The 3 Phases of Product Strategy Development

Product Strategy

Have you ever run into something like this?

The CEO walks into your office. He says, “We need to submit our strategic plan to the board next month. Can you canvas the senior staff and put something together?”

Or this:

It’s the weekly senior staff meeting, and you just finished outlining your recommendation for the company’s product-strategy-development process.  The vice president of engineering comments, “Look, we all pretty much know our strategy. I don’t see a need for a drawn-out process. Why can’t we just lock ourselves up in a room for a few hours and bang it out?”

Or how about this:

Your general manager advises, “Your first-pass, product strategy review is next month. Just a reminder, I only want to see a couple of slides on the market and competition. Your presentations should focus on product roadmaps.”

If you have, your strategy-failure-alarm siren should be blaring.  All three of these situations show a total disinterest in setting product strategy based on a deep understanding of your market and competition. They indicate a view of product strategy as just documenting what the company already plans to do.  No distracting, outside influences required. This internal perspective on product strategy development is as dangerous as barreling down the highway at eighty miles an hour with a blindfold on. It’s like saying, “I’m going to do what I’m going to do, no matter what’s going on around me.” That’s inside-out thinking and prone to disaster.

Product strategy provides the answer to the question “How will you compete?” Competing in the product strategy sense means figuring out how to serve a target group of customers better than the competition. It follows then that you need to understand the customer and the competition before you can answer the question. The answer to the question “How will we compete?” must be preceded by answers to the externally oriented questions “What is our market environment” and “Where do I stand versus that environment and my competitors?” That sets up a three-phase, outside-in, product-strategy, development process as shown in the figure below.

ree-phase, outside-in, product-strategy, development process

Phase 1: Environment

In the first phase, the objective is to get a thorough understanding of your market environment. Here you’ll examine the environment from your customers’ perspective as well as your own. For the customers’ environment, you’ll

  • Define the target market,
  • Understand your customers’ market and growth drivers,
  • Examine market trends and potential disruptions, and
  • Analyze your customers’ issues and challenges.

For your own environment, you’ll

  • Determine requirements for serving your target market,
  • Determine your market’s growth drivers and forecast, and
  • Examine your market’s trends and potential disruptions.

You’ll notice that the environment phase is all about the customer and what it takes to serve that customer. It is completely devoid of your strategy and products. It’s even devoid of an analysis of your competitors.

“Why don’t we jump right to competitive analysis?” you may be wondering. Here’s why. A competitor is an alternate solution to the problem you have elected to solve for your target customer.  Competitive analysis is therefore predicated on a clear understanding of your target market and the problem you intend to solve for it. It must come after you’ve analyzed your market environment.

Detailed Outline and Key Questions to Answer

Overall market and segmentation definition

  • What is the definition of your overall market?
  • Along what variables will you segment your market?
  • Is your segmentation useful?
  • What segments are of interest?

Analysis of each market segment of interest

  • What is the definition of the buyer?
  • Who are the most important buyers in the segment?
  • What is their roadmap?
  • What are the trends and potential disruptions in their business?
  • Who are their customers?
  • What is the current and future total available market for the products made by members of the segment?

Market requirements for each segment of interest

  • What is the problem that you seek to solve?
  • What impact does this problem and its solution have on your customer’s business?
  • What are the requirements you must meet, now and over time in order to solve that problem?
  • What are the solution’s value drivers for your target customer?

Market growth drivers for your solution

  • What factors will drive growth?
  • What is the current state of these factors?
  • How have these factors changed over time?
  • What is the outlook for these factors in the future?
  • Will there be different factors in the future?

Trends and disruptions for your solution

  • What are the key trends?
  • What are the potential disruptions?
  • Who is driving these trends or disruptions?
  • What impact will these trends or disruptions have on your business? When?

Your market forecast

  • What is the total available market for your solution in each segment of interest?
  • What is the forecast for the total available market over time?

Most important opportunities or threats

  • Based on the environmental analysis what are your most important opportunities and threats?
  • What are the implications of these for your business?

Data and validation gaps

  • What critical information and data are we missing?
  • Which data or assertions have not been externally validated?

Phase 2: Situation

In the situation phase, you’ll examine your situation versus your market and competitive environment. You’ll

  • Analyze your historical financials and market share,
  • Determine your position versus the market requirements for serving your target customer, and
  • Analyze your capability to service your target customer versus competitors.

As the final step in the situation phase, you will review the data to determine the strategic issues that must be addressed by your strategy. Strategic issues are issues caused by conditions in the market environment or competitive landscape that will have an impact on your ability to meet your objectives. They might be things such as

  • Growth is expected to slow in your target market,
  • A major geographical shift in demand is imminent,
  • A competitor is about to put you at a disadvantage,
  • A new technology is emerging that will make yours obsolete,
  • Your customers are shifting their strategy, reducing their need for products like yours, or
  • New demands on your customers create a new, unaddressed opportunity for you.

Take note that all the above examples are externally sourced. It’s that outside-in perspective coupled with its impact on your business that makes an issue strategic.

Detailed Outline and Key questions to answer

Historical financial for each market segment of interest

  • What is the historical revenue and profit?
  • What are the important trends?
  • What accounts for changes in historical revenue and profit?
  • Which trends are expected to continue? Why?
  • Which trends are expected to change? Why?

Position versus market requirements for each market segment of interest

  • How does your current product’s capability compare to the current market requirements?
  • What will happen to your current product’s ability to address market requirements in the future if no improvements are made?
  • What attributes of your product are over-designed?

Historical market shares in each market segment of interest

  • Who are the primary competitors seeking, including alternative approaches, to solve the same customer problem?
  • What are the historical market shares among competitors?
  • What are the important trends?
  • Which trends are expected to continue? Why?
  • What accounts for changes in historical market shares?
  • Which trends are expected to change? Why?
  • Where do you stand versus your competitors at each of the most important customers?
  • What conclusions can you draw from historical win-loss data?

Competitor analysis

  • What is the competitor’s product, what does it look like?
  • Who are their key customers?
  • How does the competitor position itself in the target market segment?
  • How does the competitor expect/plan to beat you?
  • What are the key advantages of their product?
  • What are their key competitive issues or disadvantages?
  • How does their current product performance stack up to your product’s current performance?
  • What is the competitor’s product roadmap? – What will their capabilities be in the future?
  • Are their fundamental advantages or disadvantages as a result of product architecture choices?
  • What patents does the competitor have that helps them compete in the target market?
  • What type of distribution channel does each competitor use?

Buying decision drivers

  • What are the value drivers for customers in your target market?
  • Of those value drivers, on which are the performance between competitors meaningfully different?
  • What are the customer’s primary selection criteria for solutions like yours?
  • What’s the value model that shows the relationship between product performance and price?

Strategic issues

  • Based on the environmental and situation analysis, what are the strategic issues that must be addressed by your product strategy?

Data and validation gaps

  • What critical information and data are we missing?
  • Which data or assertions have not been externally validated?

Phase 3: Product Strategy

With the environmental and situational analysis complete, it’s time to start making product-strategy decisions. First up is deciding what you want to achieve. This has two parts.

  1. Vision
  2. Objectives

Your vision describes where you are going, how you will get there, and why you will win. Unlike specific objectives, the vision statement is directional only. It describes the vector of your strategy. For example, consider this vision statement.

We will: 

  • Be the number one supplier of thin-film, deposition systems to the semiconductor market.
  • Leverage our core competency in deposition-source technologies across multiple semiconductor equipment platforms.
  • Produce the fastest deposition rates and as a result, the lowest cost of ownership for our customers.

See the table below for how this statement can be decomposed into the key components of good strategic vision.

Component Vision
Where we are going We will be the number one supplier of thin-film, deposition systems to the semiconductor market.
How we will get there. We will leverage our core competency in deposition-source technologies across multiple semiconductor equipment platforms.
Why we will win We will produce the fastest deposition rates and as a result, the lowest cost of ownership for our customers.

Your objectives, on the other hand, describe specific milestones along the way to fulfilling your vision. These usually include specific time and performance targets on financial measures such as

  • Revenue,
  • Gross margin, and
  • Market share

With your objectives nailed down, now it’s time to attack the two sides of the product strategy coin

  • Market strategy and
  • Product strategy

These two elements are inseparable. Market strategy defines the customers that will buy your product. On the flipside, product strategy defines the products that your customers will buy. The output of market strategy is a clear definition of the market segments you will and will not target. The output of product strategy is a roadmap of products that you intend to offer over time.

Detailed Outline and Key Questions to Answer

Vision and objectives

  • What is your strategic vision?
  • What are the revenue, revenue, profit, and market share targets that must be achieved?
  • How are those objectives and targets allocated to market segments and product lines?
  • Are there any financial boundary conditions or constraints? (i.e. research and development expense?)
  • Are there any non-financial strategic objectives?

Market strategy

  • What are your target market segments?
  • Do the segments that you are targeting change over the strategy period?
  • What market segments are you specifically not targeting?
  • What market segments have the potential to purchase from you even though your strategy is not specifically design to attract them?
  • How will you treat non-target market inquires?

Market penetration strategy

  • Who are the most important customers (or groups of customers) to acquire in your target market in order to hit market share goals?
  • Who serves them now?
  • What are the key requirements to penetrate?
  • What’s your strategy to penetrate?
  • What is the timing for penetration?
  • What is your distribution strategy?

Competitive strategy

  • How to you plan to compete?
  • What is your unique value proposition?
  • What market positions will you take?
  • What are the competitive advantages that make your value proposition and positions true?
  • What factors are critical to the success of your competitive strategy?
  • Why is your strategy better than your competitors’?

Product roadmap

  • What products do you plan to offer over time?
  • What is the product platform strategy?
  • Which products currently exist, have a committed plan, or are just forecasted roadmap items at this time?
  • How does your roadmap timing and content compare with your competitors?
  • What key technology developments (i.e. inventions) does your roadmap depend on?
  • What intellectual property will be developed?

For each product on the product roadmap:

  • What is the target performance on the key buying criteria?
  • What price do you expect?
  • How will your value proposition compare to the competition at the time of market introduction?
  • What are your cost and gross market targets?
  • What is the product architecture strategy to address product performance requirements?
  • What upgrades will be produced for the installed base?

Hand-off to execution planning

  • What are the major risks and plan to mitigate them?
  • What actions must be taken over the next 12 months to implement this strategy?
  • What actions or initiatives are deliberately excluded from this strategy?
  • What is the scorecard that will be used to measure strategy-implementation performance?