Productisation, Personalisation or Customisation: Is there a proven pathway to profitability?
Because Engagis serves diverse market segments with a range of offerings, it’s a question we are constantly asking ourselves Our customers range from small businesses to large enterprises and our offerings start at individual screens or kiosks and for enterprise customers we design, deploy and manage complex digital media solutions.
Productisation – standardising an offering – is a way to create replicability and scale. It simplifies product delivery, pricing and messaging. It’s a low cost, low differentiation approach and relies on efficiency for managing costs. An important benefit of standardisation is that over time, your quality will improve and your costs will come down, so all other factors being equal, profitability should increase over time. Productisation is a sound approach in a volume market particularly where customers are price conscious.
Going beyond the pure commodity play, at Engagis, we have been creating product bundles or ‘packages’ for LCD screens and LED displays which contain all the components for customers to get up and running quickly with a proven solution. So there’s additional customer value in terms of choice, reduced risk, simplified purchasing and sharp pricing and from an Engagis perspective, it allows for a certain amount of standardisation which reduces the cost of sale. We also give customers the option to add additional features to the basic package such as installation, content creation and content management software.
At the other end of the spectrum is customisation. This is where the customer drives the product or solution design. It’s an area where you need to tread carefully. Even though the requirements are being driven by the customer, cost to deliver may not translate in to ‘real customer’ value at the end of the day. For example, a particular form factor for a kiosk may be aesthetically more desirable, but this is somewhat subjective and won’t impact performance or functionality. A customised form factor can be very complex and costly to fabricate.
With customisation, there is in-built risk from a delivery perspective, ie sourcing new components and potentially from new supplier. It’s difficult to accurately estimate costs – and in field performance – so profitability can be uncertain. Plus, there is time invested by ‘overhead’ staff and their costs may not be baked into final costs which will provide a distorted view of profitability.
Adding a pricing buffer mitigates some of this risk, but means you may lose the deal to a competitor whose pricing is more accurate or where their standard offering more closely matches the customer’s requirements. Customisation is a strategy more appropriate for larger customers because their budgets are typically higher than SMB and they have more of an appetite to invest in differentiation or specific requirements.
For small to medium business, personalisation is becoming a real sweet spot for us. This is where we give our customers choice, and allow them to tailor the product, but only for certain product parameters. For example, with kiosks, we can offer personalised branding and different colours on a given set of standardised form factors and a range of peripherals that customers can choose from, things such as as payment systems, printers, scanners, cameras and speakers. So the customer gets choice, fast delivery and pricing and we are able to manage the cost of production through standardised and accurately costed processes.
So at the end of the day, it’s horses for courses. As a general rule of thumb, we see a premium of around 20% to provide a personalised product, but the cost to create a customised product is around two to three times a standardised product.
The real question is around value creation versus cost accumulation – and this is ultimately decided by the customer. Customisation doesn’t always translate into real customer value. If you know your market well, carefully thought out personalisation options will create value, with only a small incremental increase in cost.
In terms of simple takeaways, first, I would recommend selling what you know you can deliver. It’s not smart winning the deal and then losing money. If you are customising a product, make sure you accurately account or all the additional time and additional people involved in the process so you can manage profitability – and also allow for the increased risk of delivery and servicing.