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Definition of Product Ecosystem
Any type of product or service company can expand their core product range, to build a suite of complimentary items and enable customers to extend the functionality of the core product. This can go off in a myriad of directions and there are many good reasons why you should build an ecosystem like this around your product.
Many huge companies have already done it; Apple did this with the iPhone, MAC, Apple TV and ITunes suite of products. By creating this ecosystem they made their brand indispensable in the lives of their customers, maximising customer retention and customer lifetime value. Product ecosystems can be built via partnerships, white labelling or in-house development.
We are going to take a look at this idea in more depth. To begin with, what is the definition of an ecosystem? The dictionary tells us it is this: Any system of interconnecting and interacting parts – as in a business.
Businesses cannot be dependent on just delivering one product or service anymore; your business will only really take off once you have achieved a mix of products and services that all work together to maximise the lifetime value of every customer. When new and complementary products or services are offered to existing customers, the product ecosystem expands and makes the brand more indispensable to customers.
The creation of a product ecosystem is based on the product mix – this is the range of products that a company is offering it’s customers. Companies that are able to operate profitably with just one single product must have a very high demand or they may be struggling to find the resources for expansion.
Today, most companies go down the route of product diversification and building product ecosystems. Think of companies such as Apple, Microsoft and Coca Cola and you will see what we mean. They all have a wide product portfolio, i.e. product mix.
So what are the common terms that you may find mentioned when dealing with product mix?
- Product mix – The number of product lines being offered by a company.
- Product line – This is any one type of product taken from the product mix.
- Product line length – If a company has five product lines with six products within each, then the length of the product line is 30.
- Product line width – This is the number of product lines within a company so, if we take the example above, there are five.
- Product line depth – The depth is the number of products per line, so in this case, six.
- Product line consistency – When there is little variation between the products within the product line then the consistency is high – i.e. Samsung produces many product lines which are all different so their consistency rate is low. If they were all much the same, it would be high.
Three ways to develop your product ecosystem:
So how do you develop your product ecosystem or product mix? There are three main ways of doing this:
- Create digital products – This can be something that is downloaded or, it may be an online tool that customers can use. If marketed correctly, their perceived value will be high even though the cost to produce is low. The added benefit of creating a digital product is the rich customer data that you can collect. You can learn how customers interact and engage with the product. This insight can inform how other products or services across the product ecosystem are optimised to better meet customer’s needs.
- ‘Productise’ your services – Package your service like a product. Give it a name and method; maybe even a brochure so that other professionals can use it. This way you will see an uplift in sales. For example, if you are supplying plastic surgery services, you can increase uptake by linking it with a name and associated marketing services such as brochures and testimonials. You’ll note that, immediately, would-be buyers see the value as being much higher. Services are just as much a part of the ecosystem as products so don’t neglect them.
- Share your secrets! Don’t keep things to yourself. Share your ideas freely – as soon as others begin to share them too, their value will rocket. By sharing ideas, you get feedback from others and they will come to you to access and implement them. You will begin to feel uplifted and the demand will fuel your feeling of success. This in turn will generate even more profitable ideas.
White labelling to build your product ecosystem
A white label product or service is something that is produced by one company and then repackaged and sold by other companies under their own brand name. This has a two-fold benefit as the manufacturer can focus on making the product and the re-brand marketers can concentrate on selling.
Often sold as an ‘own brand’ label, these outsourced products are regularly sold at a lower price. The type of product can vary considerably from foodstuffs through to electronic products, including such things as mobile phones and computers.
As far as white label services are concerned, an example would be a business with no banking operation offering a white label credit card to their customers.
When we think of ecosystems or product mixes we don’t really think of companies as falling into this category and, yet, Apple is an ecosystem company and not a software or hardware business. As a world-class hardware designer, product creator and service provider, no other company can claim to do all three.
Reasons why companies must keep expanding their product lines
So, why keep expanding your product line? If you don’t then you might miss out on some very profitable opportunities and could be limiting your company in a damaging way. Just because your current offering is doing well it does not mean that buyers will not lose interest. Think about Apple who began with the Mac and now have their iPod, iPad and iPhone.
As a small business, whilst expansion can be risky and expensive in terms of time and money, it can increase your share of the market. Here are 10 ways of expanding your product line to keep it healthy:
- Staying relevant – Products that are popular now may not be so in the future so new products need to be introduced to avoid declining sales.
- Meet with customer’s evolving needs – Find out what they want and what they like and then use this as inspiration to create new offerings.
- Reach out to new audiences – As well as retaining existing customers you need a constant stream of new ones too. Achieve this by adding to your portfolio as there are only so many buyers who can keep absorbing your current line.
- Don’t forget the product lifecycle – Every product is subject to phases of introduction, growth, maturity and decline. If you sit back and wait until your product hits the final stage, with nothing to replace it, you will hit a big problem.
- Gain attention – A small portfolio may prevent you from standing out from the competition, particularly if your competitors have a vast range of products. The more lines you offer the bigger your brand will be.
- New marketing opportunities – When you introduce new products, new marketing opportunities will appear, enabling you to reach a larger audience.
- Attract new talent – When you have a great range of products and a popular brand, the best people will want to come and work with you. When you add to your product line, the offshoot is that you instinctively attract the best team.
- Increase your earning potential – Look at your existing product line and the ways in which you can increase earning potential; take what people like to one side and do more of it, brainstorming to create new products or services.
- Generate anticipation – Create excitement when new products are launched, getting your customers as animated as you are.
- Increase loyalty – Existing customers will start to look to you for new products, thus developing loyalty as they wait to see what is coming next. This is an invaluable ingredient of success and will pay off in a big way.
How Google did it and, can non-tech companies do it too?
How did Google become so big? In the early days it was just a search engine company but realised that they had access to an absolute wealth of data. By getting its engineers to work on this idea and offer the data free to customers, it built a massive ecosystem that everyone would begin to rely on. The result was Google Analytics, a new product line for Google which shot the company into the stratosphere, resulting in mass innovation and the origin of data-driven marketing.
Even as a non-tech company, you can learn from Google. You need to encourage development using APIs, get involved in conferences that showcase your talents and take part in thought leadership and research.
As a non-tech company, you also need to focus on creating your own ecosystem. No matter what type of company you are, this can be done. For example, you may collect mass data from customers, looking at trends and benchmarks within your particular industry and then share this will suppliers and consultants within the same sector. You can then ask them to share their development with you, using special events and reports to publicise them. Suppliers taking part will be attracted to your ecosystem and the knock on effect will be that you would be able to meet with the broader needs of customers. You may even end up moving into new markets.
Think about how you can tap into current core sections of your business and build development from outside, creating an infrastructure that will add value internally. There is no right or wrong way to create your own ecosystem but powerful benefits can be created if you try.