The Art of Crystal Ball Gazing: Determine Product Strategy through Intelligent Data Analysis
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Enjoyed giving this presentation at Product Camp Austin: An introduction to Product Strategy Fundamentals, The Ri-Fi Model and an applying it to the BlockBuster Business Case
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The Art of Crystal Ball Gazing: Determine Product Strategy through Intelligent Data Analysis
- 1. The Art of Crystal-Ball Gazing Future Product Strategy through Intelligent Data Analysis C.K. Kumar
- 4. Data Mining
- 5. Data Analysis S/W
- 10. Product Strategy – A Simple Framework Sparse Market Data Market Development Product Development New Markets Diversification Market Penetration Existing Markets Rich Market Data Existing Products New Products Ansoff’s Matrix
- 11. Product Strategy – A Simple Example Market Development Product Development New Markets Market Penetration Diversification Existing Markets Existing Products New Products Ansoff’s Matrix
- 12. The Law of Accelerating Returns The Exponential Growth of Computing It took 90 years to achieve the first MIPS per 1000 dollars; now we add 1.2 MIPS per 1000 dollars every hour. Logarithmic Plot Calculations per Second per $1000 COSTS Year Source: Ray Kurzweil
- 13. The Law of Accelerating Returns Reduced Time to Consumer Adoption Logarithmic Plot Adoption Time Source: Ray Kurzweil
- 14. The Data Conundrum Data is NOTInsight Data Sources Rate of Refresh Market Cycles Rearview Mirror Actionable Rapid Decisions Multiple Options “Trackability” What You Get What You Want
- 16. Crystal Ball Gazing Right Qs Right Data Right Actions Right Product ? Right Fit ? Right Market ? Right People ? TheRi-Fi Model
- 17. It’s Showtime: The Story 2002 Acquires Movie Trading Company 1990 Acquires UK’s Ritz Video 2007 New CEO De-Emphasizes 2009 Installs BB Express Kiosks 1986 Opened First Franchise 2005 Late Fees Eliminated ? 2008 BB proposes buyout of Circuit City 1994 Viacom purchases BB for $8.4B 2004 BB Online is Introduced Separates from Viacom 1985 Opened First Store 2010 BB issues Bankruptcy warning. De-listed from NYSE 2006 Introduces BB Total Access 1998 Netflix is Established 1987 BB goes public Acquires Movies-to-Go Source: Blockbuster Inc. Investor Relations Presentation, Jan 3, 2010 Wikipedia
- 18. It’s Showtime: The Story Product 2010 What questions should one ask? Domestic Movie / Video Market 2009:$24B 2014E:$26B Right Fit Market People Source: Blockbuster Inc. Investor Relations Presentation, Jan 3, 2010
- 19. It’s Showtime: The Story Product Right Fit Market People 2010 What questions should one ask?
- 20. It’s Showtime: The Story 2009 What questions should one ask? 1 2 3 4 5 6 7 8 Product 9 Learning Planning Browsing Choosing Receiving Viewing Returning Paying Exceptions (late fees) Media Rental Customer Journey Right Fit Market People Source: Peer Insights, 2008
- 21. Key Takeaways What could be the winning product strategy in 2010? Product Market Technology Competition Product Portfolio Management Licensing/Distribution People Service Training Right Fit Market People Source: Ergosign.de
- 22. Hands-On Business Case What is your product strategy? Product Right Fit You have the ability/resources to introduce 2 products (A and B) in a market of your choosing. Each product would have a competitor X and Y whose 5 year Sales Profile is as shown. The 5 Year Market Share Shift trends are as shown. What Q’s would you ask to determine which product would you want to introduce against which competitor and in which market? Product A ? Product B ? Market People Why?
- 23. ThankYou
Editor's Notes
- Welcome to Crystal Ball Gazing!!Thetypical product strategy is based on a combination of intuition, insight, panic, accident and luck. The business battlefield is littered with examples of poor / disastrous product strategies. This session is to examine some of the key reasons in why that is the case and how we can increase the probability success of the strategy thorough a systematic approach.
- Before we embark on this presentation, here’s what you can expect:This presentation is NOT about number crunching techniques. No excel stuff. You will not hear about any interesting quantitative methods like the ARIMA methods, difference first-order auto-regressive models, nor is this presentation about Predictive Analytics and Data Mining solutions from SAS or SPSS.This presentation is about Product Strategy. It is about what product strategy means to different people at different phases of the business cycle. It is an overview of key aspects of a strategy and the cross roads we will find ourselves at. It is about different business models to help sift through data to get to the insights you need. And what we can learn from other business about product successes and failures.
- To paraphrase, Edgar Fiedler, the famous economist, - Ask 5 strategists the same question and you will get 5 different answers, 6 if one of them is from Harvard. So, let’s make sure we are all on the same page. Or at least read the definition once together. And where do we go when we want a proper definition. Webster, of course.And it is a simple definition: It is a plan. It a plan that is well thought out, considers all the practical dimensions of achieving a particular objective, assess the risk and incorporates some flexibility just in case things do not play out the way you have plan. But strategy also gets over-used and its effect is diluted and blunted when we use the word Strategy. And just like product management and product marketing, we get easily confused and inter-changeably use Strategy with Tactics. These are 2 separate things. Strategy is the plan. Tactics is all about execution.
- Now that we are aware of what Webster think about Strategy, let us take a brief look at Product Strategy means and how can we use a simple framework to better understand it. There are several Product Strategy Frameworks such as the GE-McKinsey matrix, the BCG Matrix, Porter’s 5 forces, etc..The one model I would like to use is the Ansoff’s Matrix that describes Product and Market Growth in a way that even my Grandmother can understand. But it is truly simple but very insightful model that captures the essence regardless of the type, size and phase of the business. Product category on the X-axis and Market on Y. These could be further grouped as Existing or New. What this 2x2 matrix helps is a way to quickly assess where your product is and which quadrant you plan to introduce your product and what broad strategies or plans you ought to be considering. For each quadrant, Ansoff proposes the following broad strategies: Existing Markets with Existing Products: The products/services are fairly commoditized and will have multiple competitors. You would typically plan on gaining market/revenue share. It is a Market Penetration strategy.New Markets with Existing Products: As your existing market gets saturated and margins more squeezed, you would want to slightly tweak existing product so you can cater to a new segment of the market. It could be a new user base or a new geography . And all this falls under a Market Development strategyExisting Markets with New Products: Existing Markets always represent known source of revenue. So, companies try to create/introduce new products or services that are adjacent to their core products. This gives them an avenue to expand their customer base and also derive higher revenue per customer. It also helps provide a nice way to hedge in the market place. This is known as a Diversification strategyNew Markets with New Products: And then it happens in a moment of inspiration or like Southwest Airlines founder, when you are really sloshed – you introduce a new product, you think of a new service. This would be a completely new market for the company and any product that would succeed in this market has to take many little steps, many twists and turns before it results in a final production version. This falls under the Product Development Strategy.As we consider the simple matrix that even my grandma can easily understand, there is a interesting data dichotomy - There is typically plenty of data available on bottom left quadrant and plenty of experts from HBS for the top left quadrant. And yet many products/services like medical insurance flounder in their Market Penetration Strategy and some new products snuggie for your dog or grandma just take off. I think a simple example may help highlight some of these key strategies.
- If there is one product modern civilization cannot start the morning without - it is Beer ! No wait.. That’s for a later presentation. It is toothpaste. We all are familiar with this product. If you are not, pl. meet the Toothpaste. Here is an excellent example of how to think about product strategy: Anyone who has walked reluctantly walked down the aisles of HEB or Randalls would know the Wall to wall coverage of Toothpaste. This is a classic sign of a mature market. And it remains critical to not only keep one’s mkt share but also gain new customers. And it is hard work. If you consider when you last switched the type or brand of toothpaste, you will realize how challenging Market Penetration Strategy is. As is wont to happen, the product and Brand managers at Colgate look to taking the product to newer markets so that the products are targeted to a niche segment. So we see toothpaste with co-branded with Diego one of Dora the Explorer characters that might be appealing to kids. Or introduce tooth whitening products to folks who love a sparkling smile. Lots of Market development activity including retail channel development, pricing and marketing strategies that are very different than Market PenetrationProduct managers see moving to new markets as one source of revenue generation. Another source would be to introduce products that would be in adjacent markets. While the finger is interesting way to brush your teeth, it is not as effective as a brush. So, you see a plethora of tooth brushes that can clean, massage, soothe and freshen your mouth. And will it end there.. No. You should also floss your teeth with the same brand that made this tooth paste and tooth brush. In some areas of the world, toothpaste may not be the best form, so tooth powder is preferred. All in all – these are products adjacent to toothpaste.And now on to the uncharted territory that every product manager wants to work at least once in their career – a brand new product in a brand new market. Colgate introduced a interesting disposable toothbrush + Toothpaste with no need for water. Another interesting product that Colgate has introduced is the ability to download your digital pictures and clean up the image, especially when you showing a lot of teeth in the pix. The key thing to remember is this – You should recognize which quadrant of the market you are currently playing in as every quadrant requires a different playbook. And regardless of which strategy framework you use, It is important to ask questions and re-assess key assumptions: if Colgate thought it was in the toothpaste business, it would be still be making a few different kinds of toothpaste. But Colgate thinks it is the Oral Hygiene business. And that market is larger with greater needs. AND you always need to explore new markets - especially when you are making money. And unless the business keeps trying to invent new products and pushing the envelope, It is bound to suffer a slow painful death. And in the past couple of decades, there are 2 macro trends that have only added to the complexity of product strategy
- One macro trend, one that has had a dramatic impact on the technology industry, is the law of accelerating returns that has been expounded by Dr. Ray Kurzweil in 2001, a prolific American inventor, rare visionary and genius. The core of his theory is this: The technological change is always forecasted in a linear manner but any analysis of historical technological progress is exponential. And exponential growth has a compounding effect, a positive feedback loop, that grows and feeds on itself like a bizzare sci-fi monster. The first technological steps-sharp edges, fire, the wheel–took tens of thousands of years. For people living in this era, there was little noticeable technological change in even a thousand years. By 1000 A.D., progress was much faster and a paradigm shift required only a century or two. In the nineteenth century, we saw more technological change than in the nine centuries preceding it. Then in the first twenty years of the twentieth century, we saw more advancement than in all of the nineteenth century. Now, paradigm shifts occur in only a few years time. The World Wide Web did not exist in anything like its present form just a few years ago; it didn’t exist at all a decade ago.As this example shows, it took 90 years to achieve the first MIPS ( Millions of Instructions Per Second) per $1000. in the next couple of decades, the growth has been exponential that we went from 90 years to 10 year to add the next 1 MIPS / $1000 and now add 1.2 MIPS for $1000. So, you can already see that your iPhone or Smartphone has more compute power than all the moon missions put together. And by 2040, we will have a computer that has a processing power equal to one human being. And in 2060, that is when the machines take over the world. And that’s where Sarah Connor comes into the picture.The key impact of this macro trend is that not only is your technology performance of your product could dramatically improve, the costs are coming down. And they are coming down fast.
- The other macro trend – based on the Kurzweil’s Law of accelerating returns is the tempo of product adoption. Since product costs tend to dramatically fall as technology accelerates, the adoption time for new technologies tend to dramatically reduce. In early 1900’s , it took 40 years to adopt a new technology, then it took 20 years to adopt the PC and then about 8 - 10 years to adopt a smart phone/ iPhone type of device and perhaps only 3 -5 years for the iPad/Tablet. So, when you consider your product or service or evaluating the competition, do know that the technology is going to be moving faster than you think, the adoption time is going to shorter than you think and it is going to costing lower than you think. And , so when we consider the accelerating factors and want to analyze these trends that is relevant to our product. We will need data. And whether you are in a mature market, in the lower left quadrant of the Ansoff’s Matrix or in unknown territory - the upper right quadrant, whether it is a data rich environment or a sparse data environ, you still need data. So, let’s talk about data:
- When you plan, you need data. Alas, there exists a data conundrum - What we want from data is actionable information. Information that will help us assess the scenario, plan for multiple options and data that helps track trends on a consistent basis.Instead, reality bites. And we have multiple data sources. From Gartner to IDC to Forrester to NPD to GFK and everyone gives you a clear eyed, well thought observations and research that only ends up confusing you. And of course, they will provide you with data what happened in the past quarter only 6 weeks later. And sometimes, they will take summer off and come back in Fall. And as Kurzweil’s observation on the under-calling of the future, a lot of our current forecasting is based off of past data. And imagine the results if you had to drive only seeing the rear-view mirror.All this boils down to this one thing. Data, if and when available, is NOT insight. And if not anything else, we need Insight in bucket loads as we plan or strategize. So, how, then, do we consider the strategy process? How can we increase the probability of success in our strategies? How can we incorporate a dynamic market place in our planning? How do we gaze thru the crystal ball?
- EdgarFiedler has famously said – He who lives by the crystal ball soon learns to eat ground glass. And he is right!. As one is gazing deeply into the crystal ball, we should not only be prepared to eat ground glass, you should also be prepared to eat crow. Because you will be as wrong as you are going to be right. And we should have the humility and the fortitude to accept that. But when you are right – it is a beautiful thing to behold. And how do we try to get it as right as we can get it? So first the philosophy behind getting the right strategy: It starts with asking the right questions. The right questions will lead us down the path of acquiring the right kind of data. We may not always have the right data but if we ask the right questions, we are half way there. Once we believe we have the right data, however limited it may be, the trick is to tease the insights to so as get to a right set of actions. This, ladies and gents, is the Art of the Crystal-Ball Gazing. Art, as they say, lies not just in the eyes of the beholder but also where the beholder is lying with Art.
- If we believe in the philosophy that the Right Questions will lead us down a path that provide us with the Right Data which will then lead us to the Right Actions, then there is a simple model that we could use to distill this philosophy. One thing to keep in mind about models are that they are not always pretty but they can represent certain dimensions of interest. Expecting a model to solve your strategic problems is unrealistic but a model can be highly effective in highlighting any deficiencies.The model starts with asking the questions along 3 key dimensions:The Right Market Dimension: There are several questions one needs to ask along the Market Dimension. And while these questions will change as products/services move from one quadrant to another, these questions remain focused on clearly defining what Market the product or service is planning to serve. Is the market just the immediate product as toothpaste or is it larger as Oral Hygiene? How large is the market? What is the TAM? What is the SAM? Is it growing? What is the rate of growth? What is driving the growth ? Etc..The Right Product Dimension: Once we have a handle on the Market, size and growth, we will need to explore whether we have the right product / service. This will require understanding who the end user is and what his or her preferences are. We will also need to know if the user is the same person as the buyer. What does the end-customer meet this need currently? Does your new product radically help or incrementally help solve the user’s current problem? How much of value does the end-consumer see in this new solution? What does the competition offering today? Can you meet or beat the competition on cost/performance matrix? Etc..The Right People Dimension: Even if you have all your key questions answered on the Market and Product dimension, if you miss the people dimension - you will fail. You will need to ensure that you not only have the right people who have the drive to accomplish these the overall product strategy but also have the systems to enable and empower them to act as and when needed. You will need to have the right people with the right kind of training because each employee is not just an employee but an ambassador for your product and service. This is one of the dimensions which is very squishy to define and monitor but makes the difference between success and failure and separates the good from the great.Asking the right questions along each of these dimensions will get help get us evaluate whether we have the right fit required to make the strategy a successful one. This is the Ri- Fi Model. A model that incorporates the impact of market, the product and the people who eventually make or break into a product strategy. It may be helpful to liken the Ri-Fi Model to a 3 legged stool and each of these dimensions as the 3 legs. Even if one leg is short, there stool will be wobbly and functionally useless. Let’s see if we can use the Ri-Fi model to analyze a very interesting business case and see if we can learn any useful lessons
- If you had guessed BlockBuster, you were right. So, when was the last time one of you went to a Brick and mortar store to get a movie? And yet not too long ago, that was the alternate to going to a theatre. With the law of accelerating returns still in action, the prices of VCR’s continued their gradual downward decline as adoption of VCR’s dramatically grew so that there 60% of US households had a VCR by 1990. Blockbuster started out a small chain in Dallas, Texas 1985 and was bought by Wayne Huizenga in 1987. Huizenga, fresh from his success at Waste Management Inc., applied his business acumen and acquisition skills to take BB from $7M with 19 stores to a $4B global enterprise with more than 3700 store in 11 countries. Viacom bought BB for $8.4B in stock. And about this time, a new technology called DVD made its entrance on the CE scene. While this nascent DVD technology was quickly being adopted, a small no-name company called Netflix came into being with an outrageous idea : Choose movies on line and ship the movie to the viewer and with no late fee penalty. BB was, of course, focused on traditional expansion of its distribution system through its retail brick and mortar chains. It was around this time period that free content on the internet was hurting Viacom’s portfolio. BB continued to ignore the impact of the net and was slow to adopt the new DVD technology. To compound this matter, the customer service at BB was beginning to falter and one policy in particular tended to adversely impact the customer – The Late Fee. From 2002 – BB lost a $1B on an avg. every year. So much so that it fell to a market value of $500M by 2006. BB is now flailing to re-discover its magic and of course, imitate its more successful and profitable competitor Netflix. The introduce a comprehensive plan for a customer to rent/return DVDs either by mail or at the store. Then they change their mind and stop that. Then without having any money, BB decides to diversify by buying another mortally wounded retailer – Circuit City. BB must have been planning to set up a place where no one goes anymore to be sold to by over-anxious teenage sales-persons. As BB continues to bleed, they decide that their competition is not Netflix but RedBox. Redbox was a startup with another outrageous idea: Install kiosks where people frequent and carry the most popular DVDs. They continued to bleed paying about $100M just in interest payments. As of Monday last, BB stock price was at 17c and it plans to file for a Chapter 11 restructuring. And at this current junction of technology, consumer preferences of entertainment and the people left at BB, what choices does block buster have? Let’s explore that in the next couple of slides
- Let’s look at BB from the market dimension of the RI-Fi model: We have couple of pieces of information the senior management at BB also looked at. Consider the Domestic Movie/Video market in 2009 and its various components and how it is estimated to change in 2014. The growth is flat to slightly up with the home video market expected to shrink and surprisingly, the Theatre market expected to grow. Also, there is growth in Basic cable and other forms of video delivery. Let’s also consider the market growth of various forms of content delivery over a 10 year period with 2010 – 2014 being estimates. VOD seems to be enjoying a tremendous growth. Given these 2 pieces and seeing this through the lens of the Ri-Fi model, what kind of questions would you ask?
- Now let’s look at BB through the lens of the product:
- Another interesting view would be to analyze BB from the customer POV
- So, in this presentation, you were introduced to a simple product strategy framework and some of the key challenges in a product strategy. We saw that for an effective product strategy, we need to ask the right questions right data right actions. We applied that philosophy to a create a simple model called the Ri-Fi model that consider strategy along 3 dimensions – The Market, the Product and the People. We considered a interesting business case of BB and tried to analyze it using the Ri-Fi model. Based on my observations, I would propose the following areas for BB to focus on:Market: Redefine their market so as to leverage the right technology and fight the right competitor. Product: I would have them reconsider their existing portfolio and have them expand it to meet their customer’s preferences. They have a strong strength in their retail operations and have lot of brand recognitionAnd train and respect their peopleSo, as you can see, product strategy is at the core of any company’s existence and impacts multiple facets of the company in varying degrees. This simple chart provides that view in an elegant manner.
- Now that you are now armed and dangerous with the art of crystal-ball gazing, I have a small challenge for you – here is a simple business case you could browse through and using the Ri-Fi model come up with a recommendation.You have the ability/resources to introduce 2 products (A and B) in a market of your choosing. Each product would have a competitor X and Y whose 5 year Sales Profile is as shown. The 5 Year Market Share Shift trends are as shown. What Q’s would you ask to determine which product would you want to introduce against which competitor and in which market?