Four core parts of a Product Strategy1. The Framework for Product Strategy2. Competitive Strategy3. Growth Strategy4. The Process for Product Strategy
1. The Framework for Product Strategy• Strategy requires Vision• Aligning Vision and Strategy• Building the Foundations: Product Platform Strategy• Defining the Offering: Product Line Strategy• Addressing Market Realities: The Market Addressing Plan (MAP)• Successful Expansion Paths: The Leveraged Expansion Framework
2. Competitive Strategy• Achieving Sustained Differentiation Using Vectors of Differentiation• Product Pricing Strategy• Taking advantage of First-to-Market and Fast-Follower Strategies• Thinking Globally about Product Strategy• Understanding the Opportunities and Risks of Cannibalization
3. Growth Strategy• Highways of Rapid Growth• Growth Through Acquisitions• Growth Through New Ventures• Growth Through Innovation
4. The Process of Product Strategy• Strategic Balance and Portfolio Management• Process Elements
1.The Framework of Product Strategy1. Strategy Requires Vision Product Strategy begins with a strategic vision that states where we want to go, how we will get there and why we will be successful.
1.The Framework of Product Strategy1. Strategy Requires Vision (cont.) • Impaired Vision (Tunnel, Blindness, Shortsightedness, Hallucination) • Exceptional Vision (20/20, Peripheral, Foresighted) • Core Strategic Vision o FocusBad example:"Our strategy is to develop products that truly fulfill customer needs by exploiting our skillsand abilities to the maximum level in order to provide a maximum profit to ourshareholders. We will do this with high-quality products that provide a substantialcompetitive advantage. And while achieving this, we will be supportive of our communityand our employees".Good example (Compaq Computer 1993)"We want to be the leading supplier of PCs and PC servers in all customer segmentsworldwide. We intend to accomplish this goal by leading the industry in developing newproducts, pricing competitively, controlling costs, supporting customers, and expandingdistribution. Compaq understands the dynamics of the industry and is poised to movedecisively to exploit new opportunities. o Clarity --not ambiguous.
1.The Framework of Product Strategy1. Strategy Requires Vision (cont.) o Completeness Where do we want to go? The desired destination needs to be as specific as possible without restricting the company too much. The key is finding the right balance between short-term objectives and longer-term opportunities. Compaq 1993: "We want to be the leading provider of PCs and PC servers in all customer segments worldwide" Intel wanted to dominate the ever-increasing market for microprocessors and related devices. "We want to be one of the top three companies providing computer-based tools for improving programmer productivity. These tools will take advantage of increasing computer power to provide ease of use". Specific regarding where --what it wants to achieve Not restricting it to a specific type of tool Stresses market focus --software productivity
1.The Framework of Product Strategy1. Strategy Requires Vision (cont.)• Completeness o How will we get there? The Compaq vision: good "By taking advantage of the new 386 microprocessor" Good now, but later? Needs to be robust enough to last beyond the next product --check example. o Why will we be successful? Usually based on a unique value provided to the customer. This ingredient is the basis of a competitive strategy. For a company competing in price, the CSV would include something like: "by being the price leader and low-cost producer". For a company using a strategy of differentiation, the vision would provide direction for that differentiation. The basis for competitive strategy needs to be reasonably specific.
1.The Framework of Product Strategy1. Strategy Requires Vision (cont.) oCompleteness (cont.) Why will we be successful? (cont.) "Our products will use appropriate technologies to fulfill customer needs and provide the highest quality" doesnt instill a great deal of confidence that the company really knows how it will be successful. All successful companies knew beforehand. o Feasibility• Whos Responsible for Vision? o Board of Directors create it. o CEO is responsible for it. o CEO is responsible for effectively communicating it.• When Change in Vision is Called For o Need for Clarification o Need for Evolution o Obsolescense
1.The Framework of Product Strategy1. Strategy Requires Vision (cont.)• How Vision Guides Strategy o It establishes a framework for product platform strategy o It focuses the efforts of those responsible for identifying new product opportunities o It aligns other strategies and initiatives o It guides product development o It guides technology strategy (core competencies) o It sets expectation for customers, employees, and investors
1.The Framework of Product Strategy2. Aligning Vision and Strategy The Core Strategic Vision broadly establishes strategic alignment within both constraining and enabling boundaries. Without such alignment, a vision will not get translated into strategy.
1.The Framework of Product Strategy2. Aligning Vision and Strategy
1.The Framework of Product Strategy2. Aligning Vision and Strategy (cont.)• SWOT Analysis vs CSV (We cant afford to evolve incrementally)• The Boundary CSV Framework o Core competencies (value chain) Critical skill or unique expertise that enable us to provide a superior value to our customers thats difficult for competitors to emulate. o Financial plan (economic model) Financial goals: revenue growth, profitability and investment. Check whether the CSV can achieve the financial objectives. o Business charter What we are and what we dont.
1.The Framework of Product Strategy2. Aligning Vision and Strategy (cont.)• The Boundary CSV Framework (cont.) o Technology trends / strategy We need to identify the roadmap of key technologies, emerging technologies that could affect the vision in the future and unrelated technologies that could create substitute products. o Product strategy (if any existing) o Market trends / competitive strategy Market segmentation may show how the CSV needs to be shaped for each segment. Dont automatically rely on customers to define the market trend boundary. Sometimes they are wrong and this incorrect input could distort the CSV.
1.The Framework of Product Strategy3. Building the Foundation: Product Platform Strategy A product platform is a collection of common elements, particularly the underlying technology elements, implemented across a range of products. It is primarily a definition for planning, decision making, and strategic thinking.
1.The Framework of Product Strategy3. Building the Foundation: Product Platform Strategy Fig. 3-1 New products are built over time on a common platform and are related through common elements
1.The Framework of Product Strategy3. Building the Foundation: Product Platform StrategyIngredients of Platform Strategy• The underlying elements of the platform are clearly understood. o The choice of a defining technology in platform strategy is perhaps the most critical strategic decision that a high-technology company makes.• The platforms defining technology is clearly distinguished from other platform elements o The inability to understand the defining technology of a platform dooms a platform strategy to failure• The platforms unique differentiation provides a sustainable competitive advantage o Experience suggests that core competencies should never be outsourced.• No more than one product platform should serve a market
1.The Framework of Product Strategy3. Building the Foundation: Product Platform StrategyBenefits of Platform Strategy• A platform strategy focuses management on key decisions at the right time.• A platform strategy enables products to be deployed rapidly and consistently.• A platform approach encourages a longer-term view of product strategy. o Platform life cycles drive the major competitive changes in high-technology industries by introducing new product generations, forcing companies into dramatic changes in product strategy.• A platform strategy can leverage significant operational efficiencies. o Engineering headcount o Materials cost savings o Supply chain costs
1.The Framework of Product Strategy3. Building the Foundation: Product Platform StrategyBenefits of Platform Strategy (cont.)• Product platform principles help management anticipate replacing a major product platform.Product Platform Examples• Apple o Apple III o Lisa o Performa Platform (12+ models) o Quadra Platform (12+ models) o Mac II Platform (12+ models) o Server Platform (10+ models) o Mac LC Platform (10+ models) o Power Mac Platform (20+ models) o PowerBook Platform-PowerMac Extension (35+ models) o Macintosh (1 through 9) (Classic Macs 7+ models) o Newton (9 models) o Apple I --> Apple II o OS X, Intel, etc...
1.The Framework of Product Strategy3. Building the Foundation: Product Platform StrategyProduct Platform Examples (cont.)• Windows Server o NT 3.1, 3.5, 3.51, 4, o Win2000, Win2003 o Windows Vista, Windows 7• Intel processors o 8086/8088 o 80266 o 80386 o 80486 o Pentium o P6 common architecture Pentium Pro Pentium II Celeron Pentium II Xeon
1.The Framework of Product Strategy3. Building the Foundation: Product Platform StrategyProduct Platform ManagementWhen a primary product platform enters its decline, the entire business is threatened ifthe company doesnt react in time 1. Identify where a platform is in its lifecycle 2. Synchronize the replacement of a major platform with a next-generation platform 3. Extend the life of a major platform o Improving the underlying technology or redesigning some of the platform elements 1. Compared to replace it is cheaper but ROI is limited 2. Is it a matter of throwing good money after bad? 4. Understand what causes a platforms lifecycle to decline. o A change in the desirability of a technology can be behind the decline of a product platform. – Regularly replace platforms with short life cycles.
1.The Framework of Product Strategy4. Defining the Offerings: Product Line Strategy A product line strategy is a time- phased conditional plan for the sequence of developing product offerings from a common platform, with each product offering targeting a specific market segment. Without an effective product line strategy, the true potential of a platform strategy will not be realized
1.The Framework of Product Strategy4. Defining the Offerings: Product Line StrategyIngredients of Product Line Strategy• The product line covers all primary targeted market segments. o Collectively, the products within a product line should cover the major segments of the market. o While there are many ways to segment a market, the key is to segment it in a manner that provides competitive advantage. o Segmentation can change rapidly, particularly in high-technology markets. New product offerings may be necessary to address these newly emerging market segments.• Each product offering is sufficiently focused to avoid product proliferation and market confusion. o Product proliferation is the result of the companys failure to focus on selected segments. o Product proliferation can result from the company being overly customer- focused.
1.The Framework of Product Strategy4. Defining the Offerings: Product Line StrategyIngredients of Product Line Strategy (cont.)• The product line development schedule is time phased.• Similar product families and product lines are coordinated.
1.The Framework of Product Strategy4. Defining the Offerings: Product Line StrategyProduct Line Examples• HP Color Workgroup Printer Product Line• Dell Desktop Product Line
1.The Framework of Product Strategy4. Defining the Offerings: Product Line StrategyProduct Line Management• Defining product offerings from a common platform.• Targeting specific product offerings at specific market segments o Variations: Capacity Performance Features Quality Packaging o Besides the primary products in a product line, add-on products, product upgrades, and custom products also may be part of a product line.
1.The Framework of Product Strategy4. Defining the Offerings: Product Line StrategyProduct Line Management (Cont.)• Targeting specific product offerings at specific market segments (cont.) o Once a market approaches saturation, upgrades may become the primary source of continued revenue growth.• Phasing the sequence of developmentFact: The time horizon of product line plan is typically 2 or 3 times thelongest development cycle time.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAP Platform and product line strategies are powerful concepts if applied effectively; a Market Addressing Plan (MAP) integrates knowledge about the market and knowledge about the product and its defining technology.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPProduct Strategy Structure Fig 5-1 Product Strategy Structure
1.The Framework of Product Strategy5. Addressing Market Realities: The MAP Fig. 5-2 This MAP framework provides a structure for developing a market addressing plan
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Enables us to translate platform strategy into a practicable attack plan for a target market • Focuses our attention on the critical issues with the most leverage for understanding the interface between a market and the products developed to meet its needs and wants: o Characterize and prioritize customer segments. o Define the basis of customer value and differentiation that will be used to win high-priority customer segments. o Define the offerings to the customers and outline the building blocks used to develop these offerings. o Define a monitoring plan to sense external developments that could alter strategy. o Establish economic metrics for measuring success in the market.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Markets and Market Segments o Market: large group of potential customers, with common needs or problems, who purchase a common class of products and/or services for similar use or application. o Market segment: group of customers within a market with very similar concerns and requirements. They have behavior sets (patterns of why and how they use a product, how they purchase it, and how they perceive the risk of purchasing it) that are distinctly different from those of other segments.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Markets and Market Segments o Effective segmentation requires iterative analysis and validation. Hierarchically: most easily perceived and easiest to implement characteristics considered first, followed by those that require increasingly more insight and creativity and greater skill to implement. Organizational demographics, such as industry, customer base size, and location are usually the easiest characteristics to identify The purchase decision-making process may be important in segmentation. For some products, for instance, the CIO may be the primary decision maker, while for others the role may fall to technically minded end users. Developing a market addressing plan involves selecting, deselecting, and prioritizing market segments
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Economic and Business Case o Vector of differentiation Is the thematic characteristic that consistently differentiates a market addressing plan. Is consistent across all product offerings based on the product platform and therefore across all market segments. Provides the long-term competitive advantage not usually achieved by individual product features. Enables the MAP development team to focus its efforts on continuous improvement along a single high-priority vector so it can stay ahead of advancing competition and customers increasing expectations. Can be derived from problems, purchasing behavior, economics, and requirements shared by customers across all targeted segments within a market
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Economic and Business Case o Vector of differentiation (cont) If a MAP requires more than one product platform to effectively address its given market space, it is likely that each product platform may deliver a different vector of differentiation. In such cases, market communication and positioning must be carefully managed to minimize customer confusion. o Market and platform economics define the economic viability of a MAP based on the dynamics of the segment, revenue, and costs from the complete set of product offerings. o A value proposition for a product offering is a brief statement of the customer benefits delivered by that product offering to its target market segment(s). A successful value proposition matches the customers highest priority requirements in the target market segment(s).
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Product Offerings and Product Lines o Whole product offering is more than the physical product. Includes the complete set of activities --support, professional services, and so on-- that delivers value to the customer. Each product offering usually targets a market segment or a small subset of market segments within the total market. Typically, it makes sense to create a distinct product offering from a common platform for each distinct market segment, since the value profiles and customer needs vary by segment. The benefits of customizing product offerings to a segment, however, must be balanced against the associated design, development, delivery, and support costs.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Product Offerings and Product Lines o The product line is the time-phased conditional plan for the sequence of developing product form the product platform. Each product in the product line targets a specific market segment. The product line plan in the MAP should cover the major segments of the market, but it doesnt require that all segments be covered. Some may be ignored, with the expectation that a portion of that segment will purchase one of the product offerings anyway. In most cases, the vector of differentiation chosen for the product platform will effectively target certain market segments. For example, a vector of differentiation focused on high performance may effectively deselect those segments that prefer low cost to performance.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Product Offerings and Product Lines o Product line. Market and technology readiness, resource availability, strategic objectives, and related factors determine the timing of the introduction of each product offering in the product line. This product line then influences the timing and initiation of development of platform technology elements.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Product Platforms o A product platform is primarily a planning construct. o It is the set of architectural rules and technology elements that enable multiple product offerings and define the basic value proposition, competitive differentiation, capabilities, cost structure and life cycle of these offerings. Architectural rules governs how the technology elements are integrated, along with other required technologies to form the specific product offering in the MAP. These rules define the capabilities, partitioning, and interfaces of the technology elements. A number of platform technology elements must be defined, such as components, subsystems, technologies, and processes. We focus here on the most critical elements, which are reused within the products that come from the platform. The defining technology is the most important.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Product Platforms o Effective product platforms are not static, of course. o They have the flexibility and speed to incorporate new technology and stay ahead of customer requirements. o Instead of allowing the platform and product offerings to react to individual customers needs, a well developed product platform will show that customer needs from all relevant markets have been integrated and prioritized within the platform. o Instead of bringing products to market with no consistent theme, a product platform continues to evolve along a desired vector of differentiation. This vector is based on the defining technology of that platform. Continuing improvement of the defining technology is emphasized in technology development. o Effectively managing a product platform implies Defining the underlying platform elements and constructing a schedule for inserting new and improved elements from appropriate sources. Using product platform requirements to drive the development of technology platforms.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAP• Product Platform o Three categories of platform technology elements: Defining technology elements Enable the vector of differentiation Establish the performance characteristics and limits of the product offerings from the platform. Define the relative cost structure of the product platform. Its highly preferable to reside within your company, if at all possible. Its highly preferable that your company have some barriers to entry around the defining technology that will impede competitors from copying or possible improving the defining technology Tylenol active substance (acetaminophen) Supporting/enhancing technology elements Additional Tylenol cold and flu products which enhance it. Segmentation technology elements Address the specific customer value propositions of high-priority segments of the market. They may add cost in order to address these specific segment needs. Tylenol presentations: tablets, caplets, gelcaps and geltabs.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPThe MAP • Value-Chain Strategies and Ongoing MAP Management o Many other strategies must be aligned with the product offering. Collectively, these are the value-chain strategies o Supporting capabilities include services, marketing, distribution and logistics, development, technologies, and other resources. These most be coordinated with the platform and product line strategy to deliver and support the product offerings. o Standards also are a critical part of any MAP. Product requirements that all products must comply with --> Legal, corporate biz goals, industry, market.
1.The Framework of Product Strategy5. Addressing Market Realities: The MAPManaging the Technology Elements• Technological change must be anticipated• A technology platform is managed differently than a product platform• Technology roadmaps chart the planned application of technology
1.The Framework of Product Strategy6. Successful Expansion Paths: The Leveraged Expansion Framework Why does expansion into new markets sometimes succeed and sometimes fail? The answer is leverage. Companies that leverage their market knowledge and technology are most successful.
1.The Framework of Product Strategy6. Successful Expansion Paths: The Leveraged Expansion Framework • Create and launch a continuing series of products that open new markets and fuel rapid growth: This is the dream of most high-technology companies. • High-technology markets have a unique characteristic: They appear and disappear relatively quickly. • Leveraging a companys technical and marketing experience is one of the key determinants of new product success.
2.Competitive Strategy There are two primary types of competitive strategy: product differentiation strategy and price- based strategy. Of these two, product differentiation strategy provides the primary source of competitive advantage for most high-technology products.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation A vector of differentiation (VOD) enables sustained competitive product differentiation by continuous improvement along a specific path with a distinct benefit of value proposition. This is by far the most successful competitive strategy for high-technology companies
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation What is differentiation? • Differentiation is a way of distinguishing a products value from that of competing products. • It means more than being different. • Differentiation is a strategic approach to positioning products advantageously as customers decide which product to choose • Differentiation is a relative comparison. A product is differentiated only because it offers something superior to what is available in competitive products. • No competition -> no differentiation. • This is where second or subsequent companies to market may have advantage. They can better position their products through differentiation against competitive products already in the market.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Effects of differentiation • Differentiation positions a product in the market. • Differentiation segments the market. o The success of differentiation varies by market segment as each segment values a particular vector of differentiation based on its own unique preferences. o Sometimes differentiation can be so significant that it creates new markets. • Differentiation evolves throughout a markets life cycle. o Market development, growth, maturity, redifferentiated market (a vector provides a path for continuous differentiation in a specific direction), and market decline. • Differentiation should be managed as vectors, not points. o Products differentiated by a single point have nowhere to go next, and products differentiated by multiple points in many directions generally do not get as far as those that go in a well-determined direction.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Benefits of Vectors of Differentiation • Vectors separate strategic from the tactical o VODs enable a clear focus on the unique way a product will be successful, instead of on individual details. o VOD answers the following questions: What is the primarily value to customers of alternative VODs? How will various market segments value this VOD? Will a particular VOD enable us to win against expected competitive products with alternative VODs? Do we have sufficient advantages to prevent competitors from more successfully incorporating this VOD? Will be at a disadvantage relative to other VODs? o Continuous improvement of the product or service, or new releases of product offerings, on the other hand, are more tactical. They dont define the VOD; they implement it. o Mistake: determining the feature set for a new product without any particular vector in mind -> determines strategy on the basis of tactics: the success of the strategy is then left up to chance.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Benefits of Vectors of Differentiation • A VOD focuses product improvements (SAP example) • The length and slope of a VOD provide strategic insight o Length: determines how long a product can be continuously improved along one vector. It provides a sense of the time before competitors can catch up. You become a moving target for the length of the VOD. o Slope: shows how fast a product can improve. • The relative value of a VOD changes over the market life cycle. (Apple - relative ease of use)
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Differentiation Strategies • Differentiation Using Unique Features o Easiest to select but one of the most difficult to define as a continuing vector, especially if the features are unrelated. o Differentiation can sometimes be achieved on the strength of a single feature. o Feature differentiation is most successful if several unique features can be grouped around a common theme or vector. • Differentiation by Measurable Customer Benefit o If this gets achieved, customers will prefer it even at a significantly higher price. o It goes beyond achieving the benefits, it required clearly quantifying and communicating them.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Differentiation Strategies • Differentiation through Ease of Use o Ease of use has become a very popular VOD in todays increasingly complex high-tech products. o Ease of use definitively appeals to a large segment in most markets, especially customer markets. • Differentiation by Improved Productivity (of the consumers) • Differentiation by Protecting the Customers Investment o Since advances in technology create change, a product can claim a competitive advantage by differentiating itself to protect a customers existing investment, thus avoiding or reducing the loss incurred by upgrading to an improved product. IBM System/360 in the 70s. It provided a compatible family of computers, enabling customers to upgrade to more powerful computer hardware without losing their investment in software of peripherals. Today it is a most in such market.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Differentiation Strategies • Differentiation through Lower Cost of Product Failure o The direct cost of repair or maintenance is obvious. It dove the differentiation advantage for Japanese cars in the 80s • Differentiation with Higher Performance Products • Differentiation by Unique Fundamental Capabilities o Polaroid example • Differentiation through Design • Differentiation Based on Standards • Differentiation by Total Solutions o Total solutions offer customers savings in the costs of using products. o Total-solution differentiation is achieved by bundling software and hardware or by offering a range of compatible products.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Differentiation Strategies • Differentiation by Total Cost of Ownership o Selling price is only one aspect of the total cost to the customer. Maintenance, service and repair, lost revenue due to downtime, cost of consumables. o This VOD strategy relies on relatively sophisticated customers who are not easily seduced by a lower list price. o It is particularly effective in the high-value capital purchase markets, where products are expected to have a long life. • Differentiation through Brand Name o It is not generally a primary VOD. o It runs against newcomers. • Differentiation Based on Convenience o Not generally a primary VOD. o It can be copied by competitors unless offering such convenience relies on innovative manufacturing/development processes.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Causes of failure on differentiation • Differentiation cant be sustained o Adequate barriers to entry is a key factor for sustain a VOD over time. • There is insufficient proximity to price. o A differentiated product must maintain price proximity to products without that differentiation. o The market paces a value on any new VOD. Price proximity is equal to that price. • Customer preferences are misunderstood • The cost of differentiation is too high
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Causes of failure on differentiation • There is too much unfocused differentiation o Some companies incorrectly think that a differentiation strategy means adding more and more features. o Belief on needing to add every feature included on competitive products or every feature requested by customers. In reality customers base their decisions on the features that are most important to them. o The results of "too much differentiation" are a price that is too high, confused customers, and lack of distinction in the market. • A company fails to build the perception of differentiation o Perception is reality. The sole fact of differentiation is not enough for customers to realize it.
2.Competitive Strategy1. Achieving Sustained Differentiation Using Vectors of Differentiation Sustainable Differentiation • Sustainability is a major consideration in selecting the vector of differentiation. • Sustainability comes from establishing barriers to entry: o Maintaining Technological Advantage Basing VOD on core competencies. Competitors need to catch up improving their core competencies. Pay a penalty: they might not own the tech themselves. Possessing or cultivating technical core competencies is important insofar as they are applied to achieve a VOD in actual products. Xerox overlooked this consideration. • Rapidly Advancing Vector o Moving so fast along the VOD that competitors cannot catch up. o If you dont have other way to sustain your differentiation, this is the way.
2.Competitive Strategy2. Product Pricing Strategy Too often companies ignore pricing strategy, and it shows.
2.Competitive Strategy2. Product Pricing Strategy • Competitive factor in all high-technology markets • It is an element of strategy (explicit or implicit) • The success of failure of many product may depend on their pricing strategy. • It is often neglected: it becomes a financial computation instead of a strategic consideration. • Usually it is spent only a few days --sometimes only a few hours-- working on the pricing strategy. • They dont estimate how customers will value the product, project how price will evolve in the market, understand how competitors will price products, or consider alternative strategies. • In short, they fail to think about price strategically.
2.Competitive Strategy2. Product Pricing Strategy • Appropriate price strategy varies by product, competitive pricing and stage in the life cycle of a market. Typically gets more aggressive in later stages. • Products with distinctive VOD can sustain a higher price • Market share leaders can introduce a lower price, because they have scale advantages. • Aggressive pricing by competitors such as market share leaders can force lower-than desired pricing • Competitors in a market have different cost structures, and eventually these differences provide a source of competitive advantage, whether price is used as an offensive or a defensive strategy. The sources for cost advantage provide the foundation to support pricing strategy. Without a cost advantage, a company competing on price is really just cutting its profit.
2.Competitive Strategy2. Product Pricing Strategy Effects of Pricing Strategy • Price positions a product in the market • Price decline throughout a markets evolution o Development Cost are initially high. Products are at their highest prices Differentiation is not established Pricing framework may not yet be set o Growth VOD start to be detected by customers and become firmly established. Price reduction for those which dont have valuable VODs o Maturity Price competition accelerates. Competitors are able to imitate the successful VODs --> with products less differentiated, price becomes a more important competitive strategy
2.Competitive Strategy2. Product Pricing Strategy Effects of Pricing Strategy (cont.) • Price decline throughout a markets evolution (cont.) o Maturity (cont.) Costs are lower. Initial investments in developing the product platform have been recovered. o Decline Market declines are usually messy. Some competitors exit the market, some dont go gracefully Some others stay with hyper reduced margins • Lower prices increase market penetration o High-tech markets tend to be very elastic; lower prices drive higher volumes up to a natural limit.
2.Competitive Strategy2. Product Pricing Strategy Offensive Pricing Strategies • Established Price Leadership as the Basis for Competing o Particularly effective in a mature market. o Only one company can successfully execute this strategy • Use Penetration Pricing to Increase the Market o Its both a growth strategy and a competitive strategy. o Its a variation of the price leadership strategy. But intents are different. Its not to take todays customers away from competitors; its to increase market share while growing the market o Eventually, a penetration strategy runs out of gas. • Use Experience-Curve Pricing to Discourage Competition o Preemptive strategy or even a predatory one. o Prices products below cost in hopes of forcing those already in the market to exit, while keeping others out of it. o The key to success with it is that cost benefits are achieved at a predictable rate
2.Competitive Strategy2. Product Pricing Strategy Offensive Pricing Strategies (Cont) • Use Experience-Curve Pricing to Discourage Competition (Cont)
2.Competitive Strategy2. Product Pricing Strategy Offensive Pricing Strategies (cont.) • Compete on the Basis of Price/Performance o Price-based competitive positioning does not mean just lowest price. o A competitive strategy based on price/performance combines the performance VOD strategy with a price-based strategy. o Goal: offer the lowest price for unit of performance. o This strategy requires some inherent cost advantage in the design of the product and preferably in the defining technology. • Use Promotional Discounting to Accelerate Purchases o Competitive upgrades o Bundles and packages
2.Competitive Strategy2. Product Pricing Strategy Defensive Pricing Strategies • Adapt Prices to Maintain Highest Competitive Price • Use Price to Segment the Market • Use Skim Pricing to Maximize Profit o Offering a premium-priced product that only a small portion of the customer base will pay for. o High-price, low-volume strategy. • Use Value-Based Pricing to Maximize Profit o It is most effective in the early stages of a market. Once competition begins to set in, it becomes less tenable. o Intends to maximize profit margins by setting prices at higher levels than justified by product cost alone. • Redirect Product Line Sales by Bait-and-Switch Pricing o Draws attention to the product line with the low price, but then tempts customers to purchase a higher-priced product with more features or capacity.
2.Competitive Strategy2. Product Pricing Strategy Risks of Offensive Pricing Strategies • Price leadership may not be sustainable • Aggressive pricing could precipitate a price war. • Aggressive pricing may not be supported by a sufficient cost advantage. o A price leadership strategy
2.Competitive Strategy2. Product Pricing Strategy Sources of Cost Advantage (if we want to compete on price) • Low-cost design can provide a competitive cost advantage o The cost structure of a product is determined when a product specification is completed. o Traditional design approaches dont sufficiently integrate cost objectives into the design of a product. Emphasizing product specs (functionality, performance, operating params, tolerances) Cost estimates are then based on them and gross margin is computed. If less than expected then go again with the cycle. o When product cost is of strategic importance, it is better to use a design-to-cost approach, in which low cost is established as a product requirement of equal importance to other critical requirements. Checking cost of each requirement against its value. Product design is the result of the cost analysis, rather than the cost of the product a result of the design process.
2.Competitive Strategy2. Product Pricing Strategy Sources of Cost Advantage (cont.) • Economics of scale build cost advantages. o Economics of scale are relevant only on high-volume markets • A more efficient supply chain is a source of cost advantage • Superior technology can provide product cost advantages. o This is a price/performance strategy which is only achieved through technology. o It is a defensive price strategy. Technology leaders usually are not low-cost competitors. • A superior development process can provide product cost advantages.
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies Being the first to market can form the basis for competitive strategy, as can being a fast follower. Overall, being fast has tremendous competitive advantages. --- Timing is a key factor for competing that we cannot oversee.
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies • A timing advantage has to be paired with a primary competitive strategy of differentiation or price leadership, enabling a company to be the first to market with the chosen differentiation or price advantage. • Without a primary strategy, a company is merely first with something that might not be relevant or that others will soon copy. • Its important to distinguish between intentionally being a follower and simply being late or slow.
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies Advantages of Being First to Market • The first-to-market company can capture a market share advantage • The first-to-market company gets earlier experience o There is nothing like having an actual product in customers hands to help a company understand what its customers really want o The key in all these advantages is applying the early experience. The experience itself does not constitute the advantage. • The first-to-market company can influence the definition of standards
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies Advantages of Being The Fastest A company that is faster than its competition can be first to market even if it starts later. A last-to-start, first-to-finish strategy can be very effective. In most cases, the advantages of being fast are greater than those of being the first • The fast product developer is nearer in time to the eventual market o Ability to predict what will be important in a market diminishes with the length of the prediction period. Therefore, faster time to market (TTM) empowers companies to make better predictions.
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies Advantages of Being The Fastest • The fast product developer can get ahead and stay ahead. o Product generations and versions can be achieved faster. • The fast product developer can use newer technology. o As development cycles are shorter, opportunities to introduce new technology multiplies.
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies First-to-Market Strategies • Be the First to Upgrade Products with New Technology o It is a winning strategy when the market is well understood and the new technology is desired by many customers. o The first to market with the new technology wins, but how much it wins depends on how long it takes everyone else to catch up. • Respond Rapidly to Market Changes o Changes come from: Shift in customer preference to a specific VOD Mandated by law Natural evolution of the market o The competitor that responds first can gain a major advantage. • Introduce Continual Product Innovation • Be the First to Create a New Market o Creating a new market often involves pioneering technology
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies Fast-Follower Strategies Fast-Follower Strategies can be very successful, particularly for companies with TTM advantages. The objective is to wait until the market is sufficiently clear before entering. • Wait Until a New Market Is Clarified o First company to market may fail because it guesses wrong about what the market wants. o Competitors who cannot or do not want to educate initial customers will let someone else do it first • Reverse-Engineer Successful Competitive Products o Not copying the product but copying functionality not the specific design
2.Competitive Strategy3. Taking Advantage of First-to-Market and Fast-Follower Strategies Failure reasons of Timing Strategies • Entering the Market Prematurely • Compressing Product Life Cycles o This might be short enough for prevent getting any profit at all in or reduce it significantly. • Relying on an Inferior Product Development Process o Timing-Strategy + Inferior-Dev-Process = Failure o TTM must be at least as fast as that of competitors o React quickly to new technology and changes in the mkt o Must integrate the product development process with the product strategy process
2.Competitive Strategy3. Thinking Globally about Product Strategy Recognizing that global high-technology products have some significant advantages over national competitors, its important to understand the unique requirements of global markets.
2.Competitive Strategy3. Thinking Globally about Product Strategy • Customers throughout the world are expecting products that meet global standards. They are increasingly reluctant to pay more for local products that are less advanced. • Multinational vs Global o Depends on the market, regulatory conditions, etc. o Multinational Knows a lot about a great many countries and continually adapts itself to their differences. o Global corporation Knows one great thing about all countries Lures them to its custom by capitalizing on the one great thing they all have in common. It looks to the nations not for how they are different but for how they are alike. Globally competitive as well as national responsive. It continuously seeks in every way to standardize everything into a common global mode.
2.Competitive Strategy3. Thinking Globally about Product Strategy • Global competitors have a significant economic advantage. • Competitors that focus exclusively on smaller national markets cannot afford to develop many high-technology products because the ROI is insufficient. • Global competitors need to have a significant share of major markets, particularly their own. This is an advantage for competitors from large markets.
2.Competitive Strategy3. Thinking Globally about Product Strategy International Differences in Products • Government Certification Requirements. • Different Country Industry Standards. • Languages Differences. • Differences in Use. • Demographic Differences (population, income levels and income distribution) o Can create dissimilar market segmentation. • National Preferences and Protectionism. • National Laws on the use of certain foreign technologies.
2.Competitive Strategy3. Thinking Globally about Product Strategy Global Product Strategy (GPS) Integration with Other Global Strategies (GSs) • GPS is so closed linked with other GSs that it is difficult to succeed at one without integrating the others. • GS includes three[four] strategies: o Global market strategy Defines the national and regional markets in which a company will compete o Global development (manufacturing) strategy Determines where a company locates manufacturing facilities or development centers and how its global supply chain functions.] o Global product development process Provides the framework for how and where products are developed for worldwide markets with worldwide resources o Global product strategy Defines which products are developed for which markets and how the specs of these products address global requirements.
2.Competitive Strategy3. Thinking Globally about Product Strategy Global Product Strategy Integration with Other Global Strategies • Global market strategy o Determines where a company will sell its products. o It is primarily a sales strategy although it affects product strategy because implications for product variability and product priorities. o High-tech products are marketable primarily to developed countries o The small markets may not be economically attractive. The advantages of selling products into multiple markets are offset by the costs of entering each market. o Most high-tech companies concentrate on NA, WE and Japan. o Some companies go beyond the triad of major markets into smaller developed and larger undeveloped country markets, entering one or more new country markets each year. o Smaller markets tend to be less competitive and in some there is no competition at all. o Once a company dominates a small market it discourages competitors from entering.
2.Competitive Strategy3. Thinking Globally about Product Strategy Global Product Strategy Integration with Other Global Strategies • Global market strategy o Emerging country markets have long-term potential; some of them can eventually grow to be larger than the big market triad (Chindia) o From a product strategy viewpoint, the sequence of expansion should be based on the size of the country market, the strength of competitors, and the suitability of current and planned products. o From a sales strategy viewpoint, it is typically on the feasibility or ease of expansion into targeted country markets.
2.Competitive Strategy3. Thinking Globally about Product Strategy Global Product Strategy Integration with Other Global Strategies • Global Product Development Process o Priorities for assigning resources to new product opportunities must be determined at global level. o Product marketing tasks such as product specification, competitive positioning, and sales forecasting need to be done through global collaboration. This requires coordination among multiple marketing and sales managers throughout the world. o Worldwide sales organizations need to make commitments to support the product launch, sell the product, and achieve sales forecasts. This requires early involvement and coordination of all sales organizations throughout the world. o A company may develop products globally with design, engineering, and testing being done in multiple countries.
2.Competitive Strategy3. Thinking Globally about Product Strategy Global Product Strategies A company should try to leverage its product development by selling products throughout the world, but at the same time, it must sell competitive product offerings in each country market. Global product strategies are applied on an individual product platform basis, and a company with multiple platforms can follow multiple global product strategies simultaneously. • Design and Develop Products Uniquely for Country Markets o Can be an inefficient strategy -it doesnt leverage development resources • Leverage a Country-Specific Product through Reengineering. o It follows previous strategy. o Traditional export strategy. o Not good. Reengineered product is typically not successful and is always more expensive than a global product that addresses all those requirements.
2.Competitive Strategy3. Thinking Globally about Product Strategy Global Product Strategies • Customize a Global Product Platform to Meet the Needs of Different Regions o Its perhaps the most successful o Involves designing a base product platform that is then customized for local requirements with minimal effort. o The cost advantages and R&D leverage can be considerable o The key is balancing global changes to fit local market requirements and changes in the local market to fit global product requirements. o Begins with a a design that considers the requirements of all relevant national markets. Common requirements are designed into the base product platform, and variations are added as part of the final configuration. • Develop a Universal Global Product o If possible is the best, but typically it is not possible.
2.Competitive Strategy3. Thinking Globally about Product Strategy Risks of Global Strategies • Its difficult to execute a global strategy as it is closely linked with other global strategies. • Global products may have insufficient proximity to national requirements
2.Competitive Strategy4. Understanding the Opportunities and Risks of Cannibalization You dont want replacement products to kill the profit of existing products prematurely. Yet you dont want someone else to do it either.