Product Strategy is the first half of a company’s corporate strategy that dictates the deployment of resources that develop and manage the company’s offerings; It is the articulation of trade-offs intended to close the gap between Buyer’s value demands and company’s capabilities.
In the early stages of existence, a company develops and sells its offerings (products and/or services) without much market insight and very little longer-term vision; there is no way around this. However, as we covered under the Market Position and the Sweet Spot, focusing precious resources on improving the offerings in the right direction becomes important as soon as the market is validated.
A company’s strategy can be simplified into two halves that perfectly dovetail and together answer all possible top-of-house questions. The first half is product strategy and the second is a commercial strategy.
What is Product Strategy?
Product Strategy is a qualitative and quantitative articulation that:
- answers how the company will deploy its resources that develop and manage the offerings, which solve the most important market problems faced by the Buyer,
- provides a comparison between market needs and the company’s capabilities, and
- overlays the capabilities of competitors to assess viability of the market.
Critically, it is the antithesis of a laundry list of features and functions that the company plans to improve. Features and functions are important only as internal projects that ladder-up to product strategy.
Common Pitfalls Around Product Strategy
Two key questions every employee at a fast-growth company should ask are: 1) How does the company define Product Strategy? 2) How robust is the path to defining it?
Often plans to improve the product are sub-optimally defined. If the company uses any of the following paths to arrive at its product strategy, there should be concern for the product’s long-term market fit and the company’s deep understanding of customers’ needs.
- Features & functions-based product strategy: In the absence of a comprehensive vision to solve the market problem, focus on frills can feel fulfilling in the short-term. But it is highly unlikely to drive growth sustainably. These improvements aren’t unimportant because they usually come from tactical customer complaints. These don’t constitute a product strategy and are unlikely to change the revenue trajectory.
- Reactive decisions to competitive action: Keeping tabs on competitor action is absolutely important and this information needs to feed into the product strategy. But directly reacting to competitors implies that the company doesn’t have a comprehensive strategy of its own.
- Senior executive intuition: This is largely driven by strong personalities and spurious anecdotal evidence. Organizations should use such ideas as hypotheses to a structured approach to define product strategy.
Approach to Define Product Strategy
First, what is an effective product strategy? At the highest level, an effective product strategy directly speaks to a measurable benefit to the Buyer role at the customer. No aspect of the product strategy dwells on adding improvements to the tactical experience of Users unless it is large enough that the Buyer will take note.
There are three sources of input to develop a product strategy – the Customer (to be specific, the Buyer), the company’s capabilities, and competitors’ capabilities. The visual below summarizes how to triangulate between each of these three inputs to arrive at the company’s product strategy.
1: Understanding Value Demanded By Buyers
The Buyer doesn’t work for our company. Telling our company what they really need is not their priority. A common mistake in gathering market feedback is to pursue trivial questions such as “what is most important to you?” Or “why did you return the product or cancel the service?”. Answers to such questions are more likely to lead the company down the wrong path.
It is up to the company to device a methodical approach to get unbiased, structured, and value-focused data and qualitative input from the Buyer. Some of the major themes (not questions) a company should gather insights on are the following:
- How big is the problem that the Buyer wants the company to solve, in the context of all problems that the Buyer is trying to solve? i.e. Does the Buyer look at the company as one of a few or one of many entities involved in solving their problems?
- Does the Buyer expect the company’s offering to be used every day and for a long period of time OR solve a major problem in the short-term with a diminishing value over time?
- Can the Buyer live without the company’s offerings, especially after meeting short-term needs?
- What aspects of the solution does the Buyer value the most? i.e. What would the Buyer include in a business case to the Approver and talk about with the Users to get them on board?
2: Self-assessing Company’s Capabilities
A company’s capabilities are not its marketing rhetoric. Capabilities are the most objective internal assessment of what the company can deliver to customers on a regular basis. The Operations term, Service Level, is one way to describe capabilities objectively. Service Level is the percentage of occurrences where a company delivers its offering flawlessly. i.e. 99% service level implies that a company can deliver its offering flawlessly 99 out of 100 times. Putting these together, Capabilities should be articulated in a visual and comprehensive form that:
- is a sequential representation of components of the company’s offerings. i.e. a capability landscape diagram, which includes current service levels of each portion of the offering and highlights the company’s strengths and weaknesses
- shows all the components that the company dedicates resources to, even if they are not value-generating for customers (candidates for retirement), and
- shows the adjacent capabilities that the customer uses other vendors for (because the company’s offerings have to fit into the customer’s ecosystem)
This view of the product ecosystem that the company operates within can be termed The Capability Landscape. Every company should be able to produce a comprehensive Capability Landscape that is based on objective feedback from Buyers and Users and supported by objective data analysis. This forms the second input to defining Product Strategy.
3: Understanding Competitor Capabilities
Product strategy should consider all the options that the Buyer has. Thousands of books about competitive advantage has been written over the decades; so, we will only highlight three key points that every company should keep in mind during a streamlined exercise to develop product strategy:
- A company must have strong in-house analytical and strategic talent that can assess the competitive space objectively. This talent should assess the real market opportunity in the context of other options that the Buyer has in a qualitative and quantitative form. Duct-taped versions of such assessments are insufficient to drive sustainable growth.
- Always take a comprehensive view and be overly inclusive of the competitive landscape because Product Strategy is a multi-quarter or multi-year path to revenue growth. Taking a simplistic approach to assessing the competition only leads to being blindsided.
- Overlay competitor capabilities onto the company’s Capability Landscape to objectively view where the company stands among its peers.
Who is a competitor? One might think this is obvious. Often competitors are thought of as other companies that convey the same value proposition to the market as our company. However, this approach misses many aspects that should be considered for strategy development. The following are all direct competitors or proxies for competitors.
- Other companies that have the same capabilities
- Substitute options that the customer can use to solve parts of the problem
- Methods by which customer can solve the problem themselves, however inefficient
A broad and deep assessment of the competitor capabilities and overlaying those on the Capability Landscape allows the company to 1) understand areas where the company’s offerings are differentiated or commoditized, and 2) Assess the available market opportunity (market size, market share, unaddressed portion of the market, etc.)
4: Synthesize Product Strategy
Buyer’s needs and the company’s existing capabilities, via the Capability Landscape, provide a clear view of the size of the chasm that the company has to cross to satisfy Buyers in the Sweet Spot. Once clear answers about each of the three inputs above are available, Product Strategy is a relatively straightforward decision. Product strategy will articulate the trade-off choices around how the company plans to cross this chasm between its capabilities and Buyer needs while considering competitors’ capabilities.
To conclude, Product Strategy is a set of choices made by the company to close the gap between its capabilities and value demanded by Buyers. Competitors’ capabilities play a strong role in assessing where the market might be too crowded or empty, and in discerning market opportunity.