Segment Profitability

Product Management, Profitability, segmentation

As a product manager you look at creating extensions to meet needs of different markets. However not all segments are created equal.

While it’s good for the ego to know that our product is present in multiple segments, some segments are more profitable than others. As a product manager you need to be aware of it because otherwise some finance guy may draw up his own conclusions and shut down your product line.

There could be various ways of doing an analysis of each segment. One method that I have found easy and quick to use & keep me aware is suggested by Richard Koch in his seminal book The 80/20 Principle. If you have not read this book, I would recommend you stop doing everything else and pick it up at the Kindle store.

His suggestion is to segment your market by competitors. The segment where you face the same competitors you club together. Whenever the competitors change you account as different segment. Now fighting different types of competitors in different market segments requires bandwidth of all kinds of resources.

If you know against which competitors you win more easily and also make more money because of scale or whatever else, then as a product manager you should do everything to win even more so that the absolute profit that your product line creates grows.

On the other hand if there are segments, where you find it difficult to win against other types of competitors then you should avoid.

There was a time when I was carrying a product line of an operating system . Now I could sell services to end customers for managing their operating systems, I could sell them training on those operating systems for corporate customers and individuals who wanted to pick up the skill.

While it was easy to sell services and training to companies, when it came to selling in retail our systems were failing against dedicated retail training companies. So even though my product remained the same, in the retail market my competitors were different and I had to leave that segment. Till that time I had not read this book. Now I like to keep evaluating on regular basis how my different product lines are doing in different competitive segments.

Till next time then.

Carpe Diem!!!

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