Are Apple’s New Features Convincing Customers to Buy?

This blog post originally appeared on the HBR Blogs Network.

Barely has the hype from the launch of the iPhone 5s and 5c subsided that chatter about the iPhone 6 has begun. A larger screen size is rumored. Apple’s product innovation strategy places it on a punishing treadmill. If the company does not deliver new products or new features to the market’s expectations and calendar, investors get jittery and the stock price sags; competitors attempt to steal the lead, and to set a faster pace of innovation. Apple’s brand and customers’ loyalty to it may cushion the dips between new product introductions and help it to fend off the attacks of competitors and the demands of aggressive shareholders, but management is still held to a relentless pace of innovation. It must deliver or move over.

But both management and investors should recognize that the introduction of new products and features is only one element in the competitive game in which Apple is engaged. More important than the development and introduction of new and differentiating features is whether they catch on with customers: are they used as criteria in customers’ choice of a smartphone?

When Apple introduced the iPhone 3G in June 2008, it wasn’t the first smartphone to have the faster networking standard. But because the iPhone had already captured buyers’ attention and imagination, its features quickly became the standard by which all other smartphones were judged. The touchscreen, multi-touch, and dedicated apps were now seared into customer expectations. The inclusion of the "3G" feature in the second generation iPhone’s name made it a special criterion, and one that customers quickly adopted, and that many even identified uniquely (if erroneously) with the iPhone.

With the launch of the latest generation of iPhones, Apple has introduced a new set of features: Touch-ID, a 64-bit processor, and a better camera.　 The question for Apple management as well as investors is: which of these features will become key criteria of purchase? Will customers choose the iPhone 5s over competitors because it has Touch ID? Will 64-bit become the new standard for smartphones? Is the better camera a deciding factor?　And if some of these do become criteria of purchase, will they be sustainable? Will they continue to be unique to the iPhone, or will they be quickly replicated or rendered obsolete by competitors?

These questions go to the heart of innovation strategy. The "3G" criterion, for example, eventually proved not to be very hard to beat, with the introduction of 4G models by competitors. The criterion that remains strongest, most difficult to replicate, and, therefore, longest lasting is the brand: loyal customers demand the latest iPhone. That is their primary criterion of purchase, almost regardless of the product’s features.

The lesson for Apple is that its innovation strategy should strive to build long-lasting and unique customer criteria of purchase, not just better products or features. By innovating on eventually replicable features, it is placing itself on a competitive treadmill rather than building a sustainable competitive advantage.

- Niraj Dawar