Tuesday, June 30, 2009

What is a good product?

Gone are the days, when firms made a good product, communicated to the customer, made it available and offered financing options towards purchase.

Competitive dynamics, market clutter among other things have forced firms to rethink how they can sell a consumption experience rather than a product or a service.

Latest in this stream of product design innovations is the new offer from Hyundai that comes with a pricelock guarantee on gasoline.  Well, definitely not pioneering because Chrysler used it previously, but, it is definitely a more aggressive tactic in the time of a recession.

Hyundai has clearly shown its intention to grab market share as GM and Chrysler struggle in and out of bankruptcy.  They have adopted a multi-faceted approach that includes product innovation, warranty and now this.

I have used a similar pricelock guarantee when I was a customer of Time Warner a couple of years ago.  However, this is new because the price of the underlying good, gasoline, changes everyday unlike Time Warner’s case.

The company behind this offer describes itself as a technology and risk management company.  The logic is simple – they have hedged their risk against the price of gasoline and can therefore afford to cap the price. 

From the customer’s perspective, there is clearly a nice inventive here.  What is more interesting is if these price guarantees will find their way to other consumption contexts in which a primary good + secondary good together determine the overall utility of the product.

Think of the razor + blades. 

Premier Passenger  status – purchased a priori and then a guarantee of low fares.  Far fetched, maybe …but what else is innovation!

1 comment:

Anonymous said...

Girish,

So what are the mechanics of how the pricelock works? Since fuel is a refined by-product of oil, Hyundai is really hedging against the price of a barrel of oil on the open market. By limiting the promotional date period they can limit exposure. Is gas so volatile that making this a 3- or 6-month promotion would prove dangerous?

Thanks for the article.