“Strategy” is such an overused term in our industry. “Where’s your STRATEGY?” or “It’s our STRATEGIC direction!” or “How do these tactics fit into the STRATEGY?”
Let’s start over. Market-driven product managers should drive the product and corporate strategy. A strategy provides vision and consistency and is critical to your company’s future.
So, what’s the first step in defining a successful product strategy? Before you can determine where you want to be, you need to define where you are today! Know where your products are positioned against the competition, against other products in your portfolio, and from the perspective of your customers and the markets you serve, before defining your strategy.
Technology Assessment & Product Strategy
The Pragmatic Institute Technology Assessment Grid™ (TAG) is a tool to plot products on a 2 by 2, X/Y grid. This tool is introduced in the Practical Product Management® course (now called Foundations and Focus). The vertical axis is technology; the horizontal axis is the impact of the technology on customers. By plotting products on the TAG, companies can better understand where to invest, divest, and how to better package or promote the products in their portfolio. Many companies have used the TAG to gain better internal alignment of thought and resources. It’s also an excellent way to understand and explain competitive positioning. The quadrants on the TAG are labeled A, B, C, and D. Use these labels to identify particular products in your portfolio.
How do you determine where your products fit on the TAG, and how can you use that information to develop your strategy? Before moving on, it is important to first introduce another set of concepts that are critical to laying the foundation for a product strategy.
What’s Good Enough?
Many of the following concepts have been developed or adapted from Clayton Christensen and Michael Raynor’s best-selling book, The Innovator’s Solution*. For every product, customers base purchase decisions on the concept of what is “good enough.” Purchases require choice, and choice depends on perception and values. Customers and markets perceive or value a certain product or capability differently. The graph below shows this as a “good enough line,” or “G-E-L.” The Y, or vertical axis, is defined as the level of function delivered. The X, or horizontal axis, is time.
You must understand the G-E-L for your products in the markets served. Notice that the G-E-L gradually slopes up and to the right. This demonstrates that over time “good enough” typically increases in a gradual and incremental way. Remember when dial-up modems were “good enough” for remotely connecting our computers? This is definitely no longer good enough for most of us. By plotting products with respect to the G-E-L, product managers can understand where and how to introduce new and disruptive innovation, and where it makes more sense to invest in sustaining, incremental improvements. Additionally, the analysis may help identify new and nascent markets that have a different G-E-L than other more traditional or competitive markets.
Disruptive innovation is defined as addressing a problem in a new way. It could be as mundane as a Post-it® note or as sophisticated as a new form of an internal combustion engine. New, disruptive technologies typically fall below the G-E-L. The objective in introducing these tools is that there is untapped demand in the market and this new technology will begin to address problems in that area. The most visible disruptive technology over the past twenty years is the desktop PC. Early versions of the PC were well below the G-E-L for most users and they begged for more functionality. Both incremental and disruptive technologies were integrated with the PC—higher resolution displays, increased density memory, new disk drive technologies, new operating systems and applications, portability via laptops, etc. Users couldn’t get enough! However, there was a point in time when the PC crossed over the G-E-L. As the more traditional business/commercial (vs. technical/engineering) markets became satisfied with processor speed, memory, and storage, they began looking at other characteristics of the PC such as applications and data portability.
PC manufacturers often put new and more sophisticated hardware and software into their offerings and are disappointed in the lack of increased market demand. How much better is 1 MB of memory vs. 768KB? Will my application really run faster with a dual-core processor? When will I ever need 4 USB ports? More isn’t always better. What really drives the business user is productivity, not features. Will my old applications run on the new technology? Will this new system integrate into my network? Do I have to buy new add-ons and accessories? The new Dell™ and HP PCs now come with an ExpressCard™/34, replacing the old PCMCIA format; uh oh, I have to buy a new broadband modem!
Increasing technology depth or breadth in a product that is at or above the G-E-L will not generate a corresponding increase in sales or market acceptance unless the new capability is in an area below the line. Also, product capability that is above the line for one market may be below the line for other markets. Target the markets that value what you deliver. Apple® has done a wonderful job of this with the Macintosh®. By targeting markets that value innovation rather than standardization, Apple has built a very successful and profitable business. So, where can you make the most money? It depends!
For products or technologies that fall below the G-E-L in their targeted markets, the following strategies have proven most successful:
- Proprietary, non-standard offerings
- “Vertically integrated” companies—“sole source providers”
- Total solutions from a single vendor
For products or technologies that are above the G-E-L, the greatest ROI is gained from:
- Standards compliance
- Pluggable and portable
- Component providers
For example, Intel®-based Microsoft® Windows® workstations are “above the G-E-L.” Vertically integrated companies that deliver total solutions are finding it much harder to compete in the traditional commercial market space. Even IBM® discovered that they can’t compete in this low-margin space and sold their ThinkPad® line to Lenovo™.
Typically, both disruptive and incremental innovation strategies are necessary to sustain growth in technology-based markets. However, avoid continual investment in innovative, oftentimes very expensive extensions to products that are above the G-E-L. Customers aren’t willing to pay more for the new capabilities, installation, upgrade, training, and support costs. Many companies introduce new ways to solve old problems via disruptive technologies and are perplexed at the slow adoption rates. ASP? SOA? SaaS? AI? Eclipse? Biometrics? These disruptive technologies will not be rapidly adopted by your current markets unless you address problems that are below the G-E-L as compared to the alternative.
Plotting Your Course
How does this tie together as a basis for product strategy? Let’s go back to the TAG and think in terms of the G-E-L to develop a basis for the strategy.
“A” products are typically at or above the G-E-L, are generally very profitable and have a balance between depth of technology and positive customer impact. They typically solve the problems they were designed to solve in a simple and efficient way. The sales cycle is usually short and A’s are prime candidates to sell through multiple channels of distribution. A’s are typically “cash cows” and appeal to mature users. They are not sexy, but return a great deal of profit to the bottom line. Avoid making significant technology enhancements in A products, thereby increasing cost, without addressing problems that are below the G-E-L. If you are the “president of the product,” recognize that unless increased revenue is keeping up with increased costs, investment in A’s may result in less net profit to the bottom line.
“B” products fall into two primary categories—both somewhat extreme in relation to the G-E-L. The first category is when companies continue to add functional enhancements to “A” products while not correspondingly increasing customer value. Are you adding additional database support without a huge target market? Are you adding new international language support without presence or a plan for those parts of the world? Are you re-architecting your code libraries? Does your market feel that your product is good enough, but you keep adding more and more function? If so, you may not be investing wisely. The second category of “B” products is when companies deliver a disruptive solution that addresses problems that are below that G-E-L, but the market is not yet ready or enabled to adopt it. There’s a saying, “you have to build highways before you can drive on them.” B’s are ahead of the market, which also typically means they’re ahead of the revenue. B products of this type require significant investment in training, advertising, enabling technologies, and marketing programs to expedite customer adoption.
“C” products are typically lower cost, higher value, can command a high price, and are extremely profitable. Developing and protecting “C” products should be a major goal for the product manager. These products address problems that are below the G-E-L. Customers will typically pay a premium for a differentiated solution that is not overly sophisticated or complex. Companies must develop defensive strategies for their “C” products because these products have a lower barrier to competitive entry—more easily replicated and prone to competitive pressure.
“D” products are high value, high-depth offerings. Anything that is “end-to-end” or is referred to as a “suite” usually fits the “D” product category. A “D” offering may not be a product itself, but a vision for how all of a company’s products work together to solve a higher-order set of problems. D’s are fun to work on, analysts and the press love them, and they give companies a vision. D’s should address problems that are below the G-E-L. They are generally high-cost and by implication should provide high value. Be on the lookout for D’s that your market feels are B’s. D products require ongoing customer and market validation to make sure that the value delivered is still in line with the market and thus justify a higher price than the alternatives.
Building Your Product Strategy
The following strategies can be considered related to the G-E-L and product positioning on the TAG:
Problem: Too few C’s in your portfolio
Strategy: Look for B’s or D’s that could be decomposed or repackaged to address specific problems. Leverage your distinctive competence to look for C opportunities. Interview customers to find out what they value in your company and brainstorm ways to deliver more C products.
Problem: C’s are sliding to the left
Strategy: If the competition or alternative technologies are causing your C’s to have less impact or perceived value, consider bundling multiple C’s and/or A’s to protect your space.
Problem: Too much investment in A’s
Strategy: Perform a business analysis or do a business case that shows the return to the company of each development dollar spent. Decision makers often are not aware of profit “leaks” that may be hampering potential growth in other, more innovative, “below the G-E-L” areas.
Problem: Key customers bought your B’s and you are changing course
Strategy: This is one of the most difficult problems to address. We suggest a two-step approach. First, develop a migration strategy for your customers, at no cost to them. If you want to retain these key customers, you can’t ask them to pay for migration and you can’t take away the core function or value of the product. Secondly, once the migration strategy is complete, “fall on your sword.” Explain to the customers that the market, technology, demand, etc., did not develop as anticipated and it is necessary for a change. Spell out the trade-offs to the customer from their perspective. Most will respect your business judgment and become a more loyal customer over time if you are up-front about your dilemma. For those that don’t, they would probably not have been long-term customers anyway.
Problem: Delivery and promise of a D continues to slip
Strategy: Customers have good memories. Slips in D’s are usually measured in years rather than weeks, and customers will have little patience for this when there are alternatives available in the market. Apply the necessary resources to stop the slippage. Alternatively, back-off on how much detail you provide in your confidential disclosures. If this is not possible, revisit the D “suite” and consider rolling out parts of the solution earlier than the rest to meet some level of expectation in your markets.
Problem: Too many products are above the G-E-L
Strategy: What if your company has gotten stale and not uncovered new problems that are below the line? This often results in decreased margins, less innovation, and degrading market share. Read The Innovator’s Solution. In it, Christensen suggests several approaches to dealing with this problem, including, but not limited to, establishing independent business units or acquiring other companies in your space.
Problem: The competition is influencing customers to move the G-E-L “down” with less functional products
Strategy: This is a challenge. How do you continue to demand a higher price for your products when customers are willing to buy less functional ones? Perhaps your view of the G-E-L is out-of-sync with your market. Are you positioning your products in the wrong markets? Have the customer’s values changed since you set your strategy? Can you offer a “lite” version of your product to hold the space against the competition?
Problem: The competition is influencing customers to move the G-E-L “up” with new features or functions
Strategy: If you are on the receiving end of this phenomenon, it must be countered to maintain or grow your market share. Find reference accounts that have solved problems with your solution to argue for a lower G-E-L. Remind customers that more features results in an increase in support, training, and maintenance. Show your customers a roadmap that addresses the critical competitive features.
Ok, now go deliver on your strategy. Don’t be afraid to paint a vision for your company. Understand your current product positioning and where the G-E-L is for your markets. Act as “president of the product” and base your product direction on market facts. Don’t be afraid to take on the hierarchy and challenge past decisions. If you understand where you are, where your competition is, and where your markets are, then developing your strategy will get a whole lot easier.