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Is your product market strategy
value-enabling or value-limiting?
“Which products should we offer
to which markets?”
This simple question is one of the most important and far-reaching in business. The answer to this question is your product market strategy – the set of products and services you decide to offer, and the set of markets you decide to serve.
Central importance of product market strategy
In many ways, your product market strategy determines what it is you do as a company. Consider how much you know about these three companies and their business models from the most basic product and market descriptions:
Your product market strategy is probably the greatest driver of your financial performance and company value. Offering a very good solution to a large market with urgent, unmet needs is incomparably more valuable than pursuing a mature, competitive market with a mediocre solution. It sounds obvious, but it never ceases to amaze us how many companies we meet that talk about doing the former, but are actually doing the latter.
In addition, your product market strategy drives most of the key activities in your business, including engineering, operations, marketing, sales and service. It basically dictates what most of your people do every day, how easy or difficult it is for them to succeed, and how much all of that costs you.
For all these reasons, thinking through your product market strategy, and continuously evolving it in light of changing circumstances is a critical, central component of your overall company strategy and business model. Done correctly, your product market strategy will enable your company to maximize its potential.
Product market issues
For many innovation-driven companies however, product market strategy is value-limiting, not value-enabling. These companies evolve their product market strategies by default, rather than through proactive, systematic analysis and thought. Target markets are selected based on the background of the company founders or through historical accident, not through careful evaluation of which markets offer greatest potential. Similarly, product and service offerings are a result of early engineering and positioning decisions, some of which were made without sufficient understanding of customer needs and competitive offerings, or long term strategic considerations.
A common reason for a lack of an effective, well thought out product market strategy is that it has to be a truly cross-functional process. Most key functions in the business are directly affected by, and have strong views on, which products the company should offer to which markets. Many companies do not have the right structures and processes in place to achieve the level of cross-functional work required. Add in the egos that get involved, and past investments that loom large and must somehow be justified, and it becomes clear why so many companies struggle in this area.
The net result is that a great many of the issues that such companies confront can be traced back to problems in their product market strategies. Consider the following example issues, which can be traced to poor market strategy:
- Revenues are slow to ramp, due to a lack of urgent customer needs.
- Sales cycles are too long, due to lack of customer urgency and competitive intensity.
- With few customers in each of many markets, the company does not have a credible reputation in any one market.
Or think about the following issues stemming from inadequate product strategy:
- Customers fail to understand what the company does.
- Customers do not appreciate or want to pay for the difference between your products and your competitors.
- Engineers are struggling to build the product as defined.
- Operations is not able to deliver the customer experience required.
- Margins are poor, due to poor pricing strategy and high engineering costs.
Are you experiencing any of these issues? If you are, chances are that you are trying to address them through business system responses - throw more resource into engineering, hire more salespeople, run more marketing programs. Such efforts end up draining funding and resources, and provide “band aids”, without solving the real underlying issues. Perhaps you need to look deeper, to identify the root cause of the problem – a need to overhaul your underlying product market strategy.
Two levels: product market portfolio and individual product markets
So what is product market strategy exactly? Product market strategy can be addressed at two levels: at the portfolio level – the total set of products offered and markets served – and at the individual product market level.
Product market portfolio
Product market strategy at the portfolio level seeks to address questions such as the following:
- What should be our total portfolio of products and markets? How should this evolve in the short, medium and long term?
- Which markets should we focus on? Which are most attractive in terms of their demand and competitive characteristics, and fit with our core capabilities?
- Which product and service categories make best sense for us? Which fit well with both our most attractive market opportunities and our core capabilities?
- Which product markets are our priorities for investment and growth? Are there products and markets we should exit? Are there opportunities to expand into new markets? What new products and services should we introduce, and when?
- How can we optimize value across our product market portfolio? Are there opportunities to create and leverage a common product platform? Are there opportunities to offer similar products to multiple markets?
Individual product markets
At the individual product market level, product market strategy can be thought of as addressing the intersection of customers, competitors and products:
Customers:
- Within the selected market, which customers should we pursue? Who has the greatest unmet need?
- What exactly are our customers’ needs? What are their “core needs” - the specific issues or problems that our products and services address? What are their “buying needs” – budget, timing, authority and other requirements or limitations to making a purchase? How are these needs changing?
Competitors:
- Who do we compete with in addressing these customer needs? What are their product market strategies?
- How do our competitors’ offerings compare with ours in relation to customer needs? How are their offerings evolving?
Products:
- What should our product and service offerings comprise? What is the “whole solution” that customers require? Which part of that should we provide, and what should be provided through third parties?
- What are the specific features that we should provide that will offer real benefit to customers? Which features are not important, and should be excluded?
- Should we design and build our products entirely, use components, or resell other companies’ products?
- How should we price our product and service offerings? What is the total cost to the customer? What risks do they incur in purchasing our products and services? How can we capture maximum value for our products and services, yet minimize costs and risks to the customer?
- How should our products and services be positioned relative to competitive offerings?
- What product and service offering will meet customer needs better than alternatives, and will maximize value to our company?