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Groupthink and Apple envy: the consumer tech industry’s biggest problem

Missing: a strong premium brand that is not Apple

Missing: a strong premium brand that is not Apple

The majority of players in the mainstream consumer tech industry are struggling with intense competition, slowing growth and squeezed margins. Despite rapid technological innovation and huge sales volumes, it is difficult for them to differentiate and build premium brands.

Though the total market size is large, the variation in design and form factor between the competitors’ products is smaller than one would expect. The market players seem unwilling to deviate too far from mainstream market consensus.

While most of the industry struggles with commoditization, there is one shining example of a player who has managed to get it right – Apple. Apple has followed a consistent differentiation strategy over decades and built up a very strong brand, customer loyalty, and a distinct product profile. It is only natural that the rest of the industry looks to Apple for inspiration.

However, if the rest of the industry merely attempts to emulate and plagiarise Apple and each other, they only increase commoditization and miss opportunities for differentiation. The market position for sleek elegance and simplicity is already taken, though it is possible to offer a cheaper version of the same concept. Some competitors even think they are “competing with Apple” by copying Apple’s look without actually understanding Apple’s product and design philosophy. At the core of Apple’s thinking is an obsession with offering a great customer experience. The product design is derived from this core thinking. (Apple’s failure to live up to its promises is another story.)

Apart from Apple, there are other expensive high-end products on the market but they are mainly driven by the high performance specs of the components. These companies are only able to capture a smaller part of the consumer value as most of it flows back to the component vendors. The margin between Bill Of Materials (BOM) and the final sales price is just too narrow. If players could achieve premium brand status, their customers would be willing to pay for the brand and not just sheer raw performance. This is the secret sauce of Apple. In side by side comparisons of specs, Apple’s hardware has been 30 to 50 percent overpriced compared to their competitors (and Apple’s marketing and distribution costs are significantly lower due to the strong brand).
 

A race to the middle

The competitors’ race to the middle has caused most areas of the tech product industry to be unnecessarily commoditized. When few players dare to pursue a differentiation or niche strategy, several market segments are left unexploited – or even undiscovered. Instead the players are chasing each other (and Apple) for market share in the undifferentiated mainstream market.

The competitors’ thinking is probably something like this: The largest market segment is the mainstream market (say, 60% of the total market). Currently we are one of several competitors in this market and we hold a market share of 25% of the mainstream market (15% of the total market). The largest potential for growth is to increase our market share here. It would be nice to find underserved niches or move upmarket with more expensive premium products. But those markets are much smaller and we don’t have any unique capabilities that would give us a competitive advantage. Let’s focus on the mainstream market and avoid any risks relating to form factor and product design.

The alternative is to develop a differentiation or niche strategy, which would be to identify an underserved market segment and develop an offer that deviates from the mainstream. I view the reluctance to pursue a differentiation strategy as a sign that the players don’t fully trust their own judgement and capabilities. It is hard to compete in the tech market and it’s safer to rely on the same toolbox and best practices as everyone else (market research, focus groups, latest trends in branding, marketing, flat UI design, financial metrics, latest industry hype, etc.). But even if it is more difficult, it is possible to identify unmet user needs and to design products that consumers didn’t know they would love until they were in their hands.

If a tech company wants to break away from the mainstream and innovate, it will have to take a stand. It needs the courage and self-confidence to reject some of the “obvious truths” in the industry and do things differently. To accomplish this, the product/market team must really understand the user’s context, worldview and micro-situation. In particular, they need a design team with strong instincts that can translate the users’ unarticulated needs into an attractive product design.

An OEM with the intention of building a premium brand will also have to make this goal a long-term commitment and be prepared to sacrifice short-term profits. It will always be a temptation to boost short term ROI by cutting quality and reducing service levels. For example, Apple is not running Apple Stores as a profit center but as an important engagement point for their total customer experience.
 

The dysfunctional performance race driving commoditization

Several factors have conflated to create this situation, not just group-think and Apple envy. The industry can partly blame itself for putting too much marketing emphasis on raw performance. If not even the brands themselves can communicate why they have something unique to offer, it is only natural that consumers resort to comparing specs. This dysfunction is visible in every segment of the industry.

For example, camera competition has mainly been a Megapixel race. For most mid-market cameras, the very high resolution in the newest models is more or less wasted as the lenses can’t match the sensor. And sensors with too high resolution will actually reduce the camera’s low-light capabilities. Other features such as autofocus accuracy, exposure accuracy, low-light capabilities, usability, and colour rendering are of equal importance. It took years for the camera makers (both for stand-alone cameras and smartphones) to get them right. As these soft features are harder for the industry to communicate, they are given lower priority, despite being very important for the total user experience.

The flat screen TV market has for years been driven by a race to make the thinnest TV with the largest screen. Thinness is not that important for a stationary product, but sound quality is. And thinner chassis can’t provide as good sound quality as a thicker TV. In addition, TVs come with different colour profiles, one of which is the so called torch mode (demo mode). This unnatural vivid mode only serves one purpose: to make the colours on the TV appear more saturated in a brightly lit store. Not to provide best possible experience for the customers in their homes. New TVs will often be pre-set with either the unnatural super-bright torch mode or a very dark eco-mode. In addition, without informing the consumers, some smart TVs come with built-in spying on the users that can not be disabled.

The smartphone market is rife with iPhone envy. Apple’s competitors have copied its most controversial design decisions such as removing the micro-SD card slot and using a non-replaceable battery. But it seems that many of them don’t get Apple’s core thinking or understand the importance of good build quality and attention to detail. (More about smartphones in my previous blog post.)

During the PC era, Microsoft extracted most of the value in the industry and deliberately drove the market towards commoditization. The PC makers didn’t have the resources to develop any differentiated customer offer – and if they had, Microsoft would most likely have thwarted their efforts. In this commoditized market, PC makers tried to raise their low margins by shipping machines filled with crapware, trialware, and bloatware. In addition, the build quality was subpar on most consumer computers. Laptop makers have tried to compete with Apple by making their products as thin as possible. They’ve done this by copying the MacBook’s look, but with a much lower build quality. The thinness has also made the laptops prone to overheating. Some laptop makers have copied Apple’s touchpad design with integrated mouse buttons but, unlike Apple, they have chosen to use cheap budget components. The result is predictable. It is no coincidence that consumer laptop makers can’t charge premium prices (with the exception of Apple).
 

Who will dare to “Think different”?

In all market segments of the consumer tech industry, it is possible for an ambitious player to identify weaknesses in the mainstream market and develop something unique. Apple did it one way, and any company that plans to embark on a differentiation strategy will have to discover their own unique product design and customer offer. Plagiarising Apple is not enough. Apple has made a number of serious mistakes and these weaknesses can be exploited. A differentiation strategy has to be different from Apple’s core thinking as well as from the mainstream market consensus. Apple’s corporate slogan from the 1990s was “Think different”. Who will be the first to “get” Apple, yet dare to think differently from them?

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