Understanding Why Customers Buy 153
In this chapter, we will look at the product in many different ways, starting with the buying rationale. Products are placed within a product space, ranging from sand (silicon) and iron (magnetics) to organization-specific use, with training, learning, and service. A historical view of how the computer evolved into classes and gave birth to the associated applications software provides a background for the product development cycle. Important product-design issues, such as evolvability, and common flaws in developing products are also explored to show readers what to watch out for in product design and product positioning.
UNDERSTANDING WHY CUSTOMERS BUY
Many factors affect whether a customer will buy a product from a particular manufacturer. In the case of an established product class, the most obvious rationale is the product's relationship to other products in its class in terms of performance and price. New products, in contrast, may be purchased on a sole-source basis. As the industry matures and a commodity, high-technology market forms, then more factors, including appearance and prestige, become important. No matter what product or service the new venture intends to supply, its staff must understand why the customer will buy that product. The following subsections examine the most significant determinants of the customer's purchasing decision.
PERFORMANCE AND PRICE
In the early days of computing, computer pioneer Herb Grosch posited the following relationship between performance and price for computers introduced at the same time:
performance time = k X price2
This relationship argues that an economy of scale exists, i.e., for twice the price you get four times the performance. With the introduction of new classes of computers, however, it has been shown (Bell, Mudge, and McNamara, 1978; Mendelson, 1987) that this relationship is flawed, and if it ever was valid, it holds no longer. Today, a strong diseconomy of scale exists, such that:
performance. = k X priceQ.8
We can observe this phenomenon by looking at various machine classes in the price versus performance plane of the sketch1 in Figure 8-1, in which different classes of
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I This sketch was used to "position" Titan, Ardent's first graphics supercomputer against other potential competitive computers.