A practical Solution to the chicken-and-egg problem
By Sharan Jagpal, Author “Fusion for Profit: How Marketing and Finance Can Work Together to Create Value,”
From the time of Adam Smith, we have been conditioned to unquestioningly accept the principle that specialization leads to optimal results. For example, many CEOs in high-tech industries would instinctively agree with the following exhortation: “We believe in functional specialization."
Our research scientists and product designers focus on developing high-quality products. Following the product development phase, marketing steps in and develops a strategy for introducing these products into the marketplace. By having different groups specialize in product design and in marketing, we achieve optimal results.”
Does it make sense to separate the product design and marketing functions? Only if product quality is a simple, unidimensional concept. The problem is that, in most cases, product quality is a complex, multidimensional concept. Hence, as we discuss below, separating the product design and marketing functions will lead to dysfunctional results.
To see why separating product design and marketing is problematic, let’s consider the computer chip market. Initially, product quality in the chip market was a simple, unidimensional concept – quality was synonymous with speed. So, companies such as Intel did well by separating product design from marketing. Thus, the engineers and scientists focused on developing faster chips and marketing concentrated its efforts on pricing, advertising, and so on.
However, as computer chip technology evolved, quality became a complex and multidimensional concept: users began to judge chip quality based on multiple criteria, including speed, multifunctionality, and power usage----not merely on the basis of speed. The implications of this change were fundamental. Most importantly, the concept of high quality now became ambiguous.
For example, a chip user whose application required versatility might have preferred a multifunctional chip made by A.M.D. over a faster chip made by Intel with more limited functions. This user would have concluded that the A.M.D. chip had higher quality than the Intel chip. In contrast, a user whose application put a premium on chip speed might have concluded the opposite.
How did these market changes affect Intel’s strategy? Intel was forced to recognize a crude fact: in a complex market where quality is multidimensional, users may not agree on the meaning of “high quality” since quality means different things to different users, depending on their particular applications.
Consequently, Intel was forced to go through a painful restructuring program whereby it organized itself along BOTH product and customer lines and not solely on the basis of product type. This restructuring was necessary for a simple reason: functional specialization separating product design and marketing does not work for complex, multidimensional products.
This raises a critical question: How should the firm (Intel in our example) coordinate its marketing and product design functions? And, what metrics should it use? Here are some practical suggestions:
- Simultaneously analyze the links among product design, product benefits, and purchase behavior. One practical approach is to use the two-step method developed in Jagpal, Fusion for Profit: How Marketing and Finance Can Work Together to Create Value. Essentially, Jagpal’s method allows the firm to simultaneously measure the relationship between product design attributes and product benefits and between product benefits and purchase behavior.A critical part of this methodology is that it allows consumers to have different perceptions of quality for any given product design. Consequently, the firm can proactively form segments based on both product and customer types. (Contrast the case of Intel.)
- On an ongoing basis, marketing should monitor changes in the importances that buyers place on particular product benefits. By measuring these changes at an early stage and simultaneously monitoring changing prices of inputs, the firm can revise its product line to maximize its performance. As Intel’s experience shows, failure to do this may require radical restructuring and have grave financial consequences.
In summary, choosing product design and marketing strategy need not be a chicken-and-egg problem. Suppose the firm separates product design from marketing and proceeds sequentially by first choosing product design and then determining market strategy. This strategy can work for simple products where consumers agree on the meaning of quality.
In general, product quality is complex and multidimensional – and consumers vary in their evaluations of different dimensions of quality. To address this problem, management must eliminate the ‘silo’ effects created by functional specialization and not proceed sequentially.
To do this, the firm must use new methodology for measuring the relationships among product design, product benefits, and purchase. In addition, engineering and marketing must collaborate so that the firm can develop and modify its product portfolio over time as market conditions change.