How to Win – The Six Basic Product Strategy Moves

How to Win – The Six Basic Product Strategy Moves

Why is product strategy important?

Product Strategy is important because it is the cornerstone of a successful product. Product Strategy it is not setting goals, writing a 50-page business case or creating a product roadmap.

Product Strategy is what makes your product valuable in the eyes of the customer and will allow you to win a chunk of the market.

It is a story about how you plan to conquer a chunk of an existing market or create completely new uncontested markets.

It will create alignment, focus and purpose to everybody involved in developing the product.

What are the elements of Product Strategy?

Our definition of Product Strategy is quite simple. You must be able to answer two basic questions:

  1. Where to play?
  2. How to win?

What is the territory you want to conquer, what part of that territory you expect to win and what is the strategy to win.

In this article we will provide answers to those questions by reviewing the six basic strategical moves that you can make as a Product Manager or Product Owner in order to win in your current market or create completely new markets.

Some people mention the Marketing Mix when discussing about product strategy, but we don’t think that is product strategy, that is mostly about the channel and the go-to-market strategy. Obviously, price is an important factor when people think of buying a product, but it is definitely not a the only factor if you have done your work as product manager properly.

Common Mistakes

How many people does really need a bigger screen in their phones? Why do we need to pay to bring cabin suitcase into the plane? How many buttons of your microwave oven do you actually use?

If you try to answer those question you will realize how wrong many companies are about their product strategy.

There are three basic mistakes many companies make when determining product strategy:

1 – Keeping an eye on competitors

You are assuming your competition knows what they are doing, instead of looking at the market or looking at new underserved adjacent markets

2 – Over-serving a market

In crowded markets companies compete by adding more of the same without even considering what is the level of satisfaction of their customers. This prevents companies from investing into higher growth areas or new uncontested markets. An example, is the race for the bigger phone screen or the bendable phone.

3 – Commoditization

When you find yourself competing on price rather than value, it is time to move ahead and do some work.

If you analyze the history of successful companies such as Amazon, Apple or Google, you will see their strategy is seldom based on looking at what their competitors are doing. Their strategy is always based on finding underserved markets or underserved customer outcomes and addressing that.

Probably you know already, but if you didn’t, you will probably be surprised to know that the main manufacturer of Apple’s Retina screens is Samsung.

The basics of product strategy is understanding what jobs are our customers trying to get done, what outcome do they expect from performing that job and what is the level of satisfaction with their current solution.

This will allow us to determine underserved markets or underserved customer outcomes in competed markets.

How do you determine product strategy?

First of all, you need to understand what value means in your market. And, by that, we don’t mean problems, needs, wants or requirements. By that, we mean what jobs are your customers trying to get done, what is the importance of the outcomes they are seeking and their level of satisfaction with the current solution, which could be an existing product or service or doing it by themselves.

This image is adapted from the book “What Customers Want” by Anthony Ulwick. The creator of Outcome-Driven Innovation methodology based upon the work of Clayton Christensen on Jobs-to-be-Done

Then, you have to segment the market based on outcomes. We don’t segment the market based on demographics, psychographics, purchase behavior, needs. We segment the market based on outcomes.

This approach provides us with a solid and effective segmentation scheme that can be easily reached through marketing and sales efforts.

Why is outcome-based segmentation key to an effective product strategy?

The problem with needs-based segmentation is that there is no common agreement as to what a “need” is, and this creates a lot of variability and waste in the process of designing the adequate value proposition.

The only way to discover unique segments of opportunity is use outcomes as the basis for segmentation.

Customers buy products and services to help them get jobs done, and their desired outcomes are the metrics they use to determine what their level of satisfaction with the job result.

How does outcome-based segmentation helps define product strategy?

There are six common challenges when defining a product strategy which can only be addressed through an effective segmentation methodology.

Outcome-driven segment methodology addresses each of these challenges by identifying:

  1. Unique opportunities in mature markets
  2. Demanding customer segments willing to pay more
  3. Unattractive customer segments that should not be targeted
  4. Overserved market segments that make attractive entry points for disruptive innovation
  5. The best way to enter an existing market as a new entrant
  6. New markets to pursue

Identifying unique opportunities in mature markets

In mature markets companies find it more difficult to discover unique opportunities, and as a result they often begin to compete on price, eroding company profits, and moving the industry toward commoditization.

One way to overcome this dynamic is to find one or more segments of users that are underserved and develop products that address their underserved outcomes.

Nintendo Wii or would be examples of such products.

Creating such products allows your company to compete along new dimensions of value rather than price.

Identifying Demanding Customer Segments Willing to Pay More

In most markets there exists a group of customers who are more demanding than the rest. They are underserved along many dimensions of value; they want more and are willing to pay for it. This segment may be less than 5 percent of the total market or it may be 20 percent or greater.

This is a gold mine if you are able to identify the niche and it is large enough.

Identifying Unattractive customer segments that should not be targeted

We all know what these type of customers look like, right? They want more for less and they are never happy. Don’t waste your time and money here, just go somewhere else and let your competitors battle here.

In most markets there exists a group of customers that is unattractive to target. These customers usually require excessive service while demanding lower prices.

As market matures and you enter the late majority area most of your customers are going to be like that, so it is time to discontinue the product and look somewhere else.

Identifying over-served market segments suitable for disruptive innovation

A technology can successfully disrupt a market only if a big chunk of the market population is over-served and willing to accept a product that is functionally limited.

A disruptive technology often enters the market silently, gaining little initial acceptance. As the technology improves, it begins to satisfy the outcomes that are important to the mainstream so it gains acceptance in a larger population—disrupting the market as a whole.

When considering a disruptive strategy, product managers must be able to determine if over-served segments exist, what their sizes are, and if they make attractive market entry points for disruptive technologies.

Determining the Best Way to Enter an Existing Market

Thinking about entering an existing market doing what everybody else is doing is not very wise.

It is difficult to beat established companies at their own game, so using outcome-based segmentation to determine if an attractive entry point exists is critical in this context.

As a new entrant into an existing market, a you must be able to identify a small segment of customers, address their unique outcomes, and then leverage your position to make gains in other market segments.

The ideal segment will likely be small, filled with opportunity, and ignored by the current set of competitors.

Discovering New Markets to Pursue

In previous points we have seen outcome-based segmentation, but when companies are trying to discover new markets, they must turn to job-based segmentation.

Outcome-based segmentation is used to discover segments of opportunity in a specific market of interest. Job-based segmentation is used to discover entirely new markets—a job or a group of jobs that are underserved.

The question in this case is: “What jobs are people trying to get done today that they are unable to get done satisfactorily given the products currently available?.”

If you want to know more about outcome-driven innovation and segmentation based on outcomes, you should read the book “What Customers Want” by Anthony Ulwick.