Growth Strategy for AI-Powered Consumer Devices (Part 2)

Breaking Down Growth Components

Growth strategies vary for consumer device companies at different stages of development. In the early stage, the focus is on achieving product-market fit (PMF) and gaining traction with the early adopters. After that, the focus shifts to scaling the business and growing market share.

From 0 to 1

Product Market Fit

Rather than a single item on a marketer’s checklist, PMF is a spectrum and a gradient a product moves along with validation and incremental success. The journey begins with a well-analyzed, validated, and articulated problem experienced by target users. One approach I particularly favor is ethnographic research. This involves observing users' lives in their natural environments and witnessing firsthand how they encounter problems. Such in-context observation provides an authentic perspective that validates desk-top research and user-focus group learning.

Product ideation then centers on the absolute core function that directly addresses the primary pain point. Through iterative builds, testers can interact with minimal viable products (MVPs) and provide qualitative and, in some cases, quantitative feedback through properly informed tracking setups. A recording of users’ comments and feedback while using the product is always preferred to share with stakeholders as it gives product builders context. One key measurement to monitor is user engagement - how often, in an everyday setting, users come back to the product.

Pricing

In the initial stages of product development, establishing pricing strategies might seem too early for some, but it's a successful method for consumer devices. Companies can better align their products with customer willingness to pay and guarantee that the features, materials, and overall value proposition are consistent with the target price point when price is viewed as a core aspect of product design rather than an afterthought.

Pricing has a direct impact on a company’s bottom line. Yet it’s not uncommon for companies to subsidize consumer devices or / and applications to lower the barrier to entry and increase demand. One example is Meta’s Quest 2, which was initially sold at a price below cost and then had its price increased by $100 accompanied by a free copy of the headset’s most popular game. This was then followed by a price drop and a software update to improve CPU and GPU performance to boost sales. As a result, the Quest 2 outsold its next-gen device during the holidays last year and accounts for the majority of the millions of Quest headsets sold.

Meta Quest 2

There are different pricing strategies that companies can use. Some companies, like Meta, may avoid being a cost leader and instead offer more value in the form of free games or major updates while adjusting the price. Other companies make no profit from hardware but generate revenue from applications, other products, and services. Amazon, for example, has launched various gadgets like the Echo portfolio, Fire tablets and TVs, and Dash Buttons, which make it easier for consumers to buy more frequently from the Amazon Store.

From 1 to many

Product debut

Product-led-growth (PLG) is a popular strategy for SaaS products. It’s also an effective approach for novel consumer devices with creative adjustments. While offering free trials to users can be challenging, there are several ways to reimagine this tactic, such as providing demo models, implementing easy return policies, and offering a preview of non-core functionalities.

Pre-orders. Offering limited-time deals or exclusive bonuses in the form of pre-orders has been seen as effective. Rabbit’s R1 successfully received 50K pre-orders within five days, demonstrating promising market interest and demand. Additionally, pre-orders help inform the production batches, ensuring that the production process aligns with customer demand.

Unboxing. For tech products, the early adopters are usually highly interested in “first impressions”, unboxing, or teardown videos by product markers and tech YouTubers who sometimes receive the devices earlier than consumers. A high-priced product can benefit from a “how it’s made” video that showcases the engineering marvel and reflects the value of the device (examples: PS VR2, Apple Vision Pro, Rabbit R1).

Self-marketing. When employing this tactic, it’s crucial to identify a compelling aspect that can serve as an effective introduction point during a product launch. This could be the creator’s identity (e.g., Imran Chaudhri, the creator of Humane’s AI Pin, who was a former Apple executive leading the design of the iPhone’s home screen) or the product’s design (e.g., Rabbit R1’s retro design by the iconic Teenage Engineering). Such startup product debuts often garner attention on social media and receive significant free exposure.

Killer use case

Without a well-known founder or connoisseur design, a product can still achieve success by providing users with an immediate and compelling value proposition, an “aha moment” by a killer use case. Years ago, when I first tried Amazon’s Echo, I was instantly captivated by how this affordable device set me free in various ways.

For AI-powered wearables, the potential is infinite and the killer use case needs to be like a toothbrush - used at least twice a day. Such use cases can vary for different target audiences. For me, I believe the ability to explore and interact with the world on the go through visual and audio input/output is game-changing.

We’ve witnessed significant interest in Ray-Ban Meta Smart glasses which feature audio and cameras with over 150 custom frame and lens combinations. By simply saying “Hey Meta”, users can engage with Meta AI to access information, control, and more. Brilliant Lab’s Frame is powered by an open-source AI assistant Noa, which uses OpenAI for visual analysis, Whisper for translation, and Perplexity for web search

Ecosystem lock-in

Consumer devices often gather dust shortly after purchase due to limited functionality or lack of new features. Building a comprehensive product portfolio and ecosystem is extremely challenging for companies outside of FAANG, emphasizing the importance of seamless connectivity with popular applications to prevent user defection to other offerings.

An intriguing example of ecosystem lock-in during the early stages of product development emerged recently. Within 24 hours of Rabbit’s R1 announcement, the company secured a high-profile partnership with Perplexity, a renowned AI company known for its conversational AI-powered answer engine and 10 million monthly active users. This partnership included one-year subscriptions to Perplexity Pro for the first 100K R1 pre-orders. To deliver on R1’s promise of AI-powered task accomplishment, it is reasonable to expect many more future partnerships.

Market penetration

The key to capturing a larger share of existing markets lies in conducting thorough market analysis and user segmentation. Armed with these insights, marketers often initiate efforts to build anticipation among the target audience even before the product launch and later create programs to scale the user base and increase usage.

Influencer partnerships. Influencer partnerships have emerged as a potent strategy, enabling products to connect with their intended audiences and enhance brand visibility. Through collaborations with influencers who have a large following within targeted niches, a product can access a broader consumer base while capitalizing on the influencers’ established trust and credibility to advocate for it.

Retention. Once the product acquires its initial users, retaining them becomes a primary focus. Marketers typically work on increasing the number of users (user acquisition), their level of engagement (user retention), and spending per person (if the business model involves ongoing purchases). At this stage, many programs and campaigns can be implemented to enhance these metrics, for example, referral & loyalty programs, co-marketing promotions, product deals and bundles, and many more.

Product development

Trade-off. Making consumer devices is always constrained by resource limitations and the law of physics. As a result, trade-offs are everyday decisions, and marketers play a vital role in them. Marketers assist in testing concepts, understanding customer priorities, evaluating price sensitivity, communicating trade-offs in competitive messaging, and formulating responses to potential criticism.

Community. Continuously improving the user experience is crucial in user retention, and providing an easy feedback loop is the key. While hardware design updates might not be feasible before the next generation, setup processes, interfaces, and performance can still be enhanced on the go. To gather user feedback, marketers can conduct focus groups, or even better, establish an online community where users can exchange tips, discuss features, make wishes, and potentially become product advocates. For example, Xiaomi, a consumer electronics manufacturer, has consistently delivered outstanding products since its inception thanks to its vibrant community. Two articles, one from the MITSloan Management Review and the other from Harvard Business Review, provide insightful perspectives on its success.