Companies & Industries

Cut Costs Without Cutting Meaning


Too many companies in the U.S., Europe, and Japan are focusing on stripped-down "value" products that lack the emotional and social dimensions consumers desire, says author Roberto Verganti

Posted on Harvard Business Review: February 11, 2010 3:02 PM

In reaction to the Great Recession and the forecasts that consumer demand in the U.S., Europe, and Japan will remain anemic for the foreseeable future, many companies are focusing on stripped-down "value" products. In doing so, they risk making a big mistake: Assuming that consumers in hard times care more about utility and low price and less about the emotional and social dimensions of products.

While people, of course, do care about price, they care even more about how products give meaning to their lives. Even when they are pressed financially, they do not want to feel poor. So the challenge for companies is to cut costs without cutting meaning.

One of the most successful products to do this was the Panda, a three-door hatchback city car that Fiat created in response to the oil shocks of the 1970s and the economic downturn that followed. The Panda was conceived as a "no frills, big thrills" rugged car. Its backseat was a cloth rectangle stretched between two tubes that could be folded to hold a baby or fragile parcels, unfolded flat to make a bed-sized mattress, or removed, rolled up, and stored in a slot carved out of the floor behind the front seats to create a cargo bay.

The Panda's design not only allowed it to be assembled rapidly and inexpensively but also gave it a distinctive personality: According to Fiat's market analyses, only 38% of customers considered price a significant reason for buying a Panda. Most wanted a rugged, all-terrain, lighthearted car; being cheap was just an essential part of its "no frills, big thrills" concept.

Its meaning and identity allowed the Panda to remain popular long after the economy recovered. While competing cars lasted an average of 8.5 years, the Panda endured for 23. During that time, Fiat made only minor changes to the model and sold 4.5 million worldwide, with only minor changes. It was one of the most profitable cars ever produced.

Some other companies are masters at creating products that are good-enough value price-wise, but don't daily remind their owners that they couldn't afford to buy more expensive alternatives. For example, people love to buy IKEA furniture because of its modern, clever design, and Swatch watches because they can be used as fashion accessories. They use Skype not only because it provides a free alternative to traditional phone calls but also because its multimedia tools, which include video calls, chats, and file sharing, allow them to stay intimately connected with friends in faraway places.

In these hard times, remember that people still love meaningful things. Do not just design to cost. Design to mean.

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