Business at Dartmouth College and the co-author of the HBR article “Design Products That Won’t Become Obsolete.” He’s known to his friends as VG. VG, welcome.
VIJAY GOVINDARAJAN: Thank you very much, Alison.
ALISON BEARD: So tell me more about this shift that companies are making from planned obsolescence to product adaptability, and explain some use cases beyond tech products that include software updates.
VIJAY GOVINDARAJAN: I think in the past companies have followed this planned obsolescence, which is we had a product for single use and after that single use, you throw away the product. And this has been the engine for commerce in the 20th century. And the beauty of that model is you keep buying more things. Products that grow are products that adapt, change, and evolve as the customer needs evolve. There is a company in India which makes shoes for children which can expand in three sizes without any human adjustment. They have come up with a path-breaking technology – a new material which expands as your feet grow. This is an example of product that grows. But if you want a non-tech example, we can go all the way back to 1949. This bicycle company Huffy for the first time introduced a bike called convertible bike, where it added a training wheel. The moment you add a training wheel, the bike can be used for a very young child and then you remove the training wheel and make the seat and handlebar adjustable. Then the life of the bike extends from few months to several years. This is a product that adapts and grows. I think we need to change the paradigm from planned obsolescence to products that grow, from use and throw to use and grow, from design to die to design to adapt. This is the new fundamental shift in new product design.
ALISON BEARD: So I can see how this adds value for customers because you get to keep a product longer and it improves over time. But what is in it for the companies beyond maybe being able to charge a higher price?
VIJAY GOVINDARAJAN: It is true that if I make a pair of shoes that you have to throw it away and buy new shoes, I can probably sell three pairs of shoes, as compared to this company in India, which makes a shoe that expands to three sizes. Here’s the point – I have seen the amount of environmental tax we have put every time we throw a product after single use. This has reached a point where companies will lose their social license to operate unless they come up with a solution that minimizes the damage to the environment. The second part is customer value. A customer who can buy a pair of shoes which expands in three sizes is not going to buy three pairs of shoes, and therefore if you are a company, your primary constituency is your customer and you have to add value to the customer. Therefore, I say the twin demands, customer value and environmental sustainability, call for companies to fundamentally rethink how they design products. But it is true that will the company make less money? Because earlier they could have sold three pairs of shoes; now they’re able to only sell one pair of shoe. Think of it this way. Suppose just for the sake of argument, a pair of shoes costs $100 and it takes $50 to make the shoe. So in the past with planned obsolescence, I could have sold the customer three pairs of shoes. That’ll be $300 revenue and $150 cost. That means I made $50 margin. In the new paradigm, products that grow, I can charge the customer say $200 for a pair of shoes that expands to three sizes. Therefore, the customer is better off. But if it only costs me a hundred dollars to make the $200 shoe, I still make the 50 percent gross margin. Therefore, my point is actually products that grow is a competitive weapon companies can use because it satisfies three things simultaneously: customer value, environmental sustainability, and corporate profits. And if a company is able to do it, competitors will be at a disadvantage. Therefore, this is just a matter of time before this new paradigm will become the normal practice in companies. Why I’m saying this is products that grow happened in 1949 with Huffy’s bicycle, but products that grow will accelerate with the advent of digital technologies and the other kinds of technological improvements, like the stretchable materials. Therefore, this is only going to accelerate. If a company doesn’t do it, it’ll be a serious competitive disadvantage.
ALISON BEARD: You also talk in the article about how allowing the customer to grow into your products can actually streamline the customer feedback and innovation process. Talk a little bit more about how that happens.
VIJAY GOVINDARAJAN: That is absolutely true because today in the planned obsolescence model, you talk to the customer when you introduce the product, and after the product is used, the customer comes back to buy the same product again. Whereas if I have to design a product that adapts, a product that grows, then I need to be in touch with the customer for the entire life cycle of that customer because that is the only way by which I can make sure I can add new functionalities to my product automatically when the customer needs it. Therefore, the customer engagement has to be much more long-term and continuous. And that itself has tremendous benefits. Here is a product that grows. A company has now come up with a tennis racket where they have put sensors by which the tennis racket learns how to improve the performance of that player because the racket now tracks where you make contact with the ball when you say you are serving. And it’ll instruct you how to make better contact so that your serve is faster. Similarly, they’re studying your backhand, your forehand, and continuously give you feedback as to how you can improve your game. For that company to continuously provide more value to the customer, it has to improve the software functionality. That means they have to be in contact with their customer throughout the life of the customer. So therefore, continuous engagement with the customer, life cycle, and brand loyalty and customer loyalty are critical here.
ALISON BEARD: But that sounds like an example of a potentially additional revenue stream. So in addition to maybe charging a little bit more for this product that grows, you can also add services on top of it?
VIJAY GOVINDARAJAN: What I can create is a brand community. By that I mean I create a community amongst all the people who bought the tennis racket from my company. With the result, I am able to learn across customers when I provide feedback to improve the performance of a single tennis player. With the result, now I’m creating a brand community. Now I can charge a subscription for belonging to that community because it provides additional value and also that community itself, not only my software can give additional insight, but the community can begin to have conversation and improve each other’s performance by just sharing what they do, what individual players do. That’s a great example of how you can create additional value. Here is another example. There is now a breakthrough by which a company has found a way to create a stent that grows as the human body grows. Imagine a young child has a heart problem and you put a stent. Now, the child grows. In the past, I have to do another surgery to insert a bigger stent, but what if I come up with a material by which the stent automatically grows? Then the cost and the pain of multiple surgeries go away. But here is the deal. I can now charge for monitoring because it’s very important to monitor how that stent is performing, and that monitoring is an additional service stream. Therefore, products that grow give you revenues beyond the initial premium pricing. You can create complementary products, you can create upgrades, you can create charge for services, charge for being part of brand communities. That is why this is an extraordinarily powerful strategy to make money for companies, in addition to providing customer value and being nice to planet earth.
ALISON BEARD: Might some consumers, though, find those add-on costs off-putting? Or does your research show that they’re getting enough value that they don’t mind being privy to those additional revenue streams?
VIJAY GOVINDARAJAN: Products that grow strategy has these inbuilt challenges because you don’t want to provide customers more functionality than it is useful for them. So products that grow essentially asks you to predict the needs of the consumers in the future and build that in. And therefore, you are now in the prediction game and you may be wrong. Therefore, through trial and error, you need to make sure your product evolves only to a point that adds value to the customer. You don’t want to annoy the customer; you don’t want to overcharge. But this is, again, something the companies must learn to do. Here is the point that I want to say, broader point that I want to say, Alison, which is every product can be a product that grows. However, that doesn’t mean because every product can be a product that grows, you need to make every product a product that grows. Think about a hammer. A hammer is a hammer. I don’t need to make it adaptable. So therefore, there are certain products, it’s fine the way it is. Or think about an adaptable paper clip. If a product is low margin, low price, what is the point in making that adaptable because the customer doesn’t see the value? So as a company, I need to step back and say, is it all right if I design this product once and it lasts forever for the customer? Then just go with that. Or ask the question, by making it adaptable, is it really going to add value? Because not all products can or should be made products that grow. But the point is there are too many products we make today which are use and throw, and therefore companies need to step back and look at their strategy. This is a strategy question. This is not just a tactical product design.
ALISON BEARD: Yeah, and what about those industries that are built around planned obsolescence? I think about fast fashion, for example, many electronics companies. What’s your argument to them?
VIJAY GOVINDARAJAN: It’s very interesting that you brought up fashion because fashion goes out of fashion. Adobe just came up with a new product which is a dress that a woman wears and they made digital petals with the result that the dress changes in very dramatic and very interesting ways. And therefore even in fashion industry, I can make that product a product that grows. There is nothing written in concrete which says certain industries, planned obsolescence is the only way to go. It’s just human ingenuity to figure out whether we can make that as a product that grows. Maybe it’s not cost effective today. It may be tomorrow. Therefore, you better watch what the technologies that are needed to make it a product that grows.
ALISON BEARD: So what other challenges have you found associated with trying to make products this way, particularly technology that adapts? I, for one, am very tired of software updates requiring me to restart my computer nearly every day. And then I also recently talked to a cybersecurity expert who explained that when we connect all of these products to the internet and the cloud, the attack surface expands dramatically, which puts us all at hacking risk.
VIJAY GOVINDARAJAN: I think it is absolutely true. There are challenges. There is security concern when a product grows only through software updates, so that means somebody is accessing my private life by putting a software update. But you can build protection against those security issues, but it is definitely an issue. The other challenge is, you may not have the expertise to create a product that grows because the expertise may be outside the capabilities your company has. So therefore, there are limitations, there are challenges, but they can be overcome.
ALISON BEARD: Talk a little bit more about how the design process changes when you’re trying to solve for a series of customer pain points rather than just one. How do you make sure that you’re creating a solution that actually does have real longevity?
VIJAY GOVINDARAJAN: There are four ways one can design a product that grows. The first is you pre-configure the hardware itself, and we already gave the example of Huffy’s convertible bike. There you have pre-configured the hardware with the result the bike life grows from a few months to several years. Another good example is a company called Chair for Life, and that wheelchair is built with modular base where you can attach medical equipment, you can attach extra storage. There is space for third party add-ons. So that’s one way you can design where you pre-configure the hardware so that the product becomes adaptable. The second is pre-configure the software, and we gave the example of the tennis racket where the software is pre-configured, with the result it begins to learn and adapt. A third is the hardware is not pre-configured, but the hardware becomes adaptable. By that, I mean you started this podcast with the example of iPhone, and iPhone is not an adaptable product because everything on the iPhone is completely integrated. In fact, it’s interesting. I bought the iPhone, whatever the latest iPhone 16, and iPhone 16 charger is different than the charger for iPhone 15. So they even make you buy the charger again. There is a company called Fairphone. What it has done is not to do the iPhone and the smartphone as an integrated package, but make it modular. When you make it modular, then I can give you the hardware updates. For instance, suppose the camera technology improves. I just need to only add the camera function. Why do I need to buy the whole iPhone again? Whereas in the Fairphone, they just give you the updates for the camera. If you can design the product in a modular way, that is another way you can do hardware updates after you sell the product. And finally is the software update. Tesla is a good example. And it was interesting. I met Elon Musk maybe about a decade ago and he told me something which really stuck in my mind. I used to be a Mercedes-Benz guy, and when I met him I decided I’m going to buy a Tesla and I am a Tesla owner for the last ten years. He said something, he said, “VG, when you buy a Tesla, you will have a new Tesla every time you go to your garage.” And what he means is he gives a software update, at least one software update every month. And every software update essentially improves some functionality in that car, as compared to the use and throw model where companies introduce new models of automobiles. Only in the new model, you have the feature. As a result, you have to trade in your old model and get the new model. Whereas Tesla does not have a model year. The reason they don’t have a model year is your car is absolutely up to date. So that’s a great example of software update, and there are other companies which do software updates as well. John Deere, using software, they’re able to change the horsepower of the engine from 40 horsepower to 900 horsepower. Think about that. If, through software, I can increase the power of my engine, then I don’t have to keep on buying new engines.
ALISON BEARD: And which of the companies that you’ve studied would you say is really the exemplar in building their whole business model around products like this?
VIJAY GOVINDARAJAN: I think there are established companies, and we already talked about two of them, Tesla and John Deere. I would also say Rolls Royce and Honeywell are great examples of companies which have built products that adapt. And in terms of startups, I would say Aretto, which is the shoe company in India. FairPoint [sic], we talked about the modular smartphones. Moxie is a company which has a robot which teaches kids lessons; based on the stage they’re in, it changes the lessons. And the last one is View, which is a glass company, which it’s an interesting company in Silicon Valley because what this company does is they supply glass to commercial buildings. And think about an airport or a commercial building like John Hancock, which is all glass. In the 20th century, that glass, if you are making a presentation inside, you have to bring the blinds so that the slides will show. In fact, the blind defeats the very purpose of having a glass building. The whole purpose of a glass building is you want to see outside. Why do you want to bring the blinds and close it? What this company has done is has put sensors into the glass with the result if there is heavy sunlight, it tints so that the sunlight doesn’t come into the building. So I can have a PowerPoint presentation without bringing the blinds. And not only that, it extends the life of the glass because it doesn’t tax the glass that much. It improves energy efficiency inside the building because it doesn’t bring so much sunlight inside the building, and you avoid all the costs of the blinds. And this is a great example of a product that grows, as opposed to a product that is fixed. So there are startups and there are established players.
ALISON BEARD: And what kind of business results have you seen from adding or embracing these types of products in terms of sales or revenues or profits?
VIJAY GOVINDARAJAN: The company which I consider one of the forerunners in product that grows is Radio Flyer. They have this Grow with Me Racer, which extends from one year to four years. And the same car can be used by the kid for almost three years. And Radio Flyer introduced the Grow with Me Racer in 2017. And their revenues and profits have grown at 10 percent compounded in the last five years. And the last five years includes two or three COVID years. So that’s a good example of a company actually benefiting from this strategy. FairPoint [sic], their sales revenue increased from 80,000 smartphones to 120,000 smartphones in one year. That’s almost a 50 percent increase in sales. So clearly profit is one metric by which you can measure success. But I would say we need to change the scorecard – and a scorecard from planned obsolescence to product that grows. And the scorecard should track three metrics. The first metric is customer engagement duration, whether they mean instead of measuring time to replacement, we need to measure how long customers actively use and engage with your product. The second is revenue per customer over time. Track value captured through product growth rather than replacement sales. And the third metric is environmental impact reduction. Quantify the waste and resource consumption eliminated by avoiding planned obsolescence. And I think companies should publish the scorecard. They will be considered not only companies which make money, but they make money by doing good.
ALISON BEARD: Yeah, it’s the Patagonia model, but with a twist because you’re actually providing extra value to the customer and potentially extra revenue streams to yourself with this grow-with-you idea.
VIJAY GOVINDARAJAN: Without a question. We talked about customer centricity. We talked about environmental sustainability. There are some companies which excel in customer centricity. There are some companies which excel in being friendly to the environment. Product that grows combines the two, and that is why it is a very powerful paradigm.
ALISON BEARD: Well, I really love this idea, VG. Hopefully more companies will adopt it. Thanks so much for being with me today,
VIJAY GOVINDARAJAN: Alison, it’s always a pleasure to be part of Harvard Business Review.
ALISON BEARD: That’s Vijay Govindarajan, professor at the Tuck School of Business at Dartmouth College and co-author of the HBR article “Design Products That Won’t Become Obsolete.” And we have more episodes and podcasts to help you manage your team, your organization, and your career. Find them at hbr.org/podcasts or search HBR in Apple Podcasts, Spotify, or wherever you listen. Thanks to our team, senior producer Mary Dooe, associate producer Hannah Bates, audio product manager Ian Fox, and senior production specialist Rob Eckhardt. And thanks to you for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Alison Beard.
2024-12-17 13:00:45
