Product Channel Fit for Product Managers
Should a Product Manager clearly define channels to acquire users during the product definition or should this be left to the marketing team in the company?
Answer to this question can be found in one statement from Peter Thiel — “Poor distribution — not product — is the number one cause of failure”.
Product Managers tend to be very focused on building the next best feature or product. While building the right product to solve a real customer need is a critical function of Product Management, Product Managers should also remember that without a cost effective way of acquiring the target customer, the product cannot be successful. This goes back to fundamental economics of running a business.
If I am running a Pizzeria and if I am spending more money to get a customer in the door than the average amount spent by the customer, I will be very soon closing my Pizzeria. However, if I am able to get the customer back very often without additional spend, I could make much more money than what I spent on advertising to get the customer in the door the very first time.
There are multiple elements to be considered in the above example:
- Am I spending too much on advertising to get a customer in the door? Are there any other cheaper ways I can get the same customer in the door?
- Am I getting the right customer into the door? If I make more money on a full size Pizza, but most of my customers tend to order a personal Pizza, my advertising may not be reaching the right audience.
- Am I getting repeat customers? If my Pizzeria is in a location with lot of offices around, am I attracting the people working in these offices for lunch?
Now, let us equate the above to a movie streaming mobile application which requires users to pay a monthly subscription fee to watch movies. Similar to the Pizzeria example, as a Product Manager, I need to consider:
- How much do I spend to get one user to install the app?
- Once user installs the app, how do I quickly convince the user to become a subscriber?
- How often does the user come back to watch more movies?
As a Product Manager of the movie streaming app, when I am making key decisions around my target user, I need to keep in mind that there will be a cost to get the user to install the app. This is referred to as CPI or Cost Per Install.
CPI varies based on the channels (TV ads, Mobile app ads, etc.). The channel becomes more expensive as other similar apps try to acquire the same user in the same channel, leading to a bidding war. A Product Manager should be well aware of the cost to acquire a user.
Once user installs the app, it should be very easy for the user to get to the Aha moment. For example: User will realize the value quickly if the user can watch previews of movies that is of interest to the user. Obtaining the right movies or content will factor into cost of running the service
Cost per user = “CPI + Operating Cost per user.”
Once the user becomes a subscriber, the Product Manager needs to ensure the user is getting enough value so the user remains a subscriber for a long time generating higher revenue for the app.
Total revenue per user = subscription fee * number of months subscribed
The value realized per user is:
Life Time Value (LTV) of the User = Total revenue per user - cost per user of the app.
The sustainability of the app. will depend on the LTV of the user. If there are enough users generating a positive LTV, the app. can reinvest some of this money to grow the user base. If the LTV is negative, you are forced to continuously pour money to run the app. eventually running out of money and shutting the app.
To summarize, it is very important for a Product Manager to understand Product channel fit as the product is defined and built instead of treating it as a separate function.
Success of a product is not only dependent on finding the right Product/Market fit but also the right Product/Channel fit.
