July 21st, 2010

6 Product Strategies to Accelerate Business Growth Today

I want to devote this blog post to discuss alternative product strategies to accelerate business growth. Specifically, the 6 key product strategies we used to grow the business while I was at HP. A couple of key considerations are 1) that all of these product strategies approach new business growth in a different way. In HP, we had a healthy paranoia about the competition. As a result, we had no qualms about cannibalizing our own business if we felt that 2) it would help us grow the size of the available market, our market share, or help defend us from current or anticipated competitive moves.

The 6 key product strategies are:

New-to-World Products: These are inventions and discoveries like desktop laser and inkjet printers, iPad, CAT/MRI scanning devices, etc. This product strategy can be extremely disruptive in the market and game changing for customers and vendors. Often times, the disruption comes from lower pricing or smaller physical size. Other ‘new to world’ products are created from categories that already exist; however, new products redefine the categories by using innovative or alternative technology. Examples that come to mind are electric cars, Elliptigo bikes, digital cameras, and Swiffer mops. In some cases, the technology has been around a long time (electric car technology was first used in 1897). Until recently, nobody was able to scale the required battery technology in a way that provided a viable, cost-effective alternative to internal combustion engines. Of course, this is changing rapidly. Creating a completely new product for a completely new market is the most difficult of all the product strategies to execute. In most cases, even the most innovative of new products have some lineage to a previously known technology or application. This is the least used strategy because of its complexity.

New Category Products: These are products that are not new to the world, but new to the company. For example, Apple introduced the iPhone, Mercedes introduced the M Series SUV, Vizio introduced a product line of televisions. In some cases, these new products served adjacent markets/customers using existing channels. In others, it was more risky because the companies did not have an established market presence in the markets they launched their new products in. When companies fail here, often times they are high profile failures. For example, Microsoft’s Zune or Apple’s Newton to go after the emerging PDA market led by Palm at the time.

Additions to Product Lines: These are product line extensions to the company’s existing product line and brand like Diet Coke. HP developed the PhotoSmart printer to go after the market of printing photos at home. In many cases, these are adjacent market opportunities that require more marketing innovation as opposed to technology innovation. Another example of a brand extension is Jello-gelatin creating Jello Pudding Pops and pudding. The line extensions increased awareness of the brand name and increased profitability by providing offerings in more than one product category. According to Wikipedia, A brand’s “extendibility” depends on how strong consumer’s associations are to the brand’s values and goals. “Ralph Lauren’s Polo brand successfully extended from clothing to home furnishings such as bedding and towels. Both clothing and bedding are made of linenand fulfill a similar consumer function of comfort and hominess. Arm & Hammer leveraged its brand equity from basic baking soda into the oral care and laundry care categories. By emphasizing its key attributes, the cleaning and deodorizing properties of its core product, Arm & Hammer was able to leverage those attributes into new categories with success. Another example is Virgin Group, which was initially a record label that has extended its brand successfully many times; from transportation (airplanes, trains) to games stores and video stores such a Virgin Megastores.”

Product Improvements: Are improvements to existing products that are used to grow market share and revenues. For example, Michelin continuously re-launches their successful X One tire series. WD40 re-launched the venerable WD40 lubricant with a ‘Smart Straw’ which resolved customer satisfaction issues of losing the tiny red straw taped to the side of the can. And let’s not forget Microsoft. They introduced Windows 7 as a replacement for Vista.  Some companies have used nostalgia to create retro products with strong lineages to the past like the HP 12C Classic calculator, creating the paradox that ‘old’ is ‘new’. This is the most frequently used product strategy.

Repositioning Existing Products: These are products that are re-targeted for new use models. For example, using baking soda as a deodorant (and 14 other uses). Another example, Lucozadewas first marketed for sick children and then rebranded to target athletes. Merck introduced Propecia, which is essentially a lower dosage version of their popular prostate drug Proscar, when they found the side effect of drug reduced the effects of male pattern baldness.

Cost Reductions: In this strategy, new products replace existing ones, with a lower cost structure. As a result, the new products that result from this approach drive different pricing options and therefore, bigger market opportunities. Some brands, like Ajax, are becoming dollar store brands. In March 1984, the LaserJet(subsequently called the LaserJet Classic) was introduced. It was a 300-dpi, 8 ppm printer that sold for $2,995 with a remarkable desktop design. This product was highly disrupted when compared to the large line and laser printers found in glass rooms of that era. By 2008, HP had introduced $99 laser printers that were 2X faster, smaller, had better print quality, and were 96% lower in price! What started as an expensive device for large enterprises was able to serve additional markets (like small business and consumer) as price points, image quality, performance, and size were improved upon. Finally, Southwest Airlines was able to capture significant market share from established airline companies by offering a no frills, low price alternative flights on popular, domestic routes.

It is important to note that product growth strategies can also be combined. When HP decided to go after the copier market, we took an existing LaserJet platform and added multifunction capability – scan, copy, additional software, and new paper handling capability. In some ways, it was an addition to our existing product line because not all use models were based on the copier market (but some were). It was certainly new to hp, but it also had elements of ‘new to world’ and ‘cost reductions’ because we were building it on a printer platform, which had lower cost and better reliability than a copier. This allowed us to offer a compelling value proposition and take market share away from entrenched competitors.

Business models are also an important consideration. How do you maximize revenues and profits over the life of the product? At HP, we had a razor-razor blade business model (for printers) that was very profitable. Gillette, Keurig, and Swiffer all have similar business models based on this concept. In addition, the concept of ‘lifetime value of the customer’ becomes important here. Even if you do not have a razor-razor blade business model, you can consider other ways to derive accessories, support, or services revenue and profits over the life of your product. This is not only important financially, but can also help improve the overall customer experience and satisfaction of your products by end user customers by meeting a broader set of needs.

The key point here is that all of these strategies require a robust, new product pipeline in order to continue to grow revenues, unit volumes, and market share. Each one of these strategies can be slotted by 1) the level of technology newness and 2) the level of newness the product is to the market and 3) the current level the company participates in these or adjacent markets. The more ‘new’ the product is on these vectors, the higher the risk and potential return. There is an interesting chart that illustrates this concept that can be found here.

Additional Resources:

1000Ventures.com

Product-Market Growth Matrix

Align Product Strategy

Print

Email

Rss

92 Comments

Posted By Vince Ferraro

July 11th, 2010

The CMO Council State of Marketing Report, featuring the 2010 Marketing Outlook Audit, is the largest independent assessment of senior marketing executives today. This annual global benchmarking initiative undertaken by the Chief Marketing Officer (CMO) Council, gains insights into how senior marketing decision makers are managing marketing mix modeling, budget allocations and media mix spend, and investments into infrastructure, technology platforms and enhancements to internal competencies. Given the economic challenges and market pressures worldwide, this year’s review of ‘08 performance and ‘09 challenges and intentions is far deeper and wider than before. The results of this study will be extremely valuable to all participants seeking peer-level input and consensus on critical issues and priorities in the year ahead. 

If you to be up to date on what marketing thought leaders are thinking about and doing in their marketing programs, activities, and spend, this is the report to read. 

There are many excellent conclusions and observations available in this document. Some of the big picture marketing goals and strategies of 2010 according to a survey of senior marketing leaders include:

• Reallocating more money towards electronic media that is engaging and helps drive increases in customer loyalty.
• Undertake very big consumer insights and business intelligence drive as we gear up to invest in emerging markets.
• Shifting marketing dollars to direct sales engagement and sales training.
• Need to work on coordination and time management of integrated marketing campaign teams.
• Be wiser in channeling the right message into the correct channel to maximize effectiveness.
• Improve communication between marketing and non-marketing employees.

 Some additional recommendations by Deloitte and ExactTarget  include:

Improve marketing alignment across the value  chain.

In recent years, a large number of companies have improved their marketing performance by creating greater internal alignment between Sales and Marketing. Now, many are expanding this effort beyond their four walls to include their key value chain partners. For example, companies in the consumer packaged goods and consumer electronics industries are collaborating with retailers to align their marketing programs, investments, and planning. 

Harness the power of social media. 

New digital technologies and social media channels are changing the way customers think and behave. Established companies are naturally reluctant to shift their focus away from traditional marketing channels that have served them well in the past. Also, many companies don’t know how to operate effectively in this new environment, and are afraid of losing control over their marketing messages. Unfortunately, sitting on the sidelines is no longer an option for most. Conversations that have a profound impact on your product and brand are already happening in these new channels. 

Get more value from customer analytics. 

By now, nearly all major companies are likely making a conscious effort to unearth the valuable insights hidden in their customer data. In fact, according to this year’s CMO Survey, 62 percent of respondents plan on “improving customer segmentation and targeting,” making it the number one improvement strategy for 2010. Yet our experience working with companies around the world suggests that most will barely scratch the surface when it comes unleashing the full power of customer analytics.

Embrace customer service. 

The importance of good customer service will continue to increase as consumers feel more and more comfortable airing their grievances online. Consumers don’t want to go to this level. As one consumer told us in a recent focus group, “I’ll call and then email, but if I don’t get the help I’m looking for, look out! They can’t ignore me when I put it on Facebook and Twitter.” Social media levels the playing field. Progressive marketers will embrace this accountability instead of fearing it. 

Scale through automation.

63% of marketing executives are looking to automation to improve efficiency and campaign effectiveness. The two most common marketing automation solutions planned for deployment in 2010 are for email marketing (46%) and social networking (39%). As a provider of automation tools for both of these channels, we have seen how this type of automation can improve response. For example, we have witnessed automated messages triggered to email subscribers based on their online behavior generated as much as 70 times the conversion rate of non-triggered messages.

Measure what matters. 

As marketers look to improve their online marketing capabilities, they must look beyond top-line performance metrics. High-level metrics are still the most commonly used measure of online effectiveness with 63% looking at page views and registrations. Comparatively, only 38% measure online effectiveness via transactions and/or subscriptions and 22% look at deal values and/or selling cycles. 

A summary of the report is available for free here. 

The complete report is available for $199 here.

I would be interested in hearing your feedback about the conclusions and trends to see if your company is experiencing facing similar challenges and opportunities for the marketing function. 

Happy reading!

Print

Email

Rss

98 Comments

Posted By Vince Ferraro