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Herb Kelleher aimed to make flying cheaper than driving in order to create a new mass market,
Cheaper than the alternative, not just in your market but for your customer!
The product must be redesigned to make it simpler and cheaper.
The business system must be redesigned to make the product simpler and cheaper to produce and deliver,
and to provide protection for your firm against imitators.
The business must be scaled — that is, its sales must multiply, and continue to multiply — as quickly...
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To launch a price revolution you need to work out the core, primary function that the product serves.
Herb Kelleher offered a seat, not a pleasurable experience. It was air travel stripped down to the bare essentials.
He quipped that market research was bunk because if he’d asked the public what they wanted, they’d have said “a faster horse.”
But asking why they wanted a faster horse is good market research! Gets you to the motive of going places faster, utility of speed, and the car as a way to do that (the faster mechanical horse)
With IKEA, buying a sofa or a table
It is a monetary transaction, pure and simple.
Every price revolution goes back to basics, back to economics, back to utility.
If you are clear about a product’s core function — and about everything that is not its core function — you are well primed for product redesign.
Subtract everything that is not absolutely essential for a product’s usefulness.
Also important for startups to focus, find the single,simplest value proposition and deliver on it
For a physical product, subtraction should also be pursued in two other dimensions — weight and size.
Follow Henry Ford’s advice:
Start with stripping down to bare essentials for core function, then inspect materials and manufacturing
“Start with an article that suits and then . . . find some way of eliminating the entirely useless parts.
As we cut out the useless parts and simplify necessary ones we also cut down the cost of making.
First we ought to find whether it is as well made as it should be
Then — are the materials the best or merely the most expensive?
can its complexity and weight...
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Expense also increases with size. A bigger product uses more materials, and it occupies more space throughout its journey from assembly to the consumer’s hands
Investigate every possible means of miniaturizing the product, and of saving space, especially in transit.
Successful simplifiers slash the variety of what is offered to customers in order to cut costs and prices. Ideally, a single “universal product” emerges, one that is both cheaper to produce and achieves high fame and scale:
Consolidating many different products into a few — or just one — has really strong economic advantages: large reduction in stock-keeping units; higher stock turns; lower purchasing costs with greater volume per product; lower marketing and selling costs; and lower production costs.
In redesigning your product, ask yourself, “Can I invent a universal product, or something close to it, that incurs much lower costs and has the potential to appeal throughout the world?”
Challenge though, who is it for if it's universal? Assumes market growth, must be large potential of prospective customers. Growing low-end market.
Simplicity breeds universality; and universality demands simplicity. Many “information” products — such as Dropbox, Google, and Spotify — have used the internet to become universal products with remarkable speed by focusing on a single element of utility:
The third step is to provide benefits that cost the price-simplifier little but have substantial value for target customers.
when the additional volume of customers and their spending are taken in account.
All of the firm’s apparent “gifts” increase profits in themselves, usually by attracting more trade.
High roi benefits
But beware of complicating the product or
business system, and avoid anything that might raise the price.
Once the product has been simplified, they must set about rejigging their entire business system and creating a new mass market.
Step Four — Automate; Step Five — Orchestrate;
It is unusual for any business system redesign to take all five of these steps. Typically, one step is pre-eminently important while a couple of others are significant as well.
Having said that, in most of our case studies, the next two steps (Four and Five) have proved vital.
By “automate,” we mean that you should standardize
product or service so that it can be repeated more automatically, with the result that it demands fewer resources and/or less managerial intervention, and enables you to operate at much greater scale while maintaining consistent quality.
Ford had to experiment, because nobody had built cars in such volumes before —
he designed it in such a way that its production could be automated.
He started with a price target of $600, found initially (in 1909) that the lowest he could price his car was $950, but then experimented to reach his goal.
he organized production so that employees moved from one work station to another in a prescribed order. This, and the advantages of scale, decreased the cost of the Model T to the $600 price target by 1912.
“take the work to the man rather than the man to the work’
As a result, the price of the car was cut again, to $550. The fourth and final step was when Ford put the assembly of the chassis on to a moving line as well.
The price of the Model T fell to $490 in 1914, and $360 in 1916.
the McDonald brothers had the brilliant idea to adapt Ford’s moving assembly line to the production of hamburgers and fries.
automation was only possible because product variety was severely curtailed and the product was totally standardized
You can simplify almost anything if you view it as a product to be standardized and automated as far as is humanly possible.
a mass market created by offering very low prices,
Opportunity lies wherever an industry has not yet been automated.
What about automated to the point of diminishing returns, except an innovation emerges?
Orchestration means pulling the strings in an industry by seizing the high ground — the customers — and
