Product Management concepts for a consumer company

B2B, differentiation, ideal customer, Marketing, Product Management, Profitability, Risks, single target market

When you see the large venture capital backed companies burning cash month on month you wonder if the general concepts of Product Management / Marketing are valid, these days, for a consumer facing company.

There is one dynamic to keep in mind – the principles of Product Management / Marketing have not changed, what’s changed is the availability of money at extremely low rates – in most developed countries the interest rates are hovering at or less than 1% on bank deposit . In Japan just a few months back interest rates had actually gone negative.

If you keep this in mind where cost of money is so low, people are looking for ways to get a higher return on their investment so the propensity to take risk is higher. If the cost of money would be say at about 5% on bank deposits, then the propensity to put in risk capital would be different. That’s also one of the key reasons that the stock markets are at a record high even though countries have been facing lockdowns.

Now inspite of this these VC based companies are generally not stupid. The VCs do put in checks and balances to ensure their money does not sink.

So the burning of cash is part of a strategy to acquire customers. This would only succeed if the life time value of a customer is known. This principle is true for any kind of product or service you get into. If you know the life time value of a customer then you can actually buy customers because you know that if they are happy they will buy more often from you and also refer others to you.

The second is the convenience factor / inertia factor. Once you have given some customer a good service and they get used to the convenience of working with you, they will generally end up buying from you because the cost of getting another vendor is quite high. In case of B2B customers the number of processes to complete to get a new vendor empanelled are so large that procurement teams want to limit their vendors. In case of consumer products, its so difficult to understand another new “app” to order items. So you go ahead and order again on an “amazon” just because your card is already loaded and you can buy without hassle.

The other factor is critical volume . In the “app” based consumer companies the network effect plays a big role. So the larger the customers and vendors on a platform they feed into each other to create a positive snowball effect. Due to this in any market you cannot have more than two “amazon” or more than two “uber” kind of companies.

In B2B business also something similar happens with critical volume. If you look at it about 25-30 years back there were at least 5-6 prominent ERP vendors including SAP, Oracle Financials, MFG Pro etc. today there are only 2 primary companies in this arena. This is because based on the number of installations, the number of technical people needed goes up, so do salaries so more people train themselves to avail this opportunity. Slowly the availability of trained manpower becomes one of the key reasons to choose a product.

So in my opinion the principles of product management / marketing don’t change. The methods / platforms for delivering the product / service may change as technology changes. In my next few posts I will cover other principles like Single Target Market, Ideal Customer profile etc.

I would love to know if any of you thinks otherwise.

Till next time then.

Carpe Diem!!!

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!!!