Entries from February 2009 ↓

The next section of this article, “Strategy Rests on Unique Activities,” leads us to define strategic positioning and also the framework of what is strategy.

But the essence of strategy is in the activities – choosing to perform activities differently or to perform different activities than rivals. Otherwise, a strategy is nothing more than a marketing slogan that will not withstand competition.

In an effort to define strategic positioning, Porter looks at three distinct sources which are not mutually exclusive and often overlap.

Strategic positions can be based on customers’ needs, accessibility, or the variety of a company’s products or services.

1. Variety-based positioning: Producing a subset of an industry’s products or services and offering it to an overall market. For example, Jiffy Lube offer a single service, oil changes. They have chosen to focus on this single product and offer it to a large market.
2. Needs-based positioning: Serving most or all of the needs of a particular group of customers. IKEA offers their price-sensitive customers, who have wide furnishing needs, a complete set of furnishing products at a more cost effective price than traditional home furnishing retailers.
3. Access-based positioning: Serving a subset of customers that have been defined by access either geography or scale. For example, Carmike Cinemas operate cinemas in small towns.

Using the construct that you need a tailored set of activities to identify your position, he goes on to define strategy as…

Strategy is the creation of a unique and valuable position, involving a different set of activities.

The article gives some great examples at how various companies, like Southwest Airlines have identified their strategic position and have aligned and execute the activities required to achieve that position.

The next section, “A Sustainable Strategic Position Requires Trade-offs,” will help us understand the trade-offs that need to be considered to be sustainable.

Image source: Teaching and Developing Online.

So quickly, you have to convey the following five points:

1. The success statement for your strategy
2. How your product will achieve success
3. What you (and a team) will do to achieve success
4. The plan to achieve success
5. And most importantly… How your strategy is aligned with the corporate strategy

With the assumption you are responding to a question that leads you to describe the mission for your product this year. Your response will flow something like this…

Everything is going according to plan. All our strategies have been defined and are ready for execution. We are working on achieving two million in revenue this year by solving world hunger. The product team has planned the 2.0 release, development is underway and it will be generally available in February. Full commercialization will be complete in March. To achieve our plan for revenue in May, the Sales team will be trained and begin to execute their strategy in April. Our release will improve the quality of life and provide a return on investment to our investors. Lastly, we continue to monitor market trends for future plans and conditions that may alter our current plans.

I think it is important that the CEO walks away knowing that you have a strategy, a team that is executing their strategies and that it is all aligned with the company strategy. Ideally, you want to hear a “tell me more” type response.

Thoughts?

Image source: Hubpages Inc. How to set goals in every aspect of life!

Let’s evaluate Rodriguez ’s strategy and see if it makes sense. His mission was “to perform, and perform at a high level every day.” His vision was to deliver “the weight of the world” (due to his $252 million contract) which I translate into winning the World Series. His value network was the Texas Rangers and his fans. For better or worse, he had a strategy and in case you missed that announcement he admitted to using performance-enhancing drugs. Also the three years he used steroids, 2001 – 2003, he was with the Texas Rangers.

So while he was with the Texas Rangers, was he successful in executing his strategy? Let’s review…

His mission was to perform at a high level every day. In the three years he was with the Rangers, he played nearly every game and statistically was a top five player each year. In 2003 he won the American League Most Valuable Player. You cannot do much better than that, can you? Pretty successful, I think.

It starts to fall down from there. His vision was to win the World Series and that didn’t happen. His value network, the Texas Rangers, finished dead last. Actually, they finished dead last every year. Not much value to his network. As for his fans, I suspect he and the team had less in 2003 than in 2001 (due to the losing seasons and the subsequent trade to the Yankees).

I think Rodriguez’s intentions were well aligned and the amount of pressure he felt was no doubt enormous. At the end of the day he achieved his mission, but the vision and value were not delivered. Therefore, I think he failed to execute his strategy. (See side note #1.)

As Product Managers, it is important to demonstrate that the value your product is contributing is aligned with the value the organization is requiring. If not, then something needs correction.

What Rodriguez did right was align his strategy to the team’s strategy so that they were moving together towards the same vision. However, the value he provided did not translate into the value the team required. In the end, the team determined that Rodriguez was not helping the team succeed and after 3 years reset the 10 year plan by trading him for new players. (In 2004, the Rangers were moderately more successful.)

Side note #1: One could argue, I suppose, that the team’s failure was beyond his control. Maybe. One could argue that the team also was very profitable (were they?) over those three years and that Rodriguez contributed directly to that profit. With those thoughts, maybe it was all successful. You can debate that up with the owner, Tom Hicks. I am sticking with the idea that success is winning the World Series.

Side note #2: For the purposes of this post, the fact that Rodriguez used steroids is irrelevant but it should be noted that it didn’t help him or the team be successful. It should also be noted, that from a long-term perspective this will come back to haunt him achieve some personal goals. The lesson here is that as you develop a strategy it is best to not develop this strategy in isolation.

And I apologize for the baseball reference, but it has been a long winter and it beats another sock analogy.

Image source: ESPN Internet Ventures

Porter goes on to say that operational effectiveness is necessary but not sufficient and he describes how a company can be successful if it establishes a difference that it can preserve. Being a cost leader, or operationally efficient, is one way to differentiate from competitors. However, it rarely leads to gains for anyone. Customers get marginal value increases (if any) and you achieve shrinking profits as competitive pressures drive your prices lower. Efficiencies are often easy to imitate.

From a product management perspective, you do not have direct control over many of the cost centers for your product. However, a good product manager will be able to identify the high-value features and avoid the costly ‘mistake’ features. A product strategy and high-value features will justify current price levels and contribute to operational effectiveness (by reducing R&D waste) and lead to a competitive advantage.

Ends up you can control the profit of your product after all.

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After, I was left wondering about developing a pricing strategy. Apparently there are at least 17 different pricing strategies including cost-plus, premium, target and loss leader. Pick one and win right?

Not so fast. Your pricing strategy is a subset of your product strategy which is a subset of the corporate strategy. Therefore your pricing strategy needs to be aligned with your product strategy.

Let’s assume you have a product strategy to grow your user-base to one million users by December. What sort of pricing strategy do you need to achieve that? Maybe your product is free under a market penetration pricing strategy. Now assume you are looking to break-even this year as well as reach one million users. Maybe a cost-plus strategy is the right strategy, where plus equals zero to maintain a low price?

This is where it gets tricky. December isn’t really considered a long-term strategy. Add in another layer to the scenario by stating in year two (i.e. next year, which is always a lot closer than you think) that you want to achieve $1 million in profit. Now you need to determine whether your users will tolerate a price increase.

Your current pricing strategy has to support your mission. You have to be mindful that the price you start with may prohibit future price changes and will handcuff your longer-term product strategies. The rational (or irrational) behavior of people may prohibit price increases because they already have slotted your product into a value threshold.

I know what you are thinking, more features equals more value to the user therefore I am entitled to increase the price to reflect this. Think about that. Perhaps, they are expecting more features for the price they are paying today. Software as a service customer inherently expect free upgrades.

The other factor to consider is your technology. For example, are you able to slice your product into a tiered offering. Will it be easy enough for people to upgrade themselves to the pricier… I mean enhanced versions? Will it be compelling enough for people to upgrade themselves? My vision here, a situation where you have a free version today and a not-free version tomorrow. Your longer-term strategy may depend on people moving to the not-free version but your free version may prohibit that just because it is free. Does your product architecture support your pricing strategy?

No question, there is a science to deciding what the price is today. But equally important, is deciding what the price is today, that doesn’t preclude you from your mission. Think this through. Strategy alignment.

The Accidental Product Manager provides another perspective on pricing with the context of the same book. Read the post here: How Product Managers Price Products For Irrational Customers.

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