TMitTI 1
Timetable
20.9. Introduction, Sakari Luukkainen
27.9. Solution Business, Case Sun Microsystems, Topi Talonen
4.10. Market Dynamics of Telecom Industry, Sakari Luukkainen
11.10. Standardization Strategy, Sakari Luukkainen
18.10. Case GSM, Sakari Luukkainen
25.10. R & D Management, Sakari Luukkainen
1.11. Linking Business Thinking with Res., Antti-Jussi Suominen
8.11. Product Strategy, Sakari Luukkainen
15.11. Platform Leadership, Eino Kivisaari
22.11. Case Nokia Symbian Product Platforms, Lea Lahti
29.11 Technology Foresight, Sakari Luukkainen
14.12. Examination
© Sakari Luukkainen
TMitTI 2
Michael E. McGrath:
Product Strategy
for High Technolgy
Companies
• Amazon et al ~35 €
© Sakari Luukkainen
TMitTI 3
Content
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Vision and Strategy
Product Platform Strategy
Product Line Strategy
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Leveraged Expansion
Sustained Differentiation
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Product Pricing
First-to-Market vs. Fast-Follower Strategy
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Global Product Strategy
Cannibalization
Growth Through Acquisition
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Process of Product Strategy
© Sakari Luukkainen
TMitTI 4
Strategic Vision
• Everything in a company should be done for
purpose, which is to make money, to make
money company needs products and/or
services, to know what they are there should be
a direction which is defined in a strategic vision
• Where does company want to go, how will it
get there, why will it be successful?
• Good strategic vision has focus, clarity,
completeness, feasability
© Sakari Luukkainen
TMitTI 5
How Vision Guides Strategy
• Directing technology strategy
• Defining core competence
• Focusing the efforts of identifying new product
opportunities
• Establishing a framework for product platform
strategy
• Setting expectations for customers, employees
and investors
© Sakari Luukkainen
TMitTI 6
Product Platform Strategy
• Platform is an architecture of the common
elements implemented across a range of
products
• Key elements in the platform represent defining
technology
• Dictates life cycle, capabilities, limitations
• Based on core competence
• Difficult to copy by competitors
• The choice if defining technology is perhaps
the most critical strategic decision that a hitech company makes
© Sakari Luukkainen
TMitTI 7
Product Platforms
Product 3
Segment A
Product 1B
Product 1C
Product 1
Product 1A
Product 2
Product 5
Unique
segmenting
Segment B elements,
common
channel
Segment C elements
Common platform
Element A
Defining and
supporting
technology
elements
Element B
Element C
© Sakari Luukkainen
TMitTI 8
Benefits of Platform Strategy
• Focuses management on key decisions at the
right time
• Enables rapid & consistent product development
• Encourages a long-term view on product strategy
• Dominant design position achievement
• Resource and channel synergies – parallel cost
and differentiation advantage
• Can leverage operational efficiencies
• R&D costs – reuse
• Manufacturing costs – economies of scale
• Makes marketing and support easier –
segmentation and channel reuse
–> more value by decreasing unit cost
© Sakari Luukkainen
TMitTI 9
Product Line Strategy
• A time-phased plan for developing products from a
common platform, each product targeting a specific
market segment
• The true potential of a platform strategy is extracted
with an effective product line strategy
• Covers all primary targeted market segments
• Each product offering should be sufficiently focused
• Time-phased scheduling / sequencing
– all products cannot be released simultaneously
– priorization
• Similar products / product lines are coordinated
– To avoid rework and confusion in marketing
and among customers
© Sakari Luukkainen
TMitTI 10
Segmenting Products
• Based on what customers are trying to do with
product or who is customer
• Based on differentiation
• High-end version first and then low-end by
subtracting value from it
• New features first to high-end, then diffuse to lowend as competitive upgrades
• Three versions is a good default choice, most
revenue from the middle version
• Creation of metrics for continuous evaluation of
product profitability
© Sakari Luukkainen
TMitTI 11
Leveraged Expansion
Case studies show that:
The success of expansions to new product markets
depends highly on ability to leverage:
– Existing market knowledge
– Technical skills
© Sakari Luukkainen
TMitTI 12
Leveraged Expansion (contd.)
Market
Leverage
Low/None
New
Market
Diversification
Leveraged Expansion Strategies
Related
Market
Moderate
New Segments
Existing Platform Management
Current
Market
High
Moderate
Low/None
Product/Technology Leverage
Existing
Product
Platform
Core
Technology
© Sakari Luukkainen
Current
Skills
New
Skills
TMitTI 13
Sustained Differentiation
• ICT products cost of production is dominated by the “firstcopy R&D costs”, and cost of distribution is falling
• This cost structure leads to substantial economies of scale
without capacity constraints
• Competitive forces tend to move the price toward
marginal cost
• A vector of differentiation enables sustained competitive
product differentiation by continuous incremental innovation
along as specific path with distinct benefit or value proposition
• Positions, segments, evolves through life cycle
• Differentiation as vector not point, product roadmap
© Sakari Luukkainen
TMitTI 14
Relative positioning
© Sakari Luukkainen
TMitTI 15
High-Tech Differentiation
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Unique features
Measurable benefits
Ease of use
Improved productivity
Protecting the customer´s investment
Lower cost of product failure
Higher-performance products
Unique fundamental capabilities
Design
Standards
Total solutions
Total cost of ownership
Brand
Convenience
© Sakari Luukkainen
TMitTI 16
Risks of differentiation
• Not sustained
• Insufficient proximity to price
• Customer preferences misunderstood
• High cost
• Unfocus
• Subsegmenting the market
• Emerging technology
• Perception of differentiation
© Sakari Luukkainen
TMitTI 17
Product Pricing
Offensive
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Establish price leadership as the basis for competing
Penetration pricing to increase the market
Experience-curve pricing to discourage competition
Compete of price/performance
Promotional discounting
Defensive
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Adapt to maintain highest competitive price
Use price to segment the market
Skim pricing
Value-based pricing
Redirect product line sales by bait-and-switch pricing
© Sakari Luukkainen
TMitTI 18
Product Pricing
Risks of offensive pricing
• price leadership not sustainable
• price war
• no supporting cost advantage
Sorces of cost advantage
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design
economies of scale
supply chain
superior techology
R&D process
global scale
© Sakari Luukkainen
TMitTI 19
Advantages of Being First to Market
• Market share advantage
• Earlier experience
• Influence to standards
© Sakari Luukkainen
TMitTI 20
Advantages of Being the Fastest
• Nearer in time to the market
• Get ahead and stay ahead
• Can user newer technology
© Sakari Luukkainen
TMitTI 21
First-to-Market Strategies
•Be the first to upgrade products with new
technology
• Respond rapidly to market changes
• Introduce continual product innovation
• Be the first to create a new market
Fast-Follower Strategies
•Wait until a new market is clarified
•Reverse-engineer successful competitive
product
© Sakari Luukkainen
TMitTI 22
Risks of Timing Strategies
• Entering the market prematurely
• Compressing product lifecycles
• Relying on an inferior product development
process
© Sakari Luukkainen
TMitTI 23
Global Product Strategies
• Develop products uniquely for country markets
• Leverage country-specific product
• Customize global product platform
• Develop universal global product
© Sakari Luukkainen
TMitTI 24
Cannibalization
Causes of Unfavorable Cannibalization
• New product creates less profits
• New product requires siginificant retooling
• Greater technical risks
Offensive Strategies
• Attack market leader
• Introduce new technology first
Defensive Strategies
• Cannibalize yourself before competitors
• Continue as technology leader
• Pricing
• Specific market segments
© Sakari Luukkainen
TMitTI 25
Growth through Acquisition
• Acquire product platform to expand into new
market
• Acquire technology and technucal skills to
develop new product platform
• Acquire market and channel expertise to enter
new market
• Acquire a competitor to strengthen a current
market position
• Acquire a company with the capability to diversify
into new market
© Sakari Luukkainen
TMitTI 26
Strategic Balance Trade-offs
• Focus vs. diversification
• Short vs. long term
• Current vs. new platform
• One business unit vs. another
• Research vs. development
• High vs. low risk
• Financial return
© Sakari Luukkainen
TMitTI 27
Process of Product Strategy
© Sakari Luukkainen
TMitTI 28
Product Portfolio Management
High
Star
Question Mark
Market
growth
Cash cow
Dog
Low
High
Low
Relative market
share
Source: Boston Consulting Group
© Sakari Luukkainen
TMitTI 29
Principal Factors of Product Success
A study on 158 product launches (50% failed, 50% succeeded):
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The developing organization, through in-depth understanding
of the customers and the marketplace, introduces a product
with a high performance-to-cost ratio.
The create, make, and market functions are well coordinated
and interfaced.
The product provides a high contribution margin to the firm.
The new product benefits significantly from the existing
technological and marketing strengths of the developing
business units.
The developing organization is proficient in marketing and
commits a significant amount of its resources to selling and
promoting the product.
The R&D process is well planned and coordinated.
There is a high level of management support for the product
from the product conception stage to its launch into the
market.
The product is an early entrant.
Source: Maidique & Zirger (Stanford University, 1984)
© Sakari Luukkainen