Chief Product Officers know revenue growth comes from a best-in-class go-to-market game plan. They pull insights from the external marketplace to set direction for the company’s products, in alignment with the corporate strategy. It means making choices: which products to invest in and which to forgo. To explore emerging best practices from world-class growth leaders, download our 10th annual workbook, How to Make Your Number in 2017. Flip to the product strategy section on pages 108 – 151 of the PDF.
The product strategy drives an operating plan for the company’s product team. It allocates investments to solve frequent and painful market problems that buyers are willing to pay to fix. These investments result in products that are in high demand.
Is Your Product Strategy a Problem?
Maybe. Here are common indicators to screen for a product strategy problem:
- Revenues generated from new product introductions have not met expectations.
- Market share for current products is stagnant or in decline.
- Product investments are increasingly difficult to prioritize because of changing buyer and user behavior.
- You need to move beyond what customers want to understanding why they want it.
- Inadequate prelaunch sales and marketing readiness results in disappointing product launches and poor revenue performance.
- Product messaging does not resonate with target buyers, making it difficult to market and sell the products.
- Customers do not recognize the value of the product and they are exerting price pressure.
- Poor packaging makes it difficult for the sales team to sell the products.
If you see one or more of these issues in your business, it might be wise to take a fresh look at your product strategy.
What Is the Solution to a Product Strategy Problem?
Product leaders who help their companies grow revenues faster than their industry and competitors have a different mind-set from functional peers. They approach product strategy from the perspective of “What can I sell?” instead of “What can I build?”
These leaders spend most of their time on value propositions, positioning statements, pricing, packaging, and other commercialization activities. They spend relatively little time with engineering and development. Top growth executives trust the engineers will build great products and delegate that responsibility to them. Instead, product leaders spend their time with customers, prospects, and the sales and marketing teams.
The following three steps define your product strategy, including respective phases within each step.
Step 1: Product Planning
The first step builds a foundation that is based upon customer needs. When properly executed, product planning provides external context that enables product leadership to make smart decisions about how to allocate the right resources (people, money, and time) toward the right solutions (solving frequent and painful market problems).
This stage helps leadership teams excel in fast-growth product markets. Good planning is the basis for persuading current customers to buy more with new offerings and to attract new customers to new and existing products.
Phase 1: Markets. Target fast-growth markets. Products in slow-growth markets have to take share from competitors to contribute to revenue growth. Share gains are difficult to obtain, expensive, and temporary. In contrast, products that can gain share in a fast-growth market contribute lots of revenue growth more easily and less expensively. This type of revenue tends to last longer as it is tied to the market life cycle.
Phase 2: Accounts. Persuade existing customers to buy more. Products that encourage customer spending contribute significantly to revenue growth. This type of revenue creates substantial enterprise value. In addition, products that get current customers to spend more can be produced and distributed inexpensively by leveraging existing resources such as manufacturing capacity and sales channels.
Products that source revenue exclusively from new customers produce less revenue growth, and it is more expensive growth. Your company will have to increase costs to secure these sales because new products are often too complex for the existing sales force to sell—incurring the expense of an entirely new sales force.
Phase 3: Buyers. Attract new customers to a product. Sustained revenue growth is difficult to achieve because most product markets have a natural life cycle. First, a product has to prove itself with early adopters. In turn, revenue growth accelerates as more buyers purchase the product until it reaches a point of maximum penetration. At that stage, growth slows or even declines. To find new sources of product-driven revenue growth that enjoy a long life cycle, leaders need to launch new products to new buyers in the right markets at the right times.
Step 2: Product Principles
The second step focuses on buyer behavior and the ideal customer experience. This is a design-driven approach based on agile and lean development methods. The customer experience starts from purchase through product usage. During this stage, the product team measures, learns, and iterates simultaneously. This approach helps create the ideal product-market fit, while making the customer experience a competitive differentiator.
Phase 1: Buyer behavior. Determine product-market fit. Your products must address an urgent market problem that specific types of buyers are willing to pay to fix. And your products must be a better fit than the alternatives. Sometimes leaders build products delivering customer benefits that don’t address the buyer’s evaluation criteria—resulting in poor win rates, wasted resources, and disappointing revenue performance.
Phase 2: Customer experience design. Make the customer experience a competitive differentiator. Buyer expectations have risen and failure to provide an exceptional experience for each customer results in poor revenue growth.
In fact, some buyers prioritize their experience over product performance when making a purchase decision. This requires a deep understanding of the customer’s journey, and every touch point along the way. Mapping the customer journey is a difficult but mission-critical task. When done correctly, it results in exceptional revenue growth.
Step 3: Go to Market
The third step realizes the benefits of agile and lean development in the product road map and launch. At this stage, product development is handed off to the marketing and sales teams. Launch planning, product messaging, pricing, and packaging provide the optimal conditions for market success. If you have a competitive product, then you have a good story to tell. One that compels your customers to overcome constraints during the decision-making process and select your solution as the best option.
Phase 1: Product road map. Paint a picture of happy customers well into the future. Revenue growth sits in the product road map, use cases, and requirements backlogs. Today’s revenue-producing products become tomorrow’s commodities as competition quickens the development cycle.
To build blockbuster products, leaders must move from legacy market-listening techniques to advanced feedback systems. Long lead times starting with robust requirements have been replaced with short lead times starting with use case iterations that are based on real-time product feedback and analysis.
Phase 2: Product launch and messaging. Tell stories that persuade your customers to act by answering the key question, “Why change?” Product launches fail to generate revenue when salespeople and channel partners are not involved in messaging development during prelaunch preparations.
Messaging developed in isolation is not compelling enough to get your customers to take action. Stories told directly to customers by well-trained sales channels motivate buyers and prospects to respond. This stimulates latent demand while leading to exceptional revenue growth.
Phase 3: Pricing. Bypass psychological thresholds and extract maximum value to overcome buying constraints. Revenue growth suffers when pricing does not scale with customer growth. It is not easy for customers to predict costs over time. In addition, pricing can restrain revenue growth when it is not agreeable to customers, is easily compared to competitors, and is difficult for sales teams and channel partners to explain.
Phase 4: Packaging. Tailor product packaging to each market segment. Some segments value certain benefits more than other segments. Some customers want simplicity with little flexibility while others desire maximum flexibility and are willing to tolerate complexity. Packaging for new customers needs to be different from packaging for existing customers. Moreover, packaging must be different for must-have products versus nice-to-have products. Some competitors use all-you-can-eat plans, some use good/better/best, and others rely on product bundling. Failure to get product packaging right can be a major impediment to revenue growth.
We have looked at different facets of a product strategy. Now it’s time for you to dive in. To explore emerging best practices from world-class growth leaders, download our 10th annual workbook, How to Make Your Number in 2017. Flip to the product strategy section on pages 108 – 151 of the PDF. It provides a comprehensive set of questions to validate your product strategy is on track and contains exercises designed to bring the operating plan for the product department into strategic alignment with corporate, marketing, and sales functions. To request a workshop with an expert simply sign up for a MySBI account and check the box in your preferences to request a workshop.
Make Your Number in 2017 - Special Strategic Planning Issue
Discover how to streamline your Product Strategy and couple it with your Revenue Growth Methodology in order to focus your growth efforts using our 10th annual workbook.