Theory of market receptiveness to differentiation/innovation

tl;dr — try to differentiate/innovate in 1 of the 3 categories of usability, pricing model, or feature set at a time.

Today’s goal is to share an interesting theory about market receptiveness to new product development.

I want to create products that make lives better. I’m listening to Space Walk by HOYO-MiX today.

Disclaimer: I did not come up with this theory, but I find it interesting and sensible, so I’m writing it down. And I cannot, for the life of me, remember who had come up with it or where I heard it — please let me know if this was you.

Why does this theory matter?

I’ve seen dozens of new products, features, and startups fail or grind to a halt after a period of unsuccessful use and commercialization. Sometimes it’s the business model and unit economics. Sometimes it’s lack of user engagement and retention. Sometimes the market is just not ready for it.

IMO, I think a lot of these issues stem from the go-to-market and product positioning strategy. Market receptiveness depends on the current norms, alternatives, and what buyers and users are already familiar with and willing to try. I think this theory or framework can help you mitigate these types of issues, so why not? :)

from Dilbert

How does this theory or framework work?

To be clear, this theory assumes you already have evidence for some potential product market fit of your service. If you don’t have that, I don’t think this framework helps you.

The gist of the theory is that to successfully commercialize a product and gain strong adoption in a target market, you want essentially not change too much at one time. You want some familiarity for customers, while differentiating and innovating on one dimension at a time.

The dimensions as I recall them were:

1. Usability (i.e. how you use and interact with the product)
2. Pricing model (i.e. how you pay and get charged for the service)
3. Feature set (i.e. what functionality the product offers)

It’s worthwhile pointing out that “usability” and “feature set” feel like they overlap, and I do think one affects the other. However, in this framework, “usability” specifically refers to the way a user/customer interfaces with the functionality in the product, and does NOT refer to any change in the actual “functionality.” In product design, you could argue this is the same separation between the UX implementation of a product, versus the functional requirements or affordances of a product.

This is probably a bit fuzzy, so here’s an example:

• Context: Imagine you’re planning to introduce a new task management product, like a todo list similar to Asana or Trello. Your current plan is to let users use it via a web app, where they can create projects and tasks and assign them to people.
• Innovating on usability: You decide to differentiate via voice commands. The app still has the same “functionality” as other competitors — create projects, tasks, assign tasks, delete tasks, etc. — but you now primarily use your voice to do it. A decade ago, lots of companies were “innovating” here by moving to mobile. This would be considered innovating on the “usability” dimension, without making major changes to the “feature set” dimension.
• Innovating on feature set: You decide to offer an AI assistant to fully manage and reprioritize/reassign tasks automatically depending on people’s bandwidth. You engage with the AI assistant via the web app and you click on some settings to turn it on or off. This would be considered innovating on the “feature set” dimension.
• Innovating on pricing model: Instead of the traditional freemium model with paid subscription tiers for unlimited use but more features, you decide to change things up and charge a flat rate per project created in the product. The feature set is the same and you still use a standard web app, but now users can sort of “pay as you go” rather than pay an ongoing subscription. This would be considered innovating on the “pricing model.”

Now what if you did two at the same time? The theory would say that if you tried to introduce your product with a fully automated AI assistant AND changed the interaction paradigm to using voice controls, then the market is going to find it harder to accept it, and your product is less likely to achieve fast, strong adoption in that market.

How consistent and reliable is this theory/framework?

There’s exceptions to the theory, but I buy it as a generally applicable framework. To pressure test it, I spent an afternoon trying to think of successful products over the last few decades and whether they fit the framework. To my surprise, I thought most of the examples I found did seem to align with it. Take a look below and share comments if you have other examples that do or don’t fit:

1. iPhone: when famously introduced by Steve Jobs on stage, the major innovation was on usability — the full touchscreen — one could argue the feature set was roughly the same as other “smartphones” at the time, and the pricing model the same.
2. Uber: for riders, the innovation was mostly in usability — making it ridiculously easy to book a ride from your phone — the functionality of booking ride existed in other ways and you still paid per ride, so feature set and pricing model was still the same. For drivers, the innovation was in functionality: now you could use your own car and get paid. One might argue that Uber innovated on both functionality and usability for drivers, as I don’t think there was an easy way to digitally sign up to become a driver in the US before!
3. Airbnb: primary innovation in feature set of being able to rent out your own home. Pricing model and ability to search and book online existed before.
4. Rideshare bikes/scooters: usability, by providing easy-to-access bikes/stations/scooters and booking capabilities via an app. Renting bikes/scooters existed before, and you still pay per bike/scooter per mile or by time, so functionality and pricing model the same.
5. Google search: functionality. Although the clean single search bar at the time was unique, I’d argue it wasn’t a reinvention of how people accessed and interacted with the product. The real difference was in the quality and breadth of search results.
6. Laptops: usability. Radically easier to use and bring around than large desktop computers. However functionality essentially the same, just less powerful. Pricing model the same.
7. Tiktok: to be fair, I am not really a Tiktok user myself so I could have this wrong, but my understanding from convos with users is that it innovated on the functionality side with better content algorithms and creation tools. The usability and pricing model wasn’t new.
8. ChatGPT: functionality. Chat interfaces have existed for a long time, and pricing model is not new, but the capabilities and quality of the model and what it could do blew people’s minds.
9. <Your example?>

I’ll keep adding to this post as more examples come to mind or if other folks share good ones. It’ll be interesting to see whether this theory holds, but if it does, it can give you a framework to think about how to introduce your product or features to market in a way to optimize for success.