Simplify. The word "simplify" is a technical term used in designing products or services. Mr. Richard Koch has taken this book to explain and shed light on this theory once again. The products of several major companies, such as Apple, Amazon, and IKEA, all follow this principle of simplification.
Anyone who has been to IKEA probably knows. It's not just a modern mall selling furniture and kitchenware that's in style. It can also be described as a weekend destination for families. Some people enjoy going to IKEA on weekends because it's spacious, and it has all kinds of furniture and household items. The products are good quality, the prices are low, it's easy to use, and the shopping experience is unique.
They have everything from a food court to a children's playground right inside. They have designed it in the form of small rooms, some 30 square meters, some 50 square meters, some 100 square meters. When you walk in, it feels like you're stepping into the room of your dreams. Every IKEA product is designed according to this "simplify" principle. For over 20 years, the author has studied many large companies and has concluded that all the major companies in the world that create monumental and highly successful products have one thing in common: they know how to make their products simpler and simpler. Once you understand this principle, you can look at your own business, whether you are currently selling a product or providing a service. Can you apply this principle in any way?
This book was written by Mr. Richard Koch, an investor and a famous author. He introduced the 80/20 theory, which states that 80% of a company's revenue can come from 20% of its total operations. A co-author, named Greg Lockwood, is also a famous investor who has consulted for many large companies like IBM and Accenture. This book is a joint masterpiece from the two of them. They have observed the long business journeys of many major companies, combined with their extensive work experience, to explain the meaning of the word "simplify." They also describe how this theory has been applied in business.
Below, we will break down the key content of this book into three parts.
Part one: We will look at the two main principles: the pricing principle and the design principle.
Part two: We will introduce how to use these two principles.
And part three: We will discuss what benefits these two principles can bring to our businesses.
Point one: Let's look at the two principles above. What do the pricing principle and the design principle mean?
First, let's talk about the pricing principle. To put it simply, it's about selling cheaply. The goal is to make the price of the product you sell to the market half as cheap as the competition, or even lower. Doing this will allow you to capture a vast market share. You might react by saying, "If I sell cheaper, won't the quality be lower, or won't I have to sell at a loss? How can a business like that survive?"
But the pricing principle here isn't just about the price you sell to the end customer being cheaper than others on one front alone. This principle wants us to look at redefining the entire production chain, from the initial design, the use of raw materials, the supply chain, and the entire distribution system. The goal is to reduce the cost of production as much as possible so you can sell at a lower price than anyone else in the market.
Let's take an example. A great success of Mr. Henry Ford, the founder of Ford Motor, was the Ford Model T. This model car transformed Ford from a luxury car brand to a mainstream brand that ordinary people could afford to buy. This was because it was much cheaper than previous Ford models.
But the problem was that Ford used to produce high-end cars for the elite. Now, producing a cheap car like this, how could they control the costs? If they used the old production chain, they certainly couldn't reduce the price. Previously, building a car was done by hand and manpower. Assembling one car took more than 700 hours. Later, Henry Ford invented the assembly line, which simplified production and was a huge step forward. It reduced both labor, capital, and time. Assembling one car took only 90 minutes.
To keep up with this new production chain, Ford had to simplify. All Ford cars came in only one color: black. This was because only the black paint from Japan could dry fast enough for the assembly line. He also used a type of steel called Vanadium steel, which was a light and strong material. But this type of steel was only produced in France. To America, it was an imported good. Henry Ford decided to build his own factory to produce this steel in America to cut costs.
You might say that's a joke. Building a factory to produce raw materials only increases expenses. Why do you say it's a way to cut costs? We also have to look at its benefits compared to the cost. If it's profitable, why be afraid to do it? Vanadium steel is many times stronger than regular steel. Using a raw material that has two special characteristics combined, being light and strong like this, is hard to find. What's important is that it's cheap.
But importing it from France would incur high transportation costs and take a long time. If they produced it themselves, they could surely cut a lot of expenses. It just required a large investment at the very beginning. But that's okay. Henry Ford was a man with money.
How did redesigning the production chain and using this excellent raw material change things? At that time, the Ford Model T was sold at a price so cheap it was shocking to the market. By 1920, this car was sold at a price three times cheaper than the first model, and it sold over 1.25 million units, an increase of 781 times, capturing over 60% of the car market. Because of this one car, Ford was recognized around the world and became the number one car manufacturing company in the United States. This was because they dared to reform their production chain and raw materials.
This allowed them to sell for less than the market price and capture a larger market share than before. Therefore, if we have a way to make our product cheaper than half the market price, it will create much more demand than before, not just increasing once or twice, but it could increase 100 times or 1,000 times. Therefore, the pricing principle, selling a product cheaper than the market, not only helps you beat your competitors in the market but also allows you to receive many unexpected rewards.
Now that we're done talking about the pricing principle, let's look at the design principle. This principle means that the design of a product or service must be simple and easy to use. If we compare it to the pricing principle, they are opposites. Because they don't focus on reducing capital to make the product sell cheaper. Instead, they emphasize the design, the user experience, and special features, doing whatever it takes to ensure the user gets a good and easy-to-use product.
Let's take an example, like the phone apps we use every day, such as ride-hailing apps. You just have to input the point you want to go to, and a taxi will come to pick you up right away. Or like the Google website, on their homepage, there's only a search box. There's nothing complicated at all. But they are a company worth billions of dollars.
Let's look at the company Airbnb, which is a website for renting homes for short periods. If you have a house, an empty room, or even just a bed or a sofa, you can put it up for rent on the Airbnb website. Their business model is simple and can expand the market to many countries around the world.
Today, this website is worth over 113 billion dollars. Therefore, simplicity comes from design. And generally, what is simple is always easy and receives a lot of support from users. After we explain the meaning of the two principles above, let's look a little at the differences between them.
The first is the focus on different target markets. The pricing principle focuses heavily on low prices. The target customers are broad, and they receive a small profit but sell a lot. As for the design principle, it focuses heavily on quality, user experience, and luxury. Its market is not that big, but they can sell at high prices and make a lot of profit.
Because they target different customers, they choose to apply different principles. The planning of marketing strategy and the allocation of resources are also different. Businesses that choose the pricing principle as their core can generally capture a larger market share and are more stable. Because they have already cut costs and lowered prices to the lowest possible level. If a new competitor enters to compete for market share, it's not certain they can make it cheaper than what's already on the market.
But for those who choose the design principle, it requires flexibility and high creativity. If there is no innovation and continuous development, there will surely be new competitors who do it better. For example, the iPhone from Apple. The change from a phone with large buttons to a smartphone that can be touched directly on the screen was an amazing new creation and also a significant revolution in the smart mobile phone manufacturing industry.
Although the one who introduced this new technology was not Apple, when it comes to the smartphone industry, Apple does it better than anyone. But if they don't continue to innovate endlessly, their position as the top smartphone is not guaranteed to belong to Apple forever. Because there might be another company that does it even better. In fact, the Chinese company Xiaomi is also closely following Apple.
Therefore, if your company wants to apply this "simplify" principle, you must choose one of the two principles above. How do you know which principle is suitable for your company? This book tells you all about various ways to test, from company culture, market situation, vision, and the company's mission, to evaluate which principle you should choose to apply. This testing process is a bit complicated, so I won't present it to you all here. If you all want to understand it in more depth, you can find and buy this book.
Next, we come to the second key point. How are these two principles above used? Let's take the first principle to discuss. If we talk about the pricing principle, it's about doing everything to cut costs so you can sell to the end customer at the cheapest possible price. If you can sell for half the price of the products already on the market, or even more, there will be an explosive sale in the market. To achieve this, it's not an easy matter. But there are still ways.
In this book, they have recommended 9 steps for us to follow. Here, we will summarize them into three steps. Step one: Redesign the product again. Step two: Redefine the business model again. And step three: Expand the market.
First, let's talk about the first step: Redesigning the product again. Cut or eliminate features or parts that are not necessary, keeping only what is most important or what you do best. In fact, products on the market have only one important function. They are created to solve a specific important problem. But due to market demands, that product has become more and more complicated.
For example, in the aviation industry, they created airplanes for the purpose of traveling from one place to another around the world. The reason is that traveling by plane is one of the fastest modes of transportation. Therefore, the most important thing is speed. But because of the market demands and a lot of competition, it has made airline companies like Boeing and Airbus start paying attention to many other aspects, such as making the plane have a more spacious interior than before, seats with better comfort than before, and food on the plane that tastes more delicious than before.
These things have certainly made the flying experience much better than before. But thinking about these things has made them move away from the core demand of travelers, which is to have faster travel, save time, and spend as little as possible. Therefore, we can say that in the aviation industry, they can still use the pricing principle to make new reforms to compete in the market, which is to make flying cheaper than before.
The airline company AirAsia does it better than anyone. This company's airplanes have only one type, which is the Boeing 737. Using only one model of airplane for operations like this makes it so they don't spend much on maintenance and training for the staff who serve on the plane. On this airline's planes, there is no business class. There is only economy class. All the seats are arranged close together and there is only one type.
The food on board is also not provided for free. If you want to eat, you can buy it. The luggage allowed on the plane is also not much, only 7 kilograms. But if you have a lot of luggage, you can buy extra kilograms.
Doing this allows them to sell airplane tickets cheaper than their other competitors in this industry. The cheap ticket prices like this allow them to capture a large market share in a short period. Therefore, redesigning the product again is for the purpose of cutting costs by cutting features or parts that are not necessary, keeping only the functions or parts that you do best and are most important.
Another example: when Steve Jobs was forced to resign from his position as chairman of the board of directors in 1985 and was later invited back to Apple in 1999, the first thing he did was to cut any Apple products that were not necessary. He kept only the products that Apple did 10 times better than anyone else, and their products became simpler and simpler. The design of the iPhone is so simple that it no longer has a home button. Charging has gone from having a cord to being wireless, and recently, they have produced a wireless charger.
Next, we move on to the second method of cutting costs, which is to redefine the business model again. Above, we talked about the car manufacturing company Ford, which created an automated car production line and did not use much labor. The spare parts that they produce have a standard quality and can be produced in large quantities because they use an automated system, which makes the work efficiency increase and the capital cost lower than before.
The company McDonald's also uses machines to make bread to produce their burgers. This makes their bread produced quickly, with a standard size and taste. This allows them to sell burgers cheaply to their customers. Before they could do this, they had to meet one condition: they had to allow customers to participate in giving their opinions.
To make it easy for all of you to understand, let's take the business model of IKEA as an example. Those who have shopped in this furniture store have surely had this experience. When you walk into this store, there are no staff to push your cart or pack your items for you. And there are no staff walking with you to show you this or that. You have to look at the map yourself and walk around like you're on a leisure trip at a resort. If you like something, you take it, and you have to transport it home yourself and assemble it yourself.
Doing this, IKEA can save a lot of expenses. And customers can also buy furniture and kitchenware at a cheap price. Similarly, some airline companies do not provide free snacks or allow you to bring heavy luggage on board for this very reason. They save on expenses, and the ticket price is cheaper for the traveler. If you want more kilograms or want to have delicious snacks, you can spend extra to get additional services.
Now that we're done with redefining the business model, let's look at the third method in cutting costs, which is expanding the market. If a company has achieved the two steps above, which are designing a product with simple functions, being easy to use, having a low price, and also having a business model that helps cut operational costs, the next step they need to focus on is expanding the market as quickly as possible.
Many people think that when a company's profit is low, trying to expand the market will only make the company spend more. Or sometimes even lose capital. But in this book, it shows that if we choose the strategy of setting a price cheaper than the market to compete, please do not leave a gap for others to enter. If you dare to slow down even a little, there will be new people coming in to sell cheaper than you, and in the end, it will become a red ocean market.
For example, the case of the company Coca-Cola competing with Pepsi in the Middle East. You all know that Coca-Cola is the king of soft drinks, ranked number one in the world, with no one who can compare. But in the Middle East, they lost to Pepsi. At first, Coca-Cola built a factory in Israel, but later, the Arab League countries did not allow them to produce. Because Pepsi had seized this gap, built a factory first, sold at a lower price and in a larger quantity than Coca-Cola, and sold to every city, every place in the Middle East.
Until now, Pepsi is still the one who holds the largest market share in the beverage industry, with no one catching up. In conclusion, choosing the pricing principle to penetrate the market, cutting costs, selling cheaper than competitors who are already in the market, you must follow the three steps above. That is, redesign the product, create a new business model, and expand the market faster than others to achieve success.
Next, let's look at the second principle, which is the design principle. This principle, they don't care about the price or cutting costs at all. They focus on designing the product or service in a way that is attractive, provides comfort, and a sense of civilization to the user. To achieve this principle, it requires you to fulfill three conditions: make your product or service simpler, have more features, and be aesthetically pleasing.
Let's look at the first condition, which is to make it simpler. When a product or service is simple, more people will use it. What is considered simple? It must fulfill five criteria below. First: cut down on non-essential features. Second: easy to turn on and off. Third: fast to use. Fourth: light in weight, small in size. And fifth: easy to find and buy.
For example, the iPhone. At first, they removed the button, then they looked for a way to make it work without using a button. Using only a hand or a pen. Later, they removed the pen, using only a human hand to control it. Until now, there isn't even a home button. You unlock it with your face or fingerprint.
Another example is the MP3 player, the Sony Walkman from Sony. They wanted to create a small, sleek MP3 player to replace the bulky stereos that people used to carry around. At first, they removed the recording feature, keeping only the song playback feature. Then, they replaced the over-ear headphones with in-ear ones. Later, they removed the cord, and it became a Bluetooth headphone.
The new, simple design like this made the Sony Walkman achieve overwhelming success, completely dominating the large-sized stereos of that time. And later, because of the presence of the iPod, the Sony Walkman lost a lot of its market share. What was special about the iPod compared to the Walkman? They designed it to be even simpler than the Walkman. The iPod Shuffle had only four buttons: play, stop, previous song, and next song. Their advertising slogan was even simpler and easier to remember. "Put a thousand songs in your pocket."
Besides being simple and easy to use, let's look at the second condition: having many features. Above, we mentioned that if you choose the pricing principle, wanting to sell cheap, you have to make the features simple or have only one. Don't provide too many choices to the user. But if we talk about the design principle, it's the opposite. You need to create many features and many choices for the customer.
If we can design it according to the preference of each customer, it's even more special. Let's look at Starbucks coffee. They don't just sell coffee. They sell an atmosphere, a place to sit and relax, internet, and the feeling you get when you drink a premium brand of coffee. Let's look at ride-hailing apps. They don't just have taxis. There are tuk-tuks, small cars, large cars, riding alone, or sharing a ride with others.
These various features are a special point that can attract users to use it more and more. But you have to remember, don't make it too much or too complicated to the point where the customer doesn't know what to choose. Let's look at the final condition, which is being beautiful and attractive. This point doesn't need much explanation. Everyone wants beautiful things. Let's look at Apple's products; every one of them is sleek and shiny.
The original words of Steve Jobs spoken to his engineering team were: "Even though the wires inside the computer can't be seen, I want them to be beautifully and impeccably arranged." McDonald's is the same. Both the atmosphere inside the store, the staff uniforms, the restrooms, and the parking lot must all be clean and shiny.
The final important point, we come to talk about the impact of this design principle. Above, we have raised the meaning of these principles and how to apply them in business. The question is, do all products or services have to follow these principles to be successful? Not necessarily. Some products don't focus on price or user experience at all. But they value complexity, production time, and its luxury.
Like the high-end watch, the Patek Philippe. One watch has thousands of spare parts. Just to train a watchmaker, they have to be trained for more than 10 years. They value its rarity and luxury. So, in conclusion, let's briefly summarize the important content in this book.
Part one, we got to know the meaning of the two main principles: the pricing principle and the design principle. The pricing principle focuses on cutting costs, doing whatever it takes to make it as low as possible to sell at a price cheaper than anyone else in the existing market. The target customers are broad, they sell a lot but make a small profit.
The design principle focuses on creating new things, new features, to replace the products that are already on the market. The target customers are few, they sell little but make a lot of profit. Part two, we talked about its practical application. If you want to use the pricing principle to penetrate the market, you have to redesign the product, create a new business model, and expand the market quickly. And if you want to use the design principle to penetrate the market, you have to make the product or service simple, easy to use, have many features, many choices, and be beautiful.
Part three, we raised that this "simplify" principle is not a strategy that, once applied, is guaranteed to be successful. It also depends on the product or service and the business model of each of you. You have to choose which strategy is most suitable for you.