Unlocking Growth through Consumable and Durable Product Systems
At a Glance
- Consumable + durable product systems provide value by tapping into consumers’ preference for convenience. This drives loyalty, therefore better opportunities for revenue growth.
- Maximizing value requires understanding four winning archetypes of great consumer-durable product systems.
- Knowing your strategic objectives can help you choose a product system structure: The more open the product system, the easier it is to acquire customers. The more closed, the easier it is to maximize share of wallet.
Businesses thinking about product innovation typically dive deep into performance considerations: how can a better feature, easier experience, or faster step be achieved? While there is merit to growing revenue with superior performance, rarely does an incremental improvement on an existing product lead to explosive growth for an extended period of time.
One way to capture consumers for the long-term is to design a superior product system. Product systems, done well, can bring convenience to the customer, create a relationship with the brand, and ultimately drive stickiness and repeatable value for both.
Product systems defined. Product systems are a set of products (usually two) and/or services that provide greater value together than individually. These products are either 1. consumable (meaning they have an intentionally short lifespan and are replaced routinely) or 2. durable (meaning they have a long lifespan and rarely need to be replaced). Consumable-durable product systems capture long-term customer value because ownership of the durable drives routine purchases of the consumable.
Although product systems may require a greater investment up front, they have the potential to attract new customers to the brand, capture greater share of wallet spend with existing customers, and drive loyalty and repeat purchasing.
Creating value with product systems
More revenue and greater market share. In a recent viability study for a cat litter brand, we assessed the financial impact of introducing a cat litter box (a new, durable product) to the brand’s consumable-only portfolio.
We found that the addition of the durable would bring in $100 million in additional revenue—2x the revenue of their consumable-only model. While the litter box (durable) would only be purchased by customers once, using it with the cobranded litter (consumable) would unlock superior value to the customer. This value encouraged repeat purchases from the customer, and therefore recurring revenue for our client.
Consumable-durable product systems really work. We studied 35 analogous organizations (analogs) to understand how they have captured long-term customer value with their product systems. We researched brands like Swiffer (think: the durable sweeper that never needs replaced and the consumable pads that are tossed and replaced after mopping a floor), Amazon’s Kindle (think: the never-changing durable tablet and the ever-changing, consumable e-books on it), and Quip (think: the sleek durable toothbrush handle and the consumable replacement brushes that are automatically replenished to guide brushing behavior) to understand exemplars of this kind of innovation and illuminate common consumer behavior.
The results are impressive. We discovered how brands can tailor their product systems to achieve the growth levers that best suit their strategy.
The 4 winning archetypes for product systems
Our research unveiled four common archetypes that offer guidance into what makes a successful consumable-durable product system. The archetypes organized around the “openness” of the systems: open systems allow products within the system to work with other brands, while closed systems only work with products within the brand.
Archetype 1: Mix & Match
Brand examples: Sirius XM, Kingsford, Prince, Kaytee, Bass Pro Shops, Kindle, Wilson, Furbo
Mix & Match systems allow both the durable and consumable to work with other brands. This is an attractive option for consumers who are less willing to commit to one brand, and they will typically “mix and match” products across the system. There are three principles of this archetype:
- Commoditized Products. Products focus on their functionality meeting market parity, as it is difficult to differentiate one or both parts of the system across competition. This results in many options being available, and consumers consider all options.
- Purchase Autonomy. Purchasing autonomy is completely given to the consumers, allowing them to test out new consumables and durables constantly. Consumers may be brand loyal to a durable that offers superior performance, but not associate that loyalty to the consumable.
- Strong Marketing. Maximizing shelf space for in-store purchases and strong SEO for online purchases determine market leaders. Consumers never fully anchor and are influenced by price (i.e., sales & deals) and convenience (i.e., in-stock vs. not).
Mix & match in action: Kaytee. Kaytee is a worldwide supplier of hay, foods, and care products for pet birds and small animals. They capture new customers by dominating shelf space in-store and with heavy online advertising. Consumers will buy the durable (habitat) once, and frequently test different consumable (bedding) brands until they find one they like, whether out of convenience or due to price.
Here is what the consumer journey looks like:
Archetype 2: Brand-Match Open
Brand examples: AeroGarden, Brita, Swiffer, SoulCycle, Blueland, Sodastream, Keurig, Gelish
This is either a fully or partially open system, but consumers tend to stay loyal to the brand (often because they think it’s a closed system). Here are three principles of this archetype:
- Entry (or Anchor) Products. Entry products are typically market-differentiated solutions that solve a deep consumer pain point. In open systems, consumers are disproportionately likely to show loyalty to the entry product.
- Open Systems, Closed Behaviors. Despite buying into an open system, many consumers demonstrate closed behavior. Typically, strong alternatives exist for the non-entry product, but consumers don’t consider them because of free trials and brand marketing.
- Expressive vs. Utility. Expressive brands tend to extract a greater share of wallet from their customers through community and identity, whereas utilitarian brands must compete on performance, and thus utilize brand-matching to gain an advantage.
Brand-match open in Action Example 1: Swiffer.
This example illustrates brand match when the durable product drives entry. Swiffer acquires new customers with a superior durable product that solves a pain point. This anchors customers to the brand with a positive product experience.
Utilizing very strong branding and a trial for the consumables (free pads with your purchase of the mop), consumers may not be aware that this is an open system. This convinces consumers to pay a premium for the consumable.
Proof that this works. Although the Swiffer-branded consumable pads are up to 7x more expensive than the generic alternative, Swiffer has achieved 36x more product reviews on Amazon (and likely sales, by extension).
Brand-match open in Action Example 2: SoulCycle.
This example illustrates brand match when the consumable product drives entry. SoulCycle expands customer share of wallet via a community of enthusiasts who have been hooked by the classes and treat SoulCycle as part of their identity. This expressive and emotional connection to the brand reduces the likelihood that consumers would consider purchasing durables (i.e., apparel, cycle shoes, etc.) from another brand.
Archetype 3: Closed Optional
Brand examples: Easy-Bake, Drinkmate, Ring, Xfinity, Pez, Microsoft, Peloton
This product system typically includes a closed durable (that will only work with the same brand of consumable), but an open consumable (that can be used with any brand of durable). Here are three principles of this archetype:
- Reducing Barriers to Entry. Taking the plunge into a more closed system can be intimidating for consumers. To offset this, companies offer trial or sample versions of their system, allowing consumers to inch their way in instead of jumping headfirst.
- Flexibility, not Superiority. Consumers are given the opportunity to experience a part of the closed system with the consumable to get a small taste of the full experience. This allows consumers to envision what the full system could provide to them.
- Price Correlated to Customer Acquisition. Because customers are choosing to opt-in to a closed system, consumers have a feeling that there’s ‘no going back’ once they make a purchase. The higher price of a system, the more difficult it is to acquire customers.
Close Optional in Action: Peloton. Peloton customers can choose to purchase the durable (bike) and the consumable (subscription) together, to unlock full value. Consumers apprehensive to lock themselves into the full system typically test the consumable first until they are convinced to purchase the full system. By allowing access to only the consumable, customers’ barrier to entry is reduced (consumers can subscribe to fitness classes that are not on the bike).
Proof that it works: Peloton has 625,000+ paying, digital-only subscribers, with a 10% conversion rate to purchasing the hardware. With a 93% retention rate on new bike-buying customers, they’ve managed to capture $8.2 million in annual revenue by including a digital-only model.
Archetype 4: Closed Lock
Brand examples: Dyson, Quip, iRobot, Sony, Kodak, Whoop, Juul, KitchenAid, Mercedes-Benz, Dollar Shave Club, Hewlett-Packard
This is the ultimate closed system: consumers have no choice but to purchase both the consumable and durable if they want to utilize either of the products in the system. Neither component of the system can be used with a different brand. Here are three principles of this archetype:
- Useless Without Each Other. You can’t extract value from only one piece of a closed-lock system – neither one of the products is worth much without the other. What’s a Quip toothbrush without the head?
- Customer Loyalty. The value of a loyal consumer base with predictable recurring revenue may stretch beyond the income statement. Investors today are valuing these companies differently based on expected customer retention.
- Launched Together. Closed lock systems are often brought to market together. If not launched together, consumers risk having to change or alter their behavior down the line (which is difficult).
Closed Lock in Action: Whoop. Whoop offers differentiated value in the combined system, targeting a specific niche audience. The durable is useless without the consumable, and vice versa. Locking customers into the system improves retention and recurring revenue. To incentivize initial purchase, Whoop gives away the durable, instead baking the cost into the consumable prices to ultimately capture greater lifetime value than competitors.
Proof that it works: Some simple, back of the napkin math, shows that the Whoop system could capture ~$864 per customer over 3 years (on their $24/month plan), as opposed to ~$399 every 3 years for Apple Watch (assuming purchase of base model, replaced every 3 years).
Key insights from the archetypes
These archetypes highlight exciting, product-centric approaches to innovation that your organization might choose to adopt. But, how do you know which one is best positioned for your company and products?
While researching these brands and how they chose to build systems in an archetype, we found themes in their business (more specifically, growth) objectives and in customer preferences. Swiffer, for example, likely had the business objective of acquiring customers from other companies when they decided to leave their system more open, as it offered a low-risk way for customers to test out a new product. Whoop, on the other hand, likely saw that fitness consumers prefer subscription models (for their workout classes, etc.) and knew they could capitalize on that preference with a closed system.
Here are a few more examples, organized around common growth objectives:
Be clear and choiceful about how you want to grow and who you want to target, then design your product system accordingly.
Want to learn more about these archetypes or apply this thinking?
Treacy & Company has helped organizations around the world capture greater market share and keep consumers coming back for more. We can help you design a product system that will be the next great analog for others to study.