Is your product static and easy to kill off, or ready to weather resurgent economic peaks and valleys? Here's how to activate demand via agile development of new products, communication, and value-added services.
What is agile product development?
Similar to other terms thrown around in the digital spectrum, most people have heard of agile product development. However, they don't really know how to apply it. Many associate the term with technology projects rather than a way of thinking about a problem.
Agile product development is about tackling bite-sized improvements that add immediate incremental value to your products and services. Agile product management shouldn't be about shooting toward a multi-year set architecture. Rather, it should aim for immediate progress, recreating solutions, services, and value propositions within a matter of weeks.
You may consider your organization to be agile. You have agile methodologies and agile teams. You are able to repurpose assets and redirect resources to scale change with fluidity.
But real commercial agility is the result of two powerful growth approaches: organization and methodology. Combined, they form a high-impact, nimble business that can readily adapt through agile product development sprints.
Agile product development sprints should achieve minimum viable outcomes, accounting for scope and objectives. This could be defining a safe customer experience and validating your market's willingness to pay. It could be incorporating customer feedback into your product strategy. It could also mean developing an implementation plan that incorporates future agility needs.
Why is an agile process important?
Agile product development is the answer to maintaining flexibility, adaptability and effectiveness across your customer ecosystem. Agile product development helps address critical business questions, like:
- How can businesses overcome inactivity and engage customers, while maintaining customer engagement, satisfaction, and relevance in a digital world?
- What are the shifting and unmet needs and value drivers that will emerge across key customer and market segments?
- How can you engage customers and create demand to overcome inactivity and avoid postponed purchasing decisions?
- How can you evolve or replace products and services the market now deems ineligible or irrelevant?
- Does your current digital customer experience and distribution channels need to evolve to meet new consumption methods?
- Is there a new business model that is now viable in the market? How can your infrastructure, assets and resources adapt? Does this mean organizing your teams in a different way?
Enter agile product development…
The greater the agility, the greater the ability to minimize or defuse stress on consumers and lost revenue. Take advantage of evolving opportunities within the customer ecosystem by mastering agile product development.
Top 3 agile approaches
Agile product development enables you to rapidly re-design your customer offer and value-proposition in the face of constant change. This approach to product development recognizes there is always opportunity for continuous improvement.
Here are three agile product development strategies for rapidly responding to changing consumer trends, managing unmet needs, activating demand, and building a sustainable commercial model.
1. Identify spaces where you can win
Best-in-class companies systematically evaluate how to go forward through comprehensive brainstorming. They identify the "natural spaces" that they deserve to win based on value and capabilities, as well as the channels that are central to achieving their objectives.
Determine what channels you should be playing in and find the right partners to help you. Here, you should consider the attractiveness of different markets and the accessibility, growth potential, competitive pressures, and willingness to pay. Are you aligned with different target customers in each segment, and how capable are you of fulfilling unmet needs? Where are you going to win? That's where you should invest.
Example of agility in the restaurant industry
Everyone assumed the pandemic would be mayhem for restaurants. In-store consumption dramatically reduced, with a shift toward home-cooked meals. However, there were many successful restaurant businesses that had already been investing in their existing delivery infrastructure and digital app proficiency before the pandemic.
Think about pizza joints. This sector alone created 50,000 jobs during the crisis.
One of our clients had previously conducted a survey to revise what to include in their loyalty program. They had initially dismissed free delivery because only 46% of all consumers selected it as an ideal loyalty perk. However, when they started prioritizing the different spaces, they saw that for their growing segment, delivery was valued by 80% of customers.
Once our client understood how to incentivize different customer groups, they could align the benefits with their target segments. This enabled them to use their program as an effective path to growth.
2. Engage and nudge customers using behavioral economics in digital channels
Have you ever tried a step counter or a fitness tracking app? Then you probably know the feeling of walking aimlessly for five minutes around your garden to reach your daily goal of 10,000 steps. You didn’t just stop at 95%, you had to go all the way.
This is the story of behavioral economics and gamification. If an app can engage people to do sport or stop smoking, then it can also engage people to reach the next level of business. People are fulfilled by a sense of completion, similar to a child’s compelling urge to add the missing piece to a jigsaw puzzle. Directing a customer’s attention to the missing element, e.g. a product or service, can be a very effective way to cross-sell products.
Apps also need to be frictionless, effortless, and engaging. That’s why at Simon-Kucher, we design applications to appeal to a customer’s “System 1.” This is our most intuitive and emotional thinking process. When people see a crying baby or a beautiful flower, System 1 effortlessly kicks in. This triggers a feeling of appreciation or concern without having to examine every minor detail.
In contrast, “System 2” is a slower thinking process. It depends on a person’s intelligence and the effort they are willing to put in. Think about what goes on in your brain if asked to manually calculate 75 x 25. Usually we reserve this level of strenuous thinking for work or activities that spark our interest.
Many companies assume that because their products are innately complicated, they should exclusively communicate with System 2 (e.g. insurers or banks). But to get customers truly excited about their offering, they need an experience that also activates System 1.
At Simon-Kucher, we also have a clear monetization rule when it comes to designing apps: “First get reach, then get rich.” This means increasing your audience reach and downloads, and then turning those customers into profitable ones. It requires a strategic and structured approach to delivering incentives, promotions, and special offers. Include free products, discount vouchers, tier upgrades, and extra loyalty points when calculating the initial investment for digital channels.
Companies may worry that gamification is at odds with their professional brand image. To some extent, you may consider it even an ethical dilemma. But usability on the front end actually benefits brand perception.
The effects of behavioral economics make customers’ lives easier by simplifying their decisions. If you have a purpose and believe that your products create value for customers, then why not nudge them to be better covered?
Of course, you must be very careful when integrating behavioral effects. Details matter. Even the smallest of mistakes can reverse the behavioral effects. Therefore, it’s vital to test and seek support from digital experts with the right knowledge.
Example of gamification in the banking industry
We helped one of our banking clients to develop a digital self-service platform that encouraged customer engagement in managing their financial health – embedded directly in the daily banking app experience. The app goes applies behavioral economics and game-theory to up-and-cross-sell products across the banking portfolio.
Using behavioral psychology to nudge and incentivize activity, customers are motivated to “complete” the financial well-being jigsaw puzzle and reach the highest tier of status.
3. Create new demand through servitization
From a B2B perspective, the journey to agility and agile product development can be a very difficult one. For example, in industrials, innovation cycles can last up to ten years for different machine generations. However, there are some strategies that promote growth, and servitization is one of the most powerful.
Servitization is the shift from the traditional hardware-centric model of selling equipment, to a focus on selling a total solution. This combines a range of services around the underlying product to deliver a customer-oriented outcome.
There is a wide spectrum when it comes to the sophistication of service offerings. Many will be familiar with transaction-related services, such as delivery, installation, and application support. Then there are more advanced lifecycle-related services that provide ongoing support, such as predictive maintenance, warranty, insurance, and extended technical services.
At the more sophisticated end, there is the full servitization proposition. This spans from usage-based monetization and performance-based contracts to digital solutions and new business areas in IoT.
Many companies are updating their existing service portfolios to not only include services that support the machines, but also standalone services that bring new goods to life. Here, the customer ecosystem is just as important for B2B as in other industries. The starting point of offer development should always be the customer. Of course, everybody's looking to innovate. Product managers are generating hundreds of ideas and potential use cases. But without customer talks or external validation, monetization will be a major struggle.
Out of 20 good ideas, only five survive. In the end, it is the customer’s decision whether to buy a new product or not. For industries that have historically innovated through an internal product focus, this requires a dramatic mindset change.
A hyper-focus on the customer lifecycle also produces additional value-creation opportunities and service monetization. One quick-win is to look at your existing products and services. How many services are actually being billed? Which services generate a high added value for the customer and should be additionally monetized in the future?
You may be able to improve existing product quality, e.g. through tracking and tracing on efficiency. But remember: Before introducing new services, you need to ensure you are really capable of offering them.
Inventing an app is one thing, but selling it to the marketplace is another. It requires internal capabilities, resources, and technologies to succeed. Here we can learn a lot from software companies. In this sector, bundling products and services is a crucial differentiation tool in terms of customer buying behavior.
The evolution of servitization for industrial equipment
A company producing forklifts in the logistics industry was able to shift from a hardware business toward value-added services and software. Having previously focused on truck sales, long- and short-term rentals, pre-owned trucks, spare parts, and service contracts, they approached different functions within the same customer ecosystem and started selling apps and information.
The service department can now see which trucks need maintenance. HR are informed if a driver damages a truck. Logistic departments, fleet managers, and technical services are all connected via the app.
This was a long-lasting journey, but the company did their homework on customer requirements to diversify revenue streams and secure financial stability.
Agile product development is necessary for survival!
Previously, when there was the time, resources and investment to plan multiyear initiatives based on fixed outcomes, most companies followed a traditional waterfall approach. Hypothesizing, researching, optimizing, and launching were linear, aiming for long-term perfection.
But the paradigm shift to agile product development is no longer an option. In volatile demand environments, quick actions are far more important than perfect ones. Companies today must move much more quickly, produce new products and services at the drop of a hat, and innovate in near real-time. Flexibility and speed will become critical in pivoting your business to deliver on evolving consumer demand.
At Simon-Kucher, we combine the depth, credibility and structure of our core pricing business with the strategic problem-solving approach of management consulting, and the fail-fast, agile development methodology of startups.
Reach out for more information about Simon-Kucher’s expertise.
