A few years ago, I managed a field marketing program for one of the (at the time) major maker of MP3 players. The client, whom I’ll call Xco. was a multiproduct company known for computer accessories. It’s early music players had achieved some success, though they were a minor business for the company. These players were light, compact, relatively inexpensive, flash memory devices which used a replaceable standard AA battery.
That year the iPod was hot and it grew the category as it expanded its own business. The iPod featured an ability to hold a large collection of tunes made possible by a micro hard drive and came in an elegant polished metal case. It was the most expensive player, but it held the most tunes.
Xco and several competitors launched similar products – MP3 players with small hard drives. Xco’s product lacked the polished design of the iPod, but was serviceable and easy to use. To try to secure a beach head, Xco priced its players 10% to 15% below Apple’s. Not surprisingly, this wannabe product a – poor cousin at a slightly lower price – failed. Xco eventually exited entirely from the category.
There were a number of reasons for failure, but poor marketing strategy was significant. In effect, Xco tried to position itself as a parity product against the category leader with no positive differentiation except a small price discount. Since my research showed 80% to 90% of consumers preferred the look and feel of the iPod, the product was not perceived as competitive even at the lower price. Xco’s product was doomed.
What might Xco have done? Instead of trying to be an iPod, it could have built on the demonstrated market success of its initial products. Customers liked its solid state players, which were smaller, lighter and fit comfortably in the hand or pocket, in contrast to the bulkier and heavier iPod. Moreover, the ability to replace the battery with an inexpensive standard battery, satisfied a perceived need, which Apple still has not adequately addressed.
This compact light weight inexpensive player with replaceable batteries could effectively have positioned Xco against Apple given that Apple would have had no comparable product (with or without replaceable batteries) for two years. Thus with proper execution, Xco might have defended and grown its solid state player business.
This is not to predict that Xco could have indefinitely withstood Apple as it broadened its product line. At the least, that would have required continued innovation. But by avoiding a “me too” strategy, it would have likely earned a far better return on its business.