Product Strategy

All great products start with a clear strategy that is customer and market-driven. Strategy not only ensures that you work on what matters. It is also essential so that you can communicate what matters to your team and organization.

How many times have you heard whispers from folks who question your work because they don't understand the "why"? Consider your strategy and plan the "why."

The main purpose of a strategy is to provide the product manager with direction so they can guide their product team and manage the business over the planning period. Strategies also help product managers communicate the products' value to cross-functional teams and key stakeholders, who want to know how products will achieve high-level business objectives.

A product strategy is the foundation of a product life cycle, and its execution plan for further development. As they develop their product strategy, product leaders zero in on target audiences and define key product and customer attributes.

Strategy is comprised of three parts: Vision, Goals, and Initiatives.

Vision

A good vision describes who the customers are, what customers need, and how you plan to deliver a unique offering. The vision includes details on the market opportunity, target customers, positioning, a competitive analysis, and the go-to-market plan.

Goals

Goals define what you want to achieve in the next quarter, year, or 18 months. Here are a few examples:

·   Increase revenue by 30%

·   Expand into 5 new countries

·   Increase mobile adoption by 100%

·   Reduce the number of support tickets by 15%

 Initiatives

Initiatives are the high-level efforts that will help you achieve your goals. Here are some examples:

·   Performance improvements

·   UI improvements

·   Better reporting

·   Expand into China

You can confirm your strategy as you plan your road map, define your features, and prioritize your work. To visualize strategy using your road map, it helps if you link releases and features to initiatives and goals. At Aha! we call this the "red thread of strategy" — and believe that it's essential to the road mapping process.

Is your strategy already laid out on your road map? If so, analyze your road map at a high level to discover gaps. You should see relationships between product lines, products, goals, initiatives, and releases all on one screen. This process helps you find "orphan" goals or initiatives.

A great strategy starts with a clear product plan, a vision and a canvas that explains how customer and market forces shape the product's direction. That's why you must visualize your strategy and relationships — but the first step is to have a north star that tells where your product is headed.

                                     The Product Portfolio

To be successful, a company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow . Low growth products should generate excess cash. Both kinds are needed simultaneously.

Four rules determine the cash flow of a product.

* Margins and cash generated are a function of market shares. High margins and high market share go together. This is a matter of common observation, explained by the experience curve effect.

* Growth requires cash input to finance added assets. The added cash required to hold share is a function of growth rates.

* High market share must be earned or bought. Buying market share requires an additional increment of investment.

* No product market can grow indefinitely. The payoff growth must come when the growth slows, or it never will. The payoff is cash that cannot be reinvested in that product.

Products with high market share and slow growth are "cash cows”. Characteristically, they generate large amounts of cash, in excess of the reinvestment required to maintain share. This excess need not and should not, be reinvested in those products. In fact, if the rate of return exceeds the growth rate, the cash cannot be reinvested indefinitely, except by depressing returns.

Products with low market share and slow growth are "pets. “They may show an accounting profit, but the profit must be reinvested to maintain share, leaving no cash throw off. The product is essentially worthless, except in liquidation.

All products eventually become either cash cows or pets. The value of a product is completely dependent upon obtaining a leading shares of its market before the growth slows.

Low market share, high growth products are the “Question mark”. They almost always require far more cash than they can generate. If cash is not supplied, they fall behind and die .Even when the cash is supplied, if they only hold their share, they are still pets when the growth stops. The question mark requires large added cash investment for market share to be purchased. The low market share, high growth product is a liability unless it becomes a leader. It requires very large cash inputs that it cannot generate itself.

The high share, high growth product is the "Star”. It nearly always show reported profits, but it may or may not generate all of its own cash. If it stays a leader, however, it will become a large cash generate when growth slows and its reinvestment requirements diminish. The star eventually becomes the cash cow, providing high volume, high margin, high stability, security and cash throw off for investment elsewhere.

The payoff for leadership is very high indeed, if it is achieved early and maintained until growth slows. Investment in market share during the growth phase can be very attractive, if you have the cash. Growth in market is compounded by growth in the share. Increases in share increases the margin. High margin permits higher leverage with equal safety. The resulting profitability permits higher payment of earning after financing normal growth. The returns on investment is enormous.

The need for a portfolio of businesses becomes obvious. Every company needs products in which to invest cash. Every company needs products that generate cash. And every product should eventually be a cash generator; otherwise it is worthless.

Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities.The balanced portfolio has:

*Star whose high share and high growth assure the future;

*Cash cows that supply funds for that future growth; and

*Question marks to be converted into stars with the added funds.

pets are not necessary.They are evidence of failure either to obtain a leadership position during the growth phase,or to get out and cut the losses.

The difference between continuous improvement and innovation

It's a shame that no true standards body for innovation exists, because the lack of accepted definitions and standards allows anyone to claim anything is "innovation".  One of the biggest issues I face constantly is trying to help people understand why their continuous improvement programs aren't necessarily all there is to innovation.  After all, continuous improvement programs use brainstorming as a tool, seek to improve a situation or process or product and often result in a better solution.  Isn't that innovation?

The difference between the "painter" who dabs paint into numbered sections on a prepared canvas, and Picasso is that the paint by numbers adherent is merely improving an existing product, while Picasso is creating something new and unexpected.  In the paint by numbers example, there's little chance of failure, but the outcome is also fairly predictable - if not already presented on the box.  With little skill and little risk comes little reward.  If you want to call that innovation, that's fine, but your definition is far too limited.

A more comprehensive innovation definition will definitely include continuous improvement or "incremental" innovation, but expands to include radical or disruptive innovation which creates new and unexpected products, services, business models and other valuable outcomes.  We need this definition because it's possible to conceive of great new products and services that aren't based on incremental improvements to existing products, but the continuous improvement definition treats these outcomes as if they were magic.  They aren't, they are just the result of a more expansive definition and expectation for innovation.

Continuous improvement has its uses.  If the expectation and goal is to modestly improve an existing product or service, then continuous improvement makes sense and should be applied.  However, if the situation or need calls for a truly new product or service, continuous improvement can't countenance that need.  It turns to existing products and services and seeks to make them better, rather than confronting the fact that consumers or markets may require a completely new, radical and undefined solution.  This is innovation too, and it's not magic, just a different way of framing the definition.  Some of the tools are the same in incremental and disruptive innovation, but the mindsets, the expectations and the leaps of faith are very different.  If your innovation outcomes often result in products and services that look a lot like the products and services you already possess, your teams are too focused on continuous improvement.

Another difference between continuous improvement and disruptive innovation is that disruption (or creating entirely new products and services) requires creativity and the ability to recognize and respond to emerging or latent needs.  No one ever asked Picasso for cubism, and no one else was doing it until he created it.  Picasso was willing to step out of the impressionist school and create an entirely new way of looking at the world.  Anyone following a paint by numbers method will struggle to develop something new or different, until they choose to ignore the recommendations that link a paint color to a specific section of the painting, and go their own way.

Stop defining innovation by the tools you use, and start defining the innovation you need and want to do by the outcomes you expect.  The fact that I have a hammer in my garage does not make me a carpenter.  The fact that you can follow a manufacturer's color scheme does not make you an artist.  We need to remove these cramped and incorrect definitions of innovation, so our teams can fully explore and engage all that innovation has to offer.

                                NEW PRODUCT DEVELOPMENT : PROCESS 

Developing a new product shouldn’t feel like you’re fighting in the dark. There’s an easier way. What you need is a structured road-map that gives your business a clear path to follow.

Actually developing the tangible product or service is only a small part of the new product development process, which includes the complete journey from generating the initial idea to bringing the product to market.

By setting out the steps involved, and sticking to them, your product development will become a more focused and flexible approach that can be adapted for all different types of products and services.  In other words, there is no way around a systematic, customer-driven new product development process for finding and growing new products. We will go into the eight major steps in the new product development process.

Idea Generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the systematic search for new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful of good ones in the end. Two sources of new ideas can be identified:

• Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions from employees.
• External idea sources: the company finds new ideas externally. This refers to all kinds of external sources, e.g. distributors and suppliers, but also competitors. The most important external source are customers, because the new product development process should focus on creating customer value.

Idea Screening – The New Product Development Process

 Idea screening means nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good ones and drop poor ones as soon as possible. Therefore, the company would like to go ahead only with those product ideas that will turn into profitable products. 

Concept Development and Testing – The New Product Development Process

You have an idea and it’s passed the screening stage. However, internal opinion isn’t the most important. You need to ask the people that matter – your customers.

Using a small group of your true customer base – those that convert – the idea need to be tested to see their reaction. The idea should now be a concept, with enough in-depth information that the consumer can visualize it.

Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy development. When a promising concept has been developed and tested, it is time to design an initial marketing strategy for the new product based on the product concept for introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

• A description of the target market, the planned value proposition, and the sales, market share and profit goals for the first few years
• An outline of the product’s planned price, distribution and marketing budget for the first year
• The planned long-term sales, profit goals and the marketing mix strategy.

 

Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business attractiveness of the proposed new product. The fifth step in the new product development process involves a review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the company’s objectives. If they do, the product can be moved on to the product development stage.

Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if the product concept passes the business test, it must be developed into a physical product to ensure that the product idea can be turned into a workable market offering.

Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage of the new product development process, the product and its proposed marketing programme are tested in realistic market settings. Therefore, test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction.

 Commercialisation- The New Product Development Process

Test marketing has given management the information needed to make the final decision: launch or do not launch the new product. The final stage in the new product development process is commercialisation. Commercialisation means nothing else than introducing a new product into the market. At this point, the highest costs are incurred: the company may need to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales promotion and other marketing efforts in the first year.

 

Marketing cost analysis:

Marketing cost analysis is another important tool of marketing control. In recent years, business firms all over the world have experienced steep escalations in their marketing and distribution costs. They have found, to their dismay, that increased sales do not necessarily bring them increased profits. Containing marketing and distribution costs has become an imperative for optimizing profits. It has also become an imperative for survival against the growing competition.

Importance of Marketing Cost Analysis:

The first requirement in controlling the marketing costs is to comprehend the components of the marketing costs and the methods available for their control.

Benefits of Marketing Cost Analysis:

Careful and systematic marketing cost analysis confers a variety of benefits on the firm.

Types of marketing Costs:

Marketing costs in modern, large-sized firms belong to a kaleidoscopic variety. There are ever so many components of the marketing cost and they vary in their significance, size, measurability and controllability.

Generally, marketing costs are more difficult to measure and control, compared with other costs, such as material costs and manufacturing costs. Within the various components of marketing costs, some are relatively more amenable for measurement and control than others

Analyzing the costs by function:

The first step in marketing cost analysis is to gather the cost details of the various marketing function and analyze the function wise cost. For doing this, in the first instance various marketing activities have to be grouped into a few major and clearly identified functions. The marketing expenditure must be broken up over these functions.

Components of marketing costs:

* Physical distribution
* Inventory costs or costs of holding stocks
* Channel costs or costs of remunerating and administering the marketing channels.
* Selling/sales administration costs
* Promotion costs
* Cost of credit extended
* Cost of marketing information and marketing research

The costs incurred by each function must then be measured against the budgeted figures and the standard costs for that function. The cost incurred by the function should be compared with the results accomplished e.g. sales volume achieved, gross margins achieved and net realization made.

Steps involved in Marketing Cost Analysis:

* Assigning the marketing costs to the various functions of marketing.
* Analyzing the costs function by function.
* Assigning the functional expenses to the various marketing entities,
Each product
Each customer group
Each territory
Each channel type
* Analyzing the cost entity by entity
* Examining the cost benefit position for each function, broken up over each entity.
* Determining what corrective action is needed.

Analyzing the Costs by marketing entities:

After analyzing the costs function wise the firm should analyze the costs by each marketing entity each product, each territory etc. For this purpose, the firm must put in place an accounting system that facilitates the assignment of functional expenses to the various entities like products, markets and customers.

By customer group:

* By customer type
* By the proportion of cash and credit sales in each customer type.
* By the mode/manner of delivery taken by customers

By territory:

* By the selling expenses incurred by each territory
* By the promotion expenses incurred by each territory
* By the cost of credit incurred by each territory
* By the rate of turn round of stocks in each territory

By marketing method and channel type:

* By the method of sale; direct to customer, or through wholesaler or retailer, or commission agent.
* By order size and order handling cost to the firm.
* By salesman; cost of sales calls, cost of orders booked, order to call ratio etc.
* By price category and discount classification; cost incurred at each price category.