What is Product Strategy?

By Michael Chase. This page is available under the Creative Commons Attribution License

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No matter how skilled your sales team is or how efficiently your operation runs, your company cannot grow and compete without winning products. But winning products do not come easy. You must contend with a constantly changing technology, market, and competitive environment. As if that was not enough, capital equipment products can take years to develop. If you have any hope of sustaining commercial success over time, you are going to need an effective product strategy.

A product strategy is a roadmap of the products that will achieve the company’s objectives over time by serving a target market better than the competition.

Portfolio vs. Product Strategy

Portfolio strategy answers the question, “What business should I be in?” Whereas product strategy answers the question, “How will I compete in my business?” See Figure 39.

The relationship between portfolio strategy and product strategy
Figure 39: The relationship between portfolio strategy and product strategy

Portfolio strategy, sometimes called corporate strategy, defines the scope of a company. Portfolio strategy includes decisions to:

  • Start a company.
  • Acquire or develop a new product line or business.
  • Increase or decrease investment in an existing business.
  • Shut down or sell a business.

These portfolio decisions require broad exposure to market opportunities, plus an awareness of capabilities across your entire company. The responsibility for figuring out which businesses to pursue typically belongs to someone at the enterprise level with a corporate development or strategy title.

Portfolio strategy produces commitments to individual lines of business and the financial objectives for each. This output serves as an input to product strategy. Product strategy, sometimes called business unit strategy, includes decisions to:

  • Segment the business’s market.
  • Select vectors of differentiation.
  • Develop new products.
  • Improve existing products.
  • Retire legacy products.

Product strategy decisions require relentless focus and attention to the market and competitive environment in which the business unit operates. The responsibility for deciding how to compete belongs to a business unit’s product management team. 

Supporting Strategies

For supporting strategies, the fundamental question is “How will I support the portfolio and product strategies?” See Figure 40.

Supporting strategies’ relationship to portfolio and product strategies
Figure 40: Supporting strategies’ relationship to portfolio and product strategies

Supporting strategies include:

  • Sales strategy
  • Marketing strategy
  • Engineering strategy
  • Manufacturing strategy
  • Supply chain strategy
  • Service strategy
  • Information systems strategy
  • Human resources strategy
  • Financing strategy

Each of these functional strategies supports the portfolio and product strategies. Therefore, the organization cannot develop them until the company has completed its portfolio and product strategies. It is the connection to portfolio and product strategies that give supporting strategies an outside-in perspective.

The 3 Phases of Product Strategy Development

Have you ever run into something like this?

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

Or this:

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

Or how about this:

Your general manager tells you, “In next month’s strategy review, I only want to see a couple of slides on the market and competition. Your presentations should focus on product roadmaps.”

All three situations show a disinterest in setting a product strategy based on a deep understanding of your market and competition. This often leads to a product strategy that simply documents what the company is already doing. It is like saying, “We are going to do what we are going to do, no matter what’s going on around us.” That is inside-out thinking and will not consistently produce winning products.

Product strategy answers the question, “How will we compete?” Competing in the product strategy sense means figuring out how to serve a target market better than the competition. It follows, then, that you cannot answer the question, “How will we compete?” until you know the answer to “What is our market environment” and “Where do we stand versus that environment and our competitors?” That sets up a three-phase, outside-in product strategy development process. See Figure 41.

Three-phase, outside-in, product strategy development process
Figure 41: Three-phase, outside-in, product strategy development process

Phase I: Environment

In the environment phase of product strategy, you develop a thorough understanding of your market environment. Here, you will examine the environment from your customers’ perspectives and your own.

For the customers’ environment, you will:

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

For your own environment, you will:

  • Determine the requirements for serving your target market.
  • Identify growth drivers.
  • Forecast the total available market for your product.
  • Examine market trends and potential disruptions.

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 is even devoid of an analysis of your competitors.

“Why don’t we jump right to competitive analysis?” you may be wondering.

Here is why. A competitor is an alternate solution to the problem you have picked to solve for your target customer. Therefore, competitive analysis requires a clear understanding of your target market and the problem you intend to solve for it. It must come after you have analyzed your market environment.

Phase II: Situation

In the situation analysis product strategy development phase, you will examine your situation versus your market environment and your competitors.

For each market segment of interest, you will:

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

As the last step in the situation phase, you will determine the strategic issues that your strategy must address. Strategic issues are issues caused by conditions in the market environment or competitive landscape that will affect your business.

They might be things like:

  • You expect growth to slow in your target market.
  • A major geographical shift in demand is imminent.
  • A competitor is about to put you at a disadvantage.
  • Your toughest competitor is exiting your target market.
  • A new technology will make yours obsolete.
  • Customers are moving away from products like yours.
  • A new application for your product is gaining traction.
  • New demands on your customers create a new, unmet need.

The strategic issue examples above all have an external cause. It is an outside-in perspective combined with a significant business impact that make an issue strategic.

Phase III: Strategy

With the environmental and situational analysis complete, it is time to make product strategy decisions. First up is deciding what you want to achieve. Your objectives describe specific milestones on the road to executing your strategy. These usually include specific time and performance targets on financial measures, such as:

  • Revenue
  • Gross margin
  • Market share

With your objectives nailed down, it is time to attack the two sides of the product strategy coin:

  1. Market strategy
  2. Product strategy

Market strategy defines the customers that will buy your product. On the flip side, 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.