In a post from 2008, I described the Windermere Hierarchy, a model that explains on what basis buyers make a selection when they have different offers to choose from. The model states that there are four criteria, which are ranked in the customer’s mind. These are (in descending order of priority):
The Windermere model suggests that customers will make their purchasing choice based on the highest priority criterion which does not satisfy their requirements. Thus, if none or only one of the alternatives available meets all of their functional requirements, they will choose the alternative that meets the most. However, if more than one alternative satisfies their functional requirements, they will make their purchase based on reliability. Similarly, if more than one alternative satisfies both their functional and their reliability requirements, they will choose based on convenience. Finally, if more than one alternative meets criteria 1, 2 and 3, the customer will choose based on cost. In this case, in the customer’s mind at least, the product has no distinguishing features – it has become a commodity which can only be sold by price discounting.
The model can be used to identify what kind of innovation is appropriate for a given product, because knowing at which stage it is in its market, it is known on what basis customers will make their purchasing choice. This in turn implies that the criteria 1 to 4 represent a long-term dynamic of a market: products that provide a new solution will initially see improvements to their functionality. In the second phase, reliability will be improved, in the third convenience, and finally innovations will be sought that reduce costs.
I believe it is of interest to look at each of the criteria more closely. This will enable us to identify different sub-criteria, which may give better suggestions for innovation goals. In the following, I describe three variants of each criterion.
- Range of Features. This refers to the number of features the product has. Innovation in this category means adding a feature to the product, thus increasing its functionality.
- Intensity of Attribute. This refers to the numerical value of any given feature of the product. Innovation in this category means increasing a positive value, such as horsepower for an engine or the brightness of a lamp.
- Appropriateness for Usage. This refers to how well the features of the product match the needs of the customer. This may include attributes such as the flexibility or modularity of the product’s functions. An example would be allowing the product’s functions to be reconfigurable according to the current mode of use.
- Longevity of performance. This is the most common meaning of reliability and is typically what is covered by a warranty: For how long will the product perform at the required level without interruption?
- Trust in supplier. The customer may need the supplier for the entire lifetime of the product, for example for maintenance or updates. They therefore need to trust that the supplier will be willing to provide these services in a fair and customer-friendly manner. For example, manufacturers of premium tableware often guarantee the availability of a design for ten or more years, so that customers may continue to own a complete set, even when the inevitable breakages occur in the home.
- Availability of support. Similarly, a product may become valueless if no support ceases to be available for it. IT systems are one such example.
- Ease of Use. Customers prefer simplicity of operation. One famous example is IDEO’s design for a radically simple-to-use heart defibrillator. The classic counterexample were home video recorders, which were so complicated to program that only a small fraction of the customer base ever managed it.
- Accessibility of Product. How easy is it for customers to get information about the product or view the product itself? This might include travel time to the nearest stockist, in-store availability of a model for „test-driving“ or no-questions-asked refunds if a product fails to satisfy a customer’s needs.
- Simplicity of Appropriation. How easy is it for the customer to acquire the product? Does it require complicated searches or bureaucratic procedures? Given the opportunity, customers will choose the easier route. Amazon’s patented „One-Click-Buying“ is an example of an innovation in this area.
- Financial Costs. These are the most obvious type of costs. They include not only the purchase price, but also maintenance and repair costs.
- Physical Costs. These are other resources that are required or consumed in order to use the product such as storage space, personnel or toner for laser printers.
- Intangible Costs. These include psychological factors such as management attention and stress incurred by using the product, as well as factors such as the negative impact on office climate or brand image.
The Windermere hierarchy is a valuable tool for predicting the future basis of competition; by refining each of its core categories, better innovation choices can be made which in turn can prolong a product’s competitive advantage.