The start of any product strategy is first to understand the needs and wants of your target market. Once you know your market needs and wants, you can create a product that meets those needs and wants. Additionally, you'll need to have a clear vision for your product, as well as a roadmap for how you plan to bring your product to market. Finally, you'll also need to establish key metrics to track the success of your product.
What is Product Strategy?
Product strategy is the overall plan for developing and marketing a product. It includes the product's vision, mission, and objectives and the strategies for achieving them.
One of the most critical aspects of product strategy is market research. You need to understand your target market, what they want, and how to best reach them. You will need to have a clear idea of your product's features and benefits and how it differs from existing products on the market.
Once you have a solid product strategy in place, you can start marketing your product and bringing it to market. Having a well-defined strategy will help you make informed decisions about allocating your resources and growing your business.
Why is Product Strategy Important?
Product strategy is important because it helps a company determine what products to develop and how to position them in the market. In addition, a well-developed product strategy can help a company achieve its goals and objectives.
Your strategy includes key decision-making factors about how a company will introduce, price, and market its products. For example, the strength of a well-devised product strategy can positively affect a company's revenue-generating ability and brand reputation.
A good product strategy provides direction for your entire business. In particular, it can help you gain clarity about which markets to compete in and whether to launch new products or retain existing ones. But knowing what makes a great product strategy is easier said than done – especially since there are so many different approaches.
Even if you do come up with one, it doesn't guarantee success.
Bad Product Strategy
A bad product strategy is disconnected from customer needs and values - if you don't know what your customers want, then there's no way that you'll be able to provide it for them. Failure to meet market demand - if people aren't interested in buying and using your product, it doesn't matter how good your development processes are. Businesses often grow by diversifying into new areas of opportunity but not every opportunity should be pursued just because it looks good, especially if it does not play to the core business strengths.
Good product strategies don't just focus on your core strengths and value proposition; they can also avoid any possible issues before they become a problem. For example, you might find that by avoiding one type of customer segment, you could prevent yourself from having to deal with lots of returns, complaints, or legal issues.
Product Strategy Framework: How to Define Your Product Strategy
A strong product strategy is well-aligned with the company's overall strategy and meets your target market's needs. Your strategy must be clear, concise, and easy to understand to be successfully executed. The product strategy should also be achievable and realistic, and it should take into account the company's resources and capabilities.
It's the glue that holds all work together and provides a common framework for employees, creating alignment between different teams within an organization. Everyone from marketing, engineering, and leadership should understand what the company is trying to accomplish.
A great product strategy is a playbook for the entire company, and it includes the following elements:
- Strategic pillars
- Ideal customer profile
- Jobs to be done, or use cases
- Channel and positioning strategy
- Measures of success
- Bets to make
7 Powers: The Foundation of Business Strategy
In the book 7 Powers by Hamilton Helmer, he discusses making a company enduringly valuable. It is based on the idea of power, which is the potential for differential returns. The book outlines how to achieve power and use it to make strategic decisions.
Economies of Scale
Economies of scale are reductions in unit costs due to an increase in the scale of production. They arise from the increased utilization of capital and labor, the spreading of fixed costs over a larger output, and the learning that comes with experience. If you can produce something cheaply, you should benefit enormously from economies of scale.
Network effects are positive externalities that arise when one individual's use of a good or service increases the benefits enjoyed by other individuals. Network effects are important in tech businesses because they can make a product more valuable as more people use it.
In the context of telecommunications and information technology, network effects arise when the number of users of a communications network or service increases the value of that network or service to all users.
The classic example of a network effect is the telephone. The more people who have telephones, the more valuable the telephone network becomes to each individual because the telephone network allows individuals to communicate with more people.
Other examples of goods or services that exhibit network effects include:
- Social networking websites (Facebook, Twitter, LinkedIn)
- Online marketplaces (eBay, Amazon, Alibaba)
- File-sharing platforms (BitTorrent, Dropbox, iCloud)
Product positioning is the process of designing the marketing mix for a product such that it occupies a distinct place in the minds of consumers.
Counter-positioning creates a brand and business model that competitors have conflicting incentives with, preventing them from competing effectively.
Switching costs are incurred when a customer switches from one product to another. These costs can include the cost of retraining employees, the cost of lost productivity while employees are retrained, and the cost of lost customers. If these costs are high enough, it may prevent customers from switching to a competitor's product.
Brands are one of the most powerful and durable kinds of moats, but take the most time to build, are complex, and require thoughtful attention.
Brand building is important to product strategy because it can help a product become more successful by connecting with customers. A strong brand can help a product stand out in a competitive market and makes it easier for customers to trust and recommend your product.
A company corners a resource when it somehow gains preferential access to it. Resources include intellectual property, human capital, physical resources, distribution channels, and access to capital.
Process power is the least obvious power, which can be extremely difficult to replicate. The process is deeply embedded inside the organization and its culture and may not be documented in any form. It goes beyond the steps to execute and into principles and values.
Building the moat
The key to making a company enduringly valuable is establishing power in your business's Origination, Take-Off, or Stability phases. It is unlikely that a business will develop a power moat once the business is in decline.
A product flywheel is a model for product strategy that businesses need to make sense of and evaluate the digital experiences and customer behaviors that lead to long-term value, and ultimately, create a sustainable competitive advantage. Your flywheel contains key inputs that are leading indicators that measure success.
It requires a lot of energy and momentum to get it started, but it's very difficult to stop once it's up and running. So the key to creating a successful product flywheel is balance. You need to have a product that people want, but you also need to quickly and efficiently turn that demand into revenue.
A product flywheel is a framework that helps businesses understand how their products and services work together to create value for their customers. It's a way of thinking about your product strategy that considers how customers interact with your products and how those interactions create value for them.
The product flywheel is a model which identifies the categories where your product provides value to your customers, making it easier to improve and invest in these categories. It helps product teams identify the motions of their flywheels through experimentation and data-informed product decisions. A clear and strong product strategy aligns teams across the company, focusing on generating unique insights for your business as you ship and learn. Product teams must balance discovery and delivery in parallel, integrating customer insights regularly as they launch new experiments and features.
B2C companies appeal directly to one buyer enabling short sales cycles with the potential of a high volume of customers. The core of any B2C business is user growth: more people using the product, resulting in more potential for attention, engagement, or transaction. Product teams will need to identify the leading behaviors that signal customer retention and conversion.
Rewarding desired actions and decreasing friction accelerates the B2C flywheel.
The B2B flywheel is all about creating a virtuous circle of growth and profitability for the company. It starts with identifying and targeting business customers and then providing a valuable service essential to their operations. Continued growth is fueled by word-of-mouth referrals and expanding usage as the company grows. And finally, profitability comes from upsells and expansion into new markets and customers.
The objective of a B2B SaaS flywheel is to figure out how to get a business customer to integrate their product into critical operations. It may begin with one department, but the aim is to gain more users and departments, expanding with the business (i.e., land and expand).
The goal is to create a flywheel of customer loyalty and buying, leading to more sales and profits. A product flywheel is important because it can help a company increase its sales and profits. There is no one-size-fits-all flywheel model, as the flywheel will vary from business to business and must consider the company's products, services, and market. Additionally, it's important to think about what motivates customers to buy from a business.
Your product strategy should answer the following questions:
- What are the key promises your product makes to different customer personas?
- How does your company need to grow and scale in different areas to support the product?
- What is the competitive landscape, and how does your product compare?
The flywheel concept can be applied to many different aspects of business; we'll focus specifically on how teams can use it to improve product development. A product flywheel is about understanding which digital experiences and customer behaviors lead to long-term value.
The Power of Product Strategy
A strong product strategy is required to link the company's goals with the product. Businesses employ various techniques based on one another to ensure that the team is aligned. An effective product strategy entails knowing where it falls within the high-level corporate vision and roadmap plans.
The product strategy builds upon employee passion for the company mission, grounding it in reality with tactics and success measures. After defining your product strategy and aligning product teams, you'll move to plan themes, objectives, initiatives, and the execution plan. Initiatives are merely projects linked to the strategic themes or objectives you derive from your product's goals that are placed on your roadmap. Individual teams must break initiatives down into actionable tasks to achieve product objectives.
A corporate vision is a high-level view of what the company wants to be, while a product vision statement is often a short, sweet, and static statement about what the product aims to achieve.
Writing a great product vision statement will take several iterations, but it's worth the time invested in getting it right.
Product vision defines what a product should be and how it should help customers. It is a high-level statement that should answer the question, "What are we trying to achieve with this product?" It is created by determining what the product should do for customers, what features it should have, and what benefits it should provide.
The vision or mission statement should be easy to remember and understand, not tactical, and aspirational while remaining vague.
To be a successful product leader, you need to go from depth in one type of product work to breadth across multiple types of product work. Your skills evolve from influencing specific product outcomes to a broader product strategy. To do this, you need to understand what a great product strategy looks like and what it doesn't look like. A great product strategy is targeted, has visibility into the future, is fluently communicated throughout the company, and is compounding.
Product leaders should focus on features that provide ongoing value over time to strengthen user habits, create higher user satisfaction, and promote longer user retention.
To determine the best release method for your feature, you want to look at the degree of ambiguity the feature has.
- Experiment – High ambiguity features should be released as an experiment.
- Phased Release – Low ambiguity features should be released in phases.
Features in the middle should be released as a minimum viable feature. Regardless of the launch method selected, it's important to set your team up for success by evaluating the feature launch plan.
The following are the four stages of putting your product strategy into action:
- Identifying major goals: determining the key strategic objectives of your company that you can influence as a product leader.
- Mapping strategic goals into actual product development: generating and fine-tuning product concept ideas supporting your strategic objectives.
- Developing a product roadmap: sequencing of product discovery and development based on its degree of impact and urgency.
- Communicating and iterating on your product strategy: aligning the strategy with your leadership, team, and customers; and fine-tuning it due to internal and external changes.
Product/Market Expansion Strategy
Product/market fit expansion strategy focuses on adding new value props to our product strategy in two different ways: adapting products to new complementary markets and adding new complementary products. Growth and feature strategy can help expand a product's value prop, but both have natural limitations that eventually lead to diminishing returns and ultimately a ceiling on growth.
Saturation is a barrier to the continued expansion of a product based on its current product-market fit. However, saturation is also something every successful company will navigate at some point. There are three types of saturation: Market (market captured reaches a natural ceiling), product (product becomes fully optimized for its use case), and PMF (decline in existing PMF). Product market fit expansion is most valuable when building off your existing product-market fit. Once saturation has started to happen, your ability to do that is much weaker. For this reason, product leaders need to identify and evaluate new product-market fit expansion opportunities proactively.
Product/market fit is something that can degrade in your product and/or market over time. This requires that product leaders continuously evaluate which investments to expand and strengthen their product-market fit.
Product Growth Strategy
A good growth strategy connects acquisition, retention, and monetization strategies to collectively expand distribution. Improving your growth strategy over the long term enhances your ability to launch successful features and products into new markets. You also need to think about growth in terms of growth loops instead of simply a flow. Brian Balfour, a leading growth expert, defines growth loops as closed systems where the inputs, through some sequence of actions, generate an output that is directly reinvested back into the system.
Knowing the categories and subcategories of growth loops will help you identify which types of loops exist within your product, how to improve them, and which new opportunities might exist.
There are three primary ways to create and implement your acquisition strategy:
- Optimizing steps within the loop.
- Adding a new loop to your overall growth strategy.
- Leveraging non-scalable spikes to get a new loop off the ground or feed existing loops.
To optimize your acquisition loop, remove bad friction preventing the loop from compounding faster, add good friction to reinforce its quality and effectiveness over time, and increase the throughput of a step.
To improve retention, you need to improve activation, engagement, or resurrection. And to improve monetization, you need to think about where your monetization model falls on the monetization friction spectrum and how to connect it with the consumer view and the rest of your growth model.
To think about retention from first principles for your product, start by defining your use cases. Then, the elements of your use case inform the definition and evaluation of our retention metric.
Defining a good retention metric requires clarity on:
- Who (is using the product or feature)
- Frequency (the natural rate of problem/use)
- Desired Outcome (a qualitative measure of success)
Monetization is hard because it's a critical part of your overall growth strategy. An effective monetization model can help drive your acquisition and retention strategies, while an ineffective monetization model can completely derail them.
Product leaders need to understand what levers they can change to create the right amount of friction in the right places to maximize value capture while minimizing disruption to these retention and acquisition loops.
Leaders must understand four customer states for optimizing monetization strategies:
- Potential Customers
- Existing Healthy Customers
- At-Risk Customers
- Churned Customers
Each of these customer types has a different set of drivers for revenue growth. For potential customers, you want to move them from the potential customer state to the existing healthy customer state. For existing healthy customers, your objective is to expand revenue. For at-risk customers, you want to retain these customers and transition them back to an existing healthy customer state. For churned customers, you want to resurrect them back into the existing healthy customer state.
Improving Existing Products
The best way to improve an existing product will vary depending on the product and the company's specific needs and goals.
However, some tips on how to successfully iterate on a product include:
- Establish a clear goal for each iteration – It's important to have a specific goal in mind for each iteration of a product, as this will help ensure that each change is made with a specific purpose in mind. A clear goal will also help ensure that the team is focused and that the product is constantly evolving to meet the company's needs.
- Make small, incremental changes – When iterating on a product, it's important to make small, incremental changes instead of large, sweeping changes. Incremental changes will help to ensure that the product is constantly evolving and that teams can easily fix any potential problems or issues.
- Test and gather feedback from users – It's essential to test each product iteration with actual users to get feedback on how the product is performing. Feedback will help ensure that the product meets users' needs and that any changes made help improve the product.
Developing Your Strategy Framework
There are many product strategy frameworks out there, but the key thing is to find one that works for you and your team and to use it to define your company's product strategy.
Strategies for Winning
Businesses and products win by delighting customers and owning their category. Generally speaking, this is accomplished through creating your moat (see 7 Powers) and accelerating your growth (see flywheel). To carve your moat and get big, you need to know where to place your bets.
If developing your product strategy is tough, try the bottom-up approach to reverse engineer your implicit strategy. First, create a list of initiatives you believe are necessary, and then organize them into categories. These categories are most likely your high-level product strategies.