Product Implementation Complexity and Product Price

Have you factored the implementation complexity of your product when establishing the price? By implementation complexity I mean the level of effort it takes for your organization to deliver the product to the buyer in a usable form. As implementation complexity increases you should expect to support a higher product price, as long as a corresponding value is delivered.

A simple way to illustrate this is with the following Product Price vs. Implementation Complexity chart.

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The one quadrant to avoid is a product with a low price and a high implementation complexity. It’s a dead-end.

The chart below plots some products you may be familiar with and how they fall into the Product Price vs. Implementation Complexity chart.

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Lower Price / Higher Implementation Complexity

The quadrant to avoid is the Lower Price / Higher Implementation Complexity quadrant. A product currently in this quadrant is GPS fleet tracking solutions. These are solutions that enable businesses to record and track the usage of the vehicles in their fleet. From an implementation perspective these are complex systems. A hardware component must be wired into a vehicle. It may require the installed of an external antenna. Once installed, the hardware must be tested to ensure it communicates over a wireless (cellular) network. Keep in mind customers rarely have all their vehicles in one place at one time, so it may require chasing vehicles to job sites often after normal business hours. Typically this requires a qualified technician to perform the installation with coordination from a customer service rep to verify the system is working. Vehicle by vehicle. After that is complete the customer needs to be trained on the use of the software. Customer service issues are chronic and unavoidable. Wireless coverage is incomplete and results in customer confusion. GPS units break. Employees find the units and try to disable them.

From a business model perspective the GPS fleet tracking businesses appear to have tremendous potential. Unfortunately few have delivered on that potential, are poorly capitalized and lose money. One shining example is Qualcomm. Qualcomm carved out a profitable niche with long-haul trucking companies and they charge a premium for their solution. More recently the sale of @Road to Trimble was engineered by founder Krish Panu. The exit was perfect timing.

For some customers GPS fleet tracking systems provide extraordinary value. Unfortunately the industry was heavily influenced by executives from the wireless industry that brought with them a low price/high volume philosophy. From the beginning they established commodity pricing long before there was justification to do so. Given the complexity described above, the typical selling price for these systems should be higher. The hardware sells for around $500 which often includes the installation cost. Monthly fees are charged for the use of a hosted software application and airtime (cellular data transmission) in the $20 to $30/month per vehicle range. Margins are thin and can be wiped out by just a few service calls. Qualcomm commands a price that is significantly higher and justifiable for the value they deliver.

So what can be done when your product is in the Lower Price / Higher Implementation Complexity quadrant? Two things. First, find a way to charge a higher price. You may able to do this by carefully segmenting your markets and identifying where delivering a high value in a segment can justify a higher price. Second, lower the implementation complexity. Carefully analyze your implementation process and find opportunities to simplify implementation.

Summary

Understanding where your product fits in the Product Price / Implementation Complexity continuum can give you tremendous insight that can help you with pricing and deciding on the most effective sales channels. If you’re in the no-mans land of a low price/high implementation complexity you need to identify a strategy for moving out of the situation as quickly as possible.

David Daniels

David Daniels


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