Product/Service Category

The product/service category focuses attention on the product or service that the business is proposing to sell. It must present a valuable point of differentiation to cause a switch in customers' preferences. Valuable points of differentiation may include a lower price or some measurable higher value from the customer's perspective. For example, if the product/service is more expensive but is not compensated with a higher value, customers are unlikely to switch from their current suppliers. On the other hand, even if it has a higher price but offers a compensating enhancement in the overall value, then some value-conscious customers will switch. This was the case with organic products: they had higher price but were viewed by consumers as presenting a higher value, and therefore presented a credible switching threshold.

To successfully assess the product's value/price relation, it is important to have a clear idea about its target customers. Understanding their demographics, psychographics or other characteristics can help one evaluate the value/price relationship. In the case of ethanol, for example, understanding the increasing pressure on oil refineries to eliminate MTBE from gasoline and the environmental benefits of ethanol can provide some indications of the product's ability to cause a switch in preferences as well as the extent of the switch. This assessment also offers investors an opportunity to evaluate the company's pricing assumptions when reviewing its finance and economics indicators. Sometimes, it is necessary for investors to extend their understanding of the value/price relation to their customers' customers since demand for inputs are derived from final product demand. Although this does not imply knowing these customers, it ensures that potential investors have a good idea about the assumptions underlying the company's growth projections as well as its view on its product's distinguishing factors.

The strength of niche orientation seeks to determine the strength of the product's points of differentiation and their sustainability in the face of competitors. In the case of organic products, the fact that producers required three years of non-pesticide use and other organic practices to gain organic status implied a strong niche orientation. The growing influence of the environmental movement and the increasing number of medium to high income consumers supporting the movement implied a strong sustainability for organic products. These factors supported the formation of organic products as an industry and their emergence at a category in many traditional grocery stores. The same is true for ready-to-cook and ready-to-eat meals, which are emerging in response to the growing time constraints confronting consumers.

Assessing the strength of niche orientation helps potential investors think about the marketplace reception and sustainability of the proposed products/services. A strong niche orientation implies an identified customer segment with an identified need that the products or services address. The more immediate customer benefits are, the faster the adoption rate and the higher the sustainability level. We saw this with the adoption rates of bioengineered crops that had improved agronomic qualities, such as bt-corn and Roundup®-Ready soybean. On the other hand, the lack of immediate/direct benefits from the same products is causing skepticism in some consumer markets.

If you cannot reach your customers, you do not have a market. Thus, access to market is the critical success factor for any new product or service. Regardless of the strength of the product's niche orientation, the absence of strong distribution channels access will impede success. The literature suggests that even when the product is not highly differentiated in its form or service, access to strong distribution channels can provide significant support for success.