Maximize Product Profitability as the Market Matures
By Lee Shaeffer
An important role for the product manager (or for the product marketing manager, if that function is separate) is to obtain the maximum profit from a product during its lifecycle. There are many standard practices in maintaining a product when it is in the market: pricing adjustments, advertising and promotion, increasing penetration within the existing customer base, finding new customer segments, etc.A common practice is to release a follow-on product, often a feature enhanced/cost reduced “mid-life kicker” to keep the product competitive in the marketplace. These are all good and often necessary activities, but a commonly underexploited opportunity is to enhance the product by bundling complementary products and services in order to create and enhance the complete solution for the customer, not just the product itself.
As the market matures, the product itself becomes more of a commodity as competition intensifies and the focus shifts from “product” to “solution”.The solution, in turn, includes the product plus additional goods and services that: Increase the ease and convenience of purchase. Consider that many people buy from Amazon.com because it is easy to fin
d the item of interest, evaluate the item by reading reviews from other customers and than making a purchase with the click of a mouse – all within several minutes without leaving one’s desk. As your market matures and becomes more competitive, are you making it easier for customers to buy your product?
- Tailor the product to specific industries and applications. ACT! is a contact and customer relationship management application, and much of its appeal is due to its network of Value Added Resellers that customize the application for specific uses.The vendor of ACT! enabled this extensive customization by nurturing a community of resellers and consultants, and the customer gets the solution he/she needs.
- Makes deployment of the solution faster and easier. In addition to tailoring the product into an industry/application specific solution as stated above, this is achieved through better documentation, training and support. Ease of deployment becomes increasing important when the market matures into the “late majority” phase, where the desired benefit is cost savings (often to keep pace with the “early majority” competitors who are already using the solution), and the customer wants minimal disruption to his/her operations. In the case of consumers, the psychology of most of the late majority is that they are interested in using the product quickly and do not want to experiment and endure a substantial learning curve.
DHL provides an interesting example of making the product more industry/application specific as the market matures. In its case, the “product” is logistics, the transportation of documents and goods. It started by transporting documents and later packages, and now it has a variety of specific solutions. For Life Sciences and Healthcare, it provides temperature controlled environments. For industrial projects involving large, heavy objects, it provides specialized shipping containers and delivery to the exact point of installation. For retail, it can not only deliver goods to loading dock but all the way to the individual shelves. In all, it has specialized solutions for over a dozen specific industries.
What does all this mean to the Product Manager? As the market goes through its lifecycle of launch/growth/maturity/decline, the expectations and needs of customers evolve, and so too must the marketing mix. More specifically, as the market matures it becomes more highly segmented, and each segment increasingly requires a solution tailored to its specific industry and application. A product manager should therefore:
- Periodically revise the market segmentation. In general, the existing segments will become more differentiated from each other, and new sub-segments will emerge from the existing segments. (In other words, what appears as a single homogeneous segment in an embryonic market will become a series of segments in a mature market, each with its own requirements.)
Consider the case of mobile communications. Initially it was an undifferentiated market – anyone who wanted a cell phone. It then segmented into business and consumer, and within each different rate plans emerged. Now that the market has matured, Verizon Wireless offers tailored solutions for more than a dozen vertical industries ranging from construction to utilities. In many cases, the solution includes an industry-specific application, hardware that supports that application and tailored pricing plans.
- Determine the complete solution that is required for each of these market segments.As the Product Manager talks to customers and prospects as part of understanding their needs, he/she should be targeting customers within different segments and probing to learn the requirements for the solution, not just the product.
- Parse the solution requirements into requirements for the core product, complementary products and optional products that the company offers, products that can be made available through partners and/or third parties and sales/distribution channels.
- Proactively seek out and engage the individuals and departments who can deliver on the various solution components. This is a team effort, since the responsibility for other products, the third party/partner program and sales/distribution channel management are usually held by other individuals who are typically within other departments.It will not be easy, since the product manager must compete for limited resources and the different departments may not be aligned politically. This is where the product manager’s leadership and persuasion skills will be tested.(Persuasion works best, of course, when accompanied by a compelling business case backed by market data.)
The “Value Chain” consists of the various departments and functions within a company acting in harmony to deliver value to the customer. The “extended value chain” includes suppliers, channels, partners and third party vendors combining forces to deliver value. Directly or indirectly mobilizing the various departments and external vendors to collectively deliver complete solutions to various customer segments is therefore an important responsibility for a product manager seeking to maximize revenue as the market matures. A well orchestrated extended value chain is also, of course, a strong competitive differentiator.
Mobilizing the extended value chain to deliver complete solutions is a much more complex task than generating requirements for the next generation of the actual product. Is the extra complexity worth it? Consider:
- As a market matures, the core product becomes more of a commodity. Adding new features and enhancing performance eventually reaches a point of diminishing returns.
- In a mature market, the customer buys solutions and not products.The competitive differentiation of a solution often is an augmentation to the “actual” product in the form of ease of purchase or an industry/application specific template. These augmentations often can be added at relatively low cost and little/no drain on scarce development resources.
(The AIPMM product model defines the “actual” product as the combination of goods and services that delivers the “core” customer benefits. The actual product is then augmented with additional goods and services such as delivery and support. A “solution” would therefore include the actual product and the augmentations.)
For example, as the market for the iPhone has matured, the key selling proposition has evolved from the attributes of device itself (product-centric) to “there’s an app for that” (solution-centric).Where are these apps coming from? Mostly third parties. (As one who once worked for Apple Computer, I believe strongly that Apple has “cracked the code” when it comes to energizing the third party development community for mutual gain.)
- A common metric for evaluating a product manager is a measure of the success of the product(s) under management. As the market matures, a savvy product manager will recognize the need to shift focus seek to shift focus accordingly to solutions from products, as a way of maximizing his/her own success.
Of course, thinking about engaging the extended value chain to produce solutions tailored to various market segments will seem to be a major stretch for a product manager who already has too many products under management and who is struggling to keep his head above water. Hopefully that product manager can capitalize on opportunities to move incrementally in that direction and that the product manager’s boss can help create those opportunities. Hopefully, too, many of you have the bandwidth to pursue this course of action more aggressively. The rewards are worth the effort.
Leland D. Shaeffer, CPM and CPMM, is Managing Director of PLM Associates (www.plmassociates.com), a consulting and training firm that specializes in product/market strategy and associated product lifecycle management processes that support success in that arena. Previously, he had a career in Product Management and Marketing at Apple Computer, Unisys and several venture-backed early-stage companies.He is a frequent speaker at AIPMM conferences and conducts CPM/CPMM (and, soon, ACPM) training workshops worldwide with regular appearances in Greece and the UAE. He also is a Vice President and board member of the PDMA (Product Development and Management Association). Lee can be reached at [email protected].