Transformational products do more than make a profit; they inspire loyalty among their consumers which can become the basis for a deep long-term moat.
There are three elements to a transformational product. First and most fundamentally, it confers the opportunity upon its user to realize a mission. A transformational product is
something that serves at depth. It is not just a status purchase like a Coach handbag or a pretty water bottle. It enhances your capacity to be something. It is not just something useful that can be purchased for a good price, such as reliable heat or clean water. I pay the County of Durham about sixty dollars a month for clean water. I would pay more, because that price hardly approaches the amount of money it would cost me to substitute their water with a private source. Nonetheless, clean water doesn't transform who I am.
With that, the second feature is that there is a two-way dynamic between the product and the consumer. The consumer's achievement is not merely based upon their purchase, but instead through a process of engagement that requires work.
Third, a transformational product doesn't have to pitch its value - it taps the missional achievements of its early users to sell itself to people that may not even know that they want it. A transformational product is more than a product to its users - it is a story.
So the transformational product is itself a rebuke to cynicism. When you hear someone argue that a good product is above what people want, then that person should be ignored. The problem with a product that doesn't find traction with customers is probably that its not a good product.
What types of products?
There are not transformational products within every product category. Some things will probably never inspire deep engagement, even if they are necessary and functional as currently constructed. Likewise, some kinds of goods are blessed with the opportunity to achieve transformational status just by the nature of what they offer to people.
A mortgage is designed to be transformational. Consider the difference between paying rent and paying a mortgage. Both act as a means to acquire shelter. Shelter is a necessity. For people that stay in the same house for a long-time, shelter allows a person to gain stability in his or her life and to find a place in a community. But people respond very differently to the two. There is no mission to renting a home. Paying rent is, in the frame of Marshall McLuhan, a distinctly cool experience. Moreover, renting doesn't really engage. If there's a problem with a rented home, you just call the landlord and let him worry about it. On the other hand, paying a mortgage and thereby owning a home is "transformational," because it is a transaction that changes a person's identity and place. To the last point, people rarely boast to friends that they are renting. These days, I do notice more people bringing it up in conversation, but it is always because it factors into a different mission. Frugality, for example, might be the mission that inspires renting.
Food, which can be either a commodity or something far deeper, is also a natural fit. These days, all kinds of people want to talk about what they are eating. My sister seems to have adopted good food as her identity in life, for instance. But even if I hesitate to drink that Kool-Aid, I still see why it could happen relatively easily. Eating well can be a mission, it definitely takes engagement to cook well, and people want to share their appreciation for the experience.
Similarly, people are devoted to Weight Watchers because of the same reasons. Weight Watchers is not easy. It isn't quite like becoming a Marine (a transformational occupation), but it takes a lot of work to earn results. Once you get those results, though, you feel in control of your life. By the way, people definitely spread the word about this product when they have success with it.
The transformational company links its mission to the mission of its customer. Delivering a return to your shareholders isn't an option, but if the goal stops there, then where is the differentiation? A company whose beginning and end is only to profit is steering its course through the rear-view mirror.
The benefit for a company is obvious - with a transformational product, a firm can charge a lot more and flesh out a larger product suite. Let's think about personal computers. I have a Lenovo laptop (but also an iPod). Lenovo makes very functional computer equipment at a very reasonable price. But Lenovo could disappear, just like Tandy or SyQuest did in the past, and no one would miss them.
Apple, on the other hand, has taken a commodity and developed it into a personal expression that happens to also do computing. Apple customers aspire to do what Apple says it can deliver: a product whose simplicity and capacity promise to enhance anyone's skills. It isn't just that Apple makes great equipment. They offer a whole lifestyle - hip, creative, and capable. Not coincidentally, they get top price. All kinds of people, not just the ones that really need high quality computing capacity, think that its worth it to pay more for an Apple product.
Profit takes hold after mission. Twenty years ago, Apple was losing to IBM, Dell, and Gateway. IBM sold its business to Lenovo, Dell remains profitable but only by perfecting supply chain, and Gateway is a shadow. Lenovo's margin is 2.2 percent, whereas Apple generates a 38 percent margin.
Tomorrow I will imagine how prepaid debit cards might be designed to achievement transformational status.