A year after we started repositioning the company, Engineering, which had been working on a family of new products literally for years, came to deliver some good news and bad news. 74HGZA3MZ6SV
First the bad news: the new family of eight high performance graphics cards we were counting on couldn’t be delivered. The plug-in co-processor architecture was too complex and couldn’t be made to work reliably. Instead of the family of eight products we were expecting, only one could be delivered. Nothing else was in the development pipeline for the next 12 months.
I couldn’t believe what I was hearing. One of the reasons I had joined the company was seeing these boards as hope for the future. Now we were faced with the fact that even though we were gaining market share daily, there was nothing coming out of Engineering.
Well not quite nothing: there was the good news. Instead of eight boards, Engineering was going to be able to deliver one new graphics board. Just one. But it was going to be the fastest graphics board ever made. In fact, according to our Potrero benchmark suite this new board ran our customer applications ten times faster than our current products.
I went home to think about this. Instead of a product family, we had a single point product. Each of my competitors each had 5-10 graphics boards covering a range of prices with performance to match. Even our current product line had four graphics boards in it. Now our new product line would only have one board?!. What could we do?
Marketing Gets into the Engineering Business
The next day I walked in uninvited to the VP of Engineering’s office and asked if he had a minute. I said, “I realize you’re trying to get the one board out to market, but I have a question – can you slow our new board down?” It doesn’t take much imagination to see the look he gave me when I asked that question. “Steve, this hasn’t been a good week. What do you really want?” I felt sorry for him, he was working really hard to dig out of this mess. I replied, “No joke. Can you make it slower? I think he wanted to strangle me as he barely got out, “We worked for years to deliver a product that’s ten times faster than anything that exists and you want to make it slower?” Well, not exactly, “What I want to know is if the board would work if you slowed it down by 10%?” Yes, was the answer. “How about if you slowed it down 20%?” Yes, was still the answer. “By 30%?” The change in his demeanor – from trying to kill me – to laughing, as it dawned on him where I was going, could only be described as hysterical relief. “40%?” Yes, yes and yes.
We were about to be partners in building a new product family.
Rabbits Out of the Hat – Branding and Line Extensions
First, what we proposed is that we take our world class, ten-times-faster-than-anyone board and build an entire product family around it, by slowing it down. We wanted nine boards, each differing in performance by 10%. The only real difference between them would be the addition of “wait states” or “slow down” instructions on a chip. Our entire new product family would be an identical board.
Next, we were going to create three separate product families, each its own unique brand. And within each brand we would have a “good”, “better”, and “best” graphic board. All tailored to our color publishing market.
Finally, these product families would be priced to bracket (box in) everyone of our competitors’ products with better price and performance. We were going to price the products from $699 to $3,999. Our calculations had us losing money on the two lowest cost boards, breaking even on the third and making great margins on the other six. We calculated our blended gross margin for the company by estimating the number of units we would sell of each board times the gross margin of each individual board (then I crossed my fingers and prayed we were right.)
In essence we were proposing that we ship the same board in 9 different colored boxes and charge from $699 to $3,999 depending on the color of the box and the speed of the board. (This turned out to give our customers immense value. We would have charged $3,999 for the high-end board. Now we could give customers lower price boards without Engineering spending 12 months to design new ones.)
You’re Going to Do What?!
The reaction inside our company could not be described as polite. At first most people thought we were joking. No one believed it would work. Some engineers were insulted that we were going to slow down their board and sales was convinced that within days of the board hitting the street we would have a black market in chips to speed up the $699 boards and turn them into $3,999 ones. My own marketing department was convinced that the same industry magazines, which we had managed so well, would turn on us when they saw that the boards were physically identical.
Yet I believed that this was the only alternative to slowly going out of business. (While our engineering department was close to the customer, seven of those eight products they were going to ship to those customers weren’t going to see the light of day.) Now it was up to Marketing is to take the technology as delivered by Engineering and shape it to the needs of the customers and market. By creating these new families of products we could provide real value to our color desktop publishing customers by giving them performance at a price they couldn’t get anywhere else.
A Big Idea – Marketing Adds Value. This notion of Marketing taking what Engineering builds as a starting point, not an end point, is the difference between just being a marcom department and a value-added Marketing department. If all you’re doing is shipping and launching the product as spec’d by Engineering, you’re not adding value. The job of Marketing is to help Engineering figure out how to deliver product(s) that customers need and want. It starts with a deep understanding of what customers need (and making sure Engineering is getting continuous customer feedback and interaction.) We did that when we surveyed our customers. Next, we had a good understanding of the capabilities of the product that Engineering was building. And in this very unique case, we figured out how to maximize revenue and profit by branding and product line extensions.
We would use this same idea 10 years later at E.piphany.
If we were right, this line extension and branding strategy would allow us to catch up to our competitors and overtake them.
Luckily marketing had built a reservoir of credibility with our peers and CEO. After the VP of Engineering described the alternatives (no new products for a year), desperation became the mother of innovation and we launched our new family of nine new graphics boards. As far as manufacturing was concerned, they were the identical graphics board. As customers saw them, they were a new family of products aimed directly at the color desktop publishing market with astonishing performance and a low-cost entry price.
The results spoke for themselves: Not one black-market board ever appeared, and the press was satisfied with our “customer value and product family” explanation. Our new graphics boards became the market leader of the industry. In three and a half years SuperMac’s market share went from 11% to 68%, as we went from bankruptcy to $150 million in sales.
Years later, I was having coffee with the VP of Sales and Marketing from one our competitors and he said, “We would have beat you guys, but we just couldn’t keep up with the tidal wave of products coming from your engineering department. They came up with exactly the right products at the right price.” I took a long sip of coffee as I thought of all the things I could say. Instead I smiled, nodded and said, “Yep, it was amazing, they just kept pulling rabbits out of the hat.”
What did I learn so far?
- At times, what Engineering delivers is the raw material.
- Marketings job is to take engineering products and use them to maximize revenue and profit.
- In an existing or resegmented market, this may include branding and product line extensions.
- This requires deep customer and competitive knowledge.
- In most markets, “first mover advantage” is illusorily; fast followers often win.