Serving Two Masters:Getting Out of the Planning Rut
When you map the proper relationship between market and product strategy—rather than seeing them as two documents serving two masters—you sustain competitiveness by meeting shifting customer demands.
By William F. Ott, Jr., MBA, and Rita E. Numerof, PhD
Even the most successful companies often find their annual planning efforts devolving into a rut. Where flagship products are “king,” the strategic plan tends to be a roll-up of product plans. Instead of rethinking business models and go-to-market strategies in response to a dynamic market, planning often ends up as a projection of current business into the future as a basis for establishing next year’s budget. In turbulent markets, such “business as usual” plans and strategies mask a growing risk to the future prospects of companies that see themselves as leaders who need only continue what’s worked in the past in order to succeed.
Part of the problem in this lack of robust planning and strategy lies with a common misuse and misunderstanding of the seemingly straightforward concepts of “business strategy,” “market strategy,” and “product strategy.” This misunderstanding also relates to the relationship and alignment of these three types of strategies. In Part 1 of this two-part article (July 2009) we redefined how business strategy and market strategy relate, introducing the concept of strategic planning starting with market strategy, and business strategy addressing everything a company must do to operationalize its market strategy. In Part 2, our focus is on the proper relationship of product strategy and market strategy.
When Product Strategy Is King
Many companies get their start with a breakthrough new product. They bring something new to the market which is their basis for “crashing the party,” so to speak. The prime directive that then continues to drive the company is “keeping the product pipeline full.” Product strategy is “king” in such companies, and effective product development is the key to success. In fact, when product-driven companies begin to experience declining market success, their instinct is to go back to the product strategy basics “that made us successful.” This legacy of product strategy knowledge is also the basis for the company leaders’ career success—it’s what they know, and what got them to their current position, and what they rely on to adjust to market adversity.
The problem is that markets mature and competition increases. Slavish devotion to product can induce a myopia that obscures the true mission of the company—solving customer problems. This condition occurs when, in their effort to refresh and keep plugging their lead products, companies only scratch the surface of customers’ needs and overlook the underlying forces driving their markets. If the company continues defining itself and its strategy as selling the flagship products, it runs a significant risk of being unresponsive to a declining market for its products.
As markets mature and change, assumptions that were once valid need to be revisited. The company needs to rethink:

• The customers the organization will serve
• The product or service value the organization will provide
• The differentiation that explains why the customer will choose your organization over your competitors

Any planning and strategy should start with why the organization exists. Who we will serve and how we will serve them should be the basis for all work activity and investment. Anything not aligned with the why of the company is wasted resource. This is the essence of market strategy. When markets are in a state of flux, new and different types of competitors are emerging. Different buying decision makers are asserting themselves. In such turbulent markets, it is particularly important to start planning with market strategy, rethinking assumptions about your customers, your products, and your role in the market.
Product Strategy and Customer Mission
Once your market strategy has defined your intended customers and the value that will attract them, your product strategy has to spell out what products you will develop and manufacture to provide the value that your targeted customers need. Your product strategy translates your customer mission into tangible, revenue-generating products at acceptable margins.
Your product strategy should temper your market strategy. There is no point targeting customers for value that you cannot provide. However, product strategy should not be allowed to restrict market strategy. This is a planning behavior pattern that typifies many companies in which product is “king.” Such companies have an inward focus on “what we’re good at making” and, in effect, lob this over the wall to the sales organization to find customers for what we make. The fact that the market is changing, with increasing and more complex demands and new competitors racing to satisfy them, is not a factor in a product-driven approach to strategy. The usual result is declining sales, shrinking margins, and finger-pointing between the sales organization and product management.
Product-Driven Strategy in Dynamic Markets
In the scenario described above, declining results are an indication of declining differentiation. As markets mature, there are more choices, more complex needs, different value propositions, and fragmentation of customers into smaller segments with different needs. The more dynamic the market, the more a company needs to continually examine and redefine target customer segments, needs, and differentiated value propositions. If a company continues defining itself and its strategy as selling the flagship products, it is being unresponsive to shifting needs and, in effect, is chasing a declining market being eroded by more nimble competitors.
One consequence of a steady loss of differentiation from competitors is a sales force that is unable to compete on any basis other than price. Once a company starts down this slippery slope, it is tempting for others to follow. This results in an increasingly desperate market scenario in which marginally differentiated products battle for market share solely based on price and the entire industry falls into a death spiral toward commoditization. Everyone ends up working harder for less margin and static market share.
Another consequence of product-driven strategy is that companies find it extremely difficult to determine which of their legacy products are obsolete and should no longer receive scarce resources. Product development resources get deployed tweaking legacy product lines, leaving little to be focused on breakthrough new products that can own market segments by addressing unmet needs.
When product strategy is “king,” sales organizations function mostly as product transactional agents. In a world of undifferentiated value and competition based on price, sales reps add minimal consultative value to the product. Yet they are a very expensive resource to be deployed solely to manage product transactions. In this scenario there is no market strategy, and marketing is no more than marketing communication tactics to support sales reps—who aren’t providing enough for what you’re paying them. The result is a commercial model that is increasingly expensive and decreasingly effective.
The winners in this market truly integrate market strategy with product and sales strategy. The sales organization needs to develop diagnostic competencies to look through the customers and identify unmet needs. The marketing organization leads the company in building the capabilities that will be required to meet those needs (which we described as business strategy in Part 1 of this article). And then the sales organization must translate those capabilities into solutions that provide real value to customers. Both functions, in harmony, are critical to the conceptualization, configuration, and delivery of the company’s capabilities to meet customer needs better than competitors do.
Summary
In dynamic markets, planning has to start with market strategy, as a company rethinks which customers it is competing for and how it will differentiate itself to win those customers.
Once market strategy is clear, product strategy can be developed to produce the differentiated value the company must provide to operationalize its market strategy.
Product development in a silo is not a goal, it is a means of achieving the business goal of earning and serving the customers the company has targeted. Product strategy must make sense in the context of marketing strategy.
This is an inversion of thinking for many companies, which still define themselves by the products they are known for today. One need only to read the daily headlines to see that there are new and unmet needs for clinical and economic value as collective healthcare costs reach the breaking point. Assuming “business as usual” will continue to work in this market is a dangerous game. Your planning and strategy need to start with your market strategy based on a reexamination of who your company will serve and the differentiated value you will provide. Then you can develop the most successful product strategy to bring your market strategy to life.
William F. Ott, Jr., MBA, is a Senior Consultant and Rita E. Numerof, PhD, is President of Numerof & Associates in St. Louis, MO. You can reach them at 314-997-1587 or by email at info@nai-consulting.com.