Strategic Innovation — ASW Case Study
Air-Suspension Wheel (ASW) is claimed to be a disruptive innovative product coming from Global Air Cylinder Wheels (GACW) Incorporated. ASW is a non-pneumatic tire that is designed to change the mining segment by replacing the pneumatic tire and saving millions of dollars in maintenance costs and also saving the environment from wasted rubber. This is not the first company in the non-pneumatic segment made similar claims. To know more about their claims and about the company visit startup engine.
As part of this story, I would like to dissect the information they provided in the startup engine profile with a strategic innovation lens and see where is the company right now in the innovation life cycle, how good the product is, and recommend what should the company do next.
Understand the business and what they claim:
- Typical pneumatic tires last for 6–9 months, require regular maintenance, and do have the chance of accidents. Each tire on average costs $75,000 and typical mining would require 480 tires and the target segment requires 6,102,720 tires in total (based on CDC report, 12,714 mines are active). ASW wheel costs only $60,000.
- Recurring revenue from tread replacement, licensing, and royalty agreements.
- By 2023, they will complete pilot and go wild on acquiring the market.
- Target customer segment is Mining Vehicles.
Where does product fit in the Innovation lifecycle?
ASW is in Innovator’s phase (initial phase) and what it means is, GACW needs to find mining companies willing to take chances on this product.
Is this difficult?
To understand that let’s checkout customers’ gains and losses if they chose to use the product. Gains and losses are calculated based on endowment effect, Meaning, it is not rational calculation, it is relational to customers current usage.
What do customers gain by ASW wheel?
- Lifetime of wheel is same as the vehicle (18–20 years).
- Less downtime of machine because of replaceable parts and repairs.
- Support clean Environment, No wastage of after-use rubber.
- Safety from tire bursts and tire-related accidents.
- No maintenance like rotation, and wheel alignment.
- Wheel need not be removed from the vehicle to repair.
- Fuel efficient and reduces cost per hour/mile.
- Initial purchase costs are less ($60,000 per tire).
What do consumers lose by ASW wheel?
- Easy maintenance: There are teams and maintenance personnel available to fix any problems with current tires.
- Well-established order processing and procurement.
- Unknown technology and support.
From the above trade-offs, it does sound ASW has upper hand and it is sure to succeed right? Hold on to the thought.
Customer Value Proposition and Smash Hit
FOR Mining companies, WHO requires frequent maintenance and shorter lifespan of mining vehicle wheels, Air-Suspension Wheel IS A Non- pneumatic tire segment THAT have higher (20 years) lifetime. UNLIKE other non-pneumatic tires, THE PRODUCT has less thread replacement, less rubber usage, very less contribution to tire wastage.
There is a notion in every customer give more value to the product they own that its actual market value.Customer attaches to the product, process and people, He/She is not ready to have a change even though, they could see rational differences.
The reason is:
“ Losses loom larger than gains”
For a new product to be acceptable, It should be at least 9 times better than the current product, this is called 9x effect. The question product owner should answer to “Why should customers shift to my product?” the reason should be 9 times better than current solution”
This product is better than tube-based tires. Thats what a typical person who goes through the benefits can conclude.
But this product is not targeting to a typical customer, It is targetted to a specific customer segment, that is Mining Vehicles and it is challenging to adopt a new change.
Let me explain with an example:
In 1993, PAX system was developed by Machilin to address flat tire problem and it failed miserably in market. PAX system changed the entire mechanics of a tire and the wheel has no common parts with its predecessor. They totally ignore the existing ecosystem (Distributors, Maintainance companies) and assumed everything will fall in place once customers purchase the car. It was Smash Hit yet failed miserably. Why? well… when there is a problem with PAX system tire, customers do not know where to go. Existing service industry has no clue on the new tire mechanics, Vehicle distributors don’t know what to do when customers have issues. A great product that could save hundreds of lives was a disaster in keeping up with sales.
When a product has less degree of behavior change for customers and a high degree of product change, it is considered a Smash Hit. PAX system does come under Smash Hit so does the ASW product (There is no customer behavior change and a high degree of product change in tires).
Customer has everything in place (product, process, and relationships) and they are attached to this for decades with a proven ecosystem. To back my point, Take example of QWERTY keyboard you are using right now, Do you know there is a better keyboard that is more efficient, faster typing speed and better ergonimics? It is called Dvorak keyboard. Do you know why it failed despite of so many benefits. By the time Dvorak keyboard came to market, QWERTY was widely adapted and computer keyboard manufacturers, training institutions widely used the QWERTY. Dvorak is great innovation that requires change in ecosystem and customer behavior. Bottom line is Understanding the ecosystem is critical for disruptive innovation.
So will this product have the same fate as PAX systems and QWERTY key board?
No, I am not saying it will end up with other products. I can only say, it could end up in the same boat and to understand why? let's go through their statement:
By 2023, we anticipate the ASW will be fully commercialized with rapid adoption into mining fleets. At this point, our plan is to expand our distribution network and really start taking the tire industry by storm
Right now ASW is in Innovators phase:
It has to understand the product challenges, find customers that are willing to accept the change, and pave path to get onto early adopters phase. This can be done by finding more like-minded companies willing to save the environment and save costs in tire maintenance.
- GACW has very good product at hand that can be a potential disruptor. As a R&D company, They could end up with Marketing myopia. Means spend more on R&D to perfect the product. This happens due to developer's curse. They should stop developing further and start concentrating on selling product.
- Sometimes less is more. Targeting aggressively on capturing the customers might backlash like PAX systems. They should focus on a few customers and work on ecosystem establishments. Their statement show aggressive marketing and sales in 2023. This could backfire.
- They should focus on breaking chasm by addressing the existing customer losses and then be ready for early majority customers. Based on the start up page and their statement, They are targeting majority customers directly. It could be a disaster.
- There will be resistance from customers. Accept resistance, Any disruptive innovation required significant behavior change (eco system) and One way to address resistance is to Be Patient.
There is no way they are going to capture the entire mining market any time soon, If they do capture the entire market then I fear more about sustaining the place.
The biggest question they have to answer is, What if there are faulty wheels? I do not see any customer service being addressed.
Another reason is their leadership board, They have a tremendous leadership board, but none was specialized in customer satisfaction or operations expert.
If I have to spend $1000 will I spend it on GACW stock? I would spend on GACW with lower expectations like they will reach where they want to probably in 4 years or a decade.
Please feel free to leave your opinion in the comments.
Business model (Additional Info)
They need to work on business model now to understand how they move from R&D company to actual business. With the data we have: Typical business model canvas would look like
Partners: Tire distribution agencies. Licensing deals with manufacturing companies.
Resources: Nitrogen cylinders, Alloy for wheels, Salesforce, Customer Services, Operations Support.
Activities: Establish as brand, Collaboration with environmental conscious companies.
Value Proposition: Less or no maintenance, easy parts replacement. Cost savings
Relationships: Establish relationships with mining companies and other heavy vehicles manufacturers to provide these tires as default tires.
Channels:
Existing heavy vehicle manufacturers.
Vehicle support companies.
Customer Segments:
Mining segment and any heavy vehicle companies.
Costs:
Manufacturing costs. Salesforce and operations maintenance costs. Patent costs.
Revenues:
One time sales of the wheels and recurring thread replacement. Licensing deals.