How to win by offering less: the case of the over-served customer

Differentiation. Competitive advantage. Unique selling point. Added value.

These are all incredibly important phrases that underpin the successful marketing strategies adopted by many brands and businesses.

These words speak to strategies that seek to offer more value to a target customer or market, and a lot of the time these might be the right strategies to pursue.

However, these strategies require considerable investment to maintain the competitive advantage that comes from prioritising innovation. Take Apple as an example, long seen as one of the most innovative companies, they’ve increased R&D spending year on year for the past 15 years and now spend $30bn annually.

These aren’t the only marketing strategies brands and businesses can adopt especially in times of economic uncertainty, when both B2C and B2B purchasing behaviour changes (this HBR article explains how the market tends to re-group based on behaviour).

The case for reducing the value in your product 

It’s often at times like this – during periods of shift in a marketplace – that disruption can take place, emerging by offering less value at lower cost. 

Tony Ulwick calls this a disruptive strategy, and there are lots of examples of this strategy in action.

Let’s start with Smartphones. They’re ubiquitous, they’re regularly updated and they now typically come with a £1000+ price tag (or a contract that’s value is >£1,000).

When Nokia recently relaunched the Nokia 3310, 20 years after it first launched, it was an example of offering a product with less value at a considerably lower price. Nokia recognised there was a market of over-served customers – customers who didn’t want to spend £1000 on a mobile phone and who didn’t want or need all the bells and whistles that a £1000 phone came with. 

The Nokia 3310 sells for just £59.

When Spotify first emerged as a streaming service, the music industry was seriously struggling. Annual revenues were falling and illegal music piracy was at risk of destroying the entire industry. The market was still dominated by physical sales (e.g. CDs) from an (increasing) mix of online and (decreasing) high street retailers. 

Spotify adopted a disruptive strategy, offering a cheaper product with less value; users of the free ad-supported streaming service got to listen to music on-demand, but without actually owning it. 

Purple Bricks introduced a disruptive strategy to customers trying to sell a property. They saw a proportion of the market were oversold when using a traditional estate agent, and in exchange for less support (the homeowner doing more of the work to sell their home) were able to charge significantly less. 

Ikea is another (older) example offering home furniture with less value – customers have to spend hours building the furniture themselves – but at significantly lower prices. 

Of course, strategies change over time. The marketplace might adapt, evolve or fight back, affecting the strategies that the players have to adopt. 

Let’s take Ulwick’s own example of Google Docs. When Google launched Google Docs – a rival to Microsoft Office – it was offering a product with less value at a cheaper price (it was/is free to Google users). This was a disruptive strategy and was hugely effective. 

The product grew in popularity, as did its features. 

Over time and as the product evolved, Google Docs gained market share. At the same time, the strategy started to change as the target audience shifted to the business user, Microsoft’s core market and long-term strength.

Richard Rumelt argues that a strategy shouldn’t change unless the fundamentals change. Well, the fundamentals had changed. Google Docs was no longer a new product, it was now part of Google’s Workspace targeting a new audience whose behaviours were shifting as the cloud disrupted how people and businesses used office software like Word, Excel and email. 

Now Google pursues a dominant strategy, seeking to win all customers by offering greater value at a lower cost. And it seems to be working. 

Netflix is perhaps the best example of a brand reacting to the recent economic uncertainty to introduce a version of their product to over-served customers. In 2022, and in response to their first ever drop in subscriber numbers, they launched “Basic with Ads”, a direct response to changing consumer behaviour as household spending was cut back. 

Basic with ads offered less value (by interrupting the user with ads for up to 4 minutes every hour) at a lower cost. The result was 15 million people globally switching to this plan, helping to reduce churn and attract new customers with a lower entry price point. 

Three questions to identify over-served customers

Start by auditing your current product / service and your customers. 

Good questions to try to answer include: 

1. What’s the most paired back version of your product or service that offers real value to your customers? Just how paired back is that compared to the version you currently sell?

The bigger the gap, the more likely you are to have over-served customers.

2. Are you losing customers who say your product is too expensive?

Unless you’re a true cost leader in your industry, the answer to this is obvious. Of course you are – you’ll always lose some customers who churn because they say the product or service is too expensive.

However, if this represents a sizable slice of your overall customer base, this might represent a segment of over-served customers.

3. How many price points do you offer your customer base?

The fewer options you offer, the more likely it is that you’ll have over-served customers. Even in a small, narrow market, customers will have varying needs and will have different “jobs to do” that they’re using your product or service to help accomplish.

This means some customers will see your price as offering exceptional value who couldn’t live without it. For others, you might be a cost that’s hard to justify. It’s the latter who might represent over-served customers at risk of churn. 

If after asking these questions, you think there’s an opportunity to better tailor your product / service to your customers, the chances are there’s a much bigger opportunity in the market too. 

The first step is to start getting some insight from the market – asking your recently churned customers is often the easiest starting point. This can start to flesh out whether there’s a paired back version of your product or service that would offer value to this segment of the market.

A final word

Ultimately this is a balancing act; brands like Netflix never want to undersell to their customers and leave money on the table. In this regard, watering down the value of your product or service won’t work for every brand. You can’t imagine Porsche suddenly looking to compete with Ford or Honda to sell mass market family cars. Pricing decisions impact positioning and the way brands are perceived in the marketplace vis a vis the competition.

Just like with many SaaS products, Netflix’s “basic with ads” is an entry level pricing plan, aimed at serving a different, more price sensitive segment of the market who they’d rather retain than lose. Ultimately, over time Netflix’s strategy will shift as they try to upsell these customers to a higher value, higher price plan.