By Dorian Simpson

Planning Innovations

PDAs and phones. TVs and PVRs. Toasters and web browsers. Conceiving convergence products and services has always been a hobby of product developers. But the question remains: If you can weld two product categories together, should you?

This article will address:

1. When to merge product categories, and when not to.

2. The 9 Laws of Product Convergence.

Convergence Is Cool

Nothing captures the imagination of product developers more than convergence. A Swiss Army appliance has always been the dream of gadget geeks.

However, “convergence” has been getting a bad rap lately. One challenger, Al Ries, of  “Immutable Laws” fame, commented in a recent article, “What would help the economy, the high-tech industry and the marketing community the most is a rejection of the convergence concept and the return to divergence thinking”. However, companies profiting from TV/VCRs and PDA/cell phones may have a different opinion.

Even if “converged” products have not lived up to the hype, they are a great way to innovate if you set your expectations correctly and understand which convergence products make sense.   A new converged category can boost market share, differentiate your product line, and give you an early market lead.

The Convergence Challenge

Convergence doesn’t mean that two markets of different product categories are combined to give birth to a new larger market.  Early convergence theory suggested that by adding two product categories, the separate categories would go away and yield to the new converged category. Quite to the contrary, combining two product markets with unique selling propositions will create a new, smaller product market category.

Using the TV/VCR as an example, one might expect the TV/VCR to have eventually dominated sales of TVs and VCRs. But we know from experience that consumers don’t behave that way.  If a consumer needs a TV, they’ll buy a TV, if they need a VCR, they’ll buy a VCR. Only when they are seeking a TV “and” a VCR does the converged TV/VCR become a viable option.

This dual requirement has a negative impact on sales.  In 1999 TV and VCRs were in over 85% of homes. TV sales were $6.2B and VCR sales were $2.3B, but wouldn’t it make sense to have a two-in-one device to remove clutter, increase ease of use, reduce costs, etc.? Consumers didn’t think so. TV/VCRs had sales of only $1B, or just 12% of overall sales and have remained the same ratio since.  

The more categories you merge, the smaller your market becomes. If you have a product that merges a flashlight, a radio, and a small TV, you’ll need to find a customer segment that needs a flashlight AND a radio AND a TV, all at the same purchase decision.  Since this market is so small, these products are usually relegated to Christmas presents (right next to Fruitcake).

There are several factors that lead converged products to have smaller markets:

• Purchase decision timing – When I need a TV, do I need a VCR, or vice versa? This limits sales to when the consumer requires both product categories.

• No perceived cost savings – If a consumer does want both categories simultaneously, they usually do not want the extra cost of the added product features, even if they could find one at a lower cost!

• Limited features – They want both categories, but not limited features. Someone that wants one category more than the other will purchase a full-featured product in his or her desired category.

• Fear of obsolescence, flexibility, and repair – What if one category keeps improving or breaks? Am I stuck? What if I want a bigger screen at some point?  Am I stuck?

Some Convergence Guidelines

Mergers of product categories can be likened to mergers of companies. There must be important reasons, chemistry, and common cultures to successfully merge. Here are some instances when it makes sense to “converge”:

• The products gain significant advantages through the merger. Set-Top Boxes and Personal Video Recorders have significant merger advantages, a web browser in my refrigerator probably does not.

• When market segments significantly overlap or are co-dependent, converge! E.g. WiFi adapter cards (more often considered a feature or technology than a product category) and notebook computers, HDTV decoders and HDTV's, etc. 

• Each category is stable. DVD/VCRs took off because both are stable categories. TV/PVRs have not (yet).  A good rule of thumb is if the product has made it to the Early Majority (or in Geoffrey Moore’s terminology “crossed the chasm”), it is a good merger target.

The 9 Laws of Product Convergence

If you decide to converge, here are 9 Laws of Convergence to help set your expectations: 

1. A converged category that does not increase the benefits of the separate categories added together will fail.

2. A convergence of product categories will yield a smaller market than the original product markets.

3. The more product categories you converge, the smaller the new converged market will be.

4. A converged product category will not appeal to the enthusiasts of either contributing category.

5. Do not converge an established product category with an emerging product category that is unstable.

6. A category that is an enhancement to an established category will ultimately converge with the established category.

7. Retailers will be confused about where to display a new converged product, thus reducing initial sales.

8. When converging two or more categories, not integrating all functions that can benefit by the merger will alienate customers.

9. A converged product will not replace any of the contributing categories unless that category was already on its way out.

Product marketers need many tools to differentiate their product offerings from their competitors. Convergence, when properly understood, can be a key contributor to a successful product roadmap. 

Done

© 2009 Planning Innovations Inc.