What is product strategy?
I wrote about Corporate Strategy and Business Strategy in prior articles, hence I encourage you to read those first before looking at Product Strategy. Product strategy relies a lot and has to follow the strategies at corporate and business levels.
Product strategy defines what value to create for what target market. It could be same or existing value for same or existing target market. These approaches result in different strategy types. The ultimate goal is to achieve product market fit with the value proposition for that respective target market. The value to be created is usually different or evolving according to the product life cycle and industry life cycle, and it has to be aligned with the business and corporate strategies.
For example, if you enter a mature market with a new product and your business strategy is to differentiate, then the product strategy should look for unique value to create for customers, value that is not addressed by the competitors. The focus shouldn’t be for example on entering the market with a similar copy-cat product (same features) to a smaller segment of customers — since this doesn’t aligned with the business strategy. More to come on this…
What Product Strategy is NOT?
Product Strategy is Not a Metric
I really have to emphasize on this as product strategy is often expressed as a metric to improve. As an example, “let’s improve CVR” or “our strategy is to improve DAU by 20% by this quarter”. Not only this is not product strategy, but also it can incentives product managers to build bad products that are optimized for driving those metrics up short-term at the expense of long-term customer experience degradation. For example, to increase DAU you might have coupons that drive people on your site but they never return — they were there just for the money and they never saw a value in your product afterwards.
Product strategy needs to talk about what value the product brings to the users, about how is the product solving for a problem that a specific market has, and how that value creates a a sustainable Product Market Fit.
However, metrics are an awesome tools to measure whether your strategy is achieved or not. To the example above, you may set up you strategy to increase users awareness and you may try different ideas/techniques to do so, while measuring the success of those as DAU but also looking at other second order effect metrics — such as Return Rate etc. It’s really important to know what you want to achieve, you are trying to increase awareness by trying different ideas on creating value to users. You are not trying to move blindly a metric in vacuum. Always think about the value proposition for your product and how to measure to know that you achieve the product market fit.
Product Strategy is Not a Roadmap
Product strategy ultimately defines what value to be created for what target market. The roadmap defines a prioritized sequence of milestones in order to achieve the strategy. The sequence might change based on the learnings at each step, however the strategy remains the same.
Product Strategy Types
Product Strategy is defining what value (new/existing) to create for what market (new/existing). The combination of these aspects results in different strategy types.
How do you determine which strategy to use?
Similarly to corporate strategy, one needs to create a SWOT analysis that looks at macro-environment (PESTEL) and micro-environment (Porter 5 Forces) to understand the competitive landscape and finally decide which strategy needs to be employed and when.
The difference between product and corporate SWOT analysis is that product analysis is done for only ONE product while corporate analysis is done for a portfolio of multiple products. Corporate strategy looks at all the products in the portfolio and decides which one to choose to invest/divest and which should be pushed further for which market. Obviously if the corporation has only one product then the two analyses overlap.
Product Strategy Value Creation
Product strategy is about value creation for a target market. Based on the SWOT analysis one would have to choose the right value to generate for the right market.
Target Market (or User Segment)
One way to look at the target market is based on the product life cycle. Here is an example of target market you would want to consider, based on Crossing the Chasm principles by Geoffrey A. Moore:
The entire premise of this approach is that in order to establish yourself as a market leader, you have to first secure a specific niche as a beachhead first. If it’s a new product that means that innovators and early adopters will jump on it first. In order to grow your product to early majority, you have to appeal to this segment. The premise is that this segment is more pragmatic and wants to buy or use products already proven. Hence, the chasm between early adopters and early majority. You need to have proven the product value before you expand your market. To cross the chasm you will need to secure a small target market first, then expand.
Every segment has a different need, hence appealing to those needs is what you need to identify. Also, the more you advance on the product lifecycle the more rivalry amongst competitors there will be, hence you need to identify needs that are solved already by the competitors and how/where to meet and beat them.
Identify Market Needs
Based on the strategy chosen, you will have a market that you need to unlock. Finding the needs of that target market will mean to gather qualitative and quantitative data about your market.
The goal is to identify what are user problems and needs by walking with them on their journey and identify at each step their pain points.
Value Proposition
Value proposition is basically answering the needs of the target market chosen in the strategy. Once you identify the needs, you have to identify which one/s to address.
One way that I like to assess the user needs is using the value curve canvas. This is borrow from the Blue Ocean corporate strategy, but it can be very well applied on the product level as well. The main idea is to plot the key user needs of your product against the competition and alternatives and rank them on a scale of user perceived value. As an example, let’s take Southwest airline against other airlines and alternatives such as cars.
This is a great way to find your product differentiation.
Note: if you are entering a market with a new product then you have to think about a Minimum Viable Product or better put Minimum Valuable Product. Without going into details, MVP means finding the minimum set of features that can deliver the value that answer to the biggest pain points and can differentiate your product from the competitors. MVP has to deliver the value proposition that your product is offering.
Prioritization
The way to think about what value to choose to address is using 3 artifacts:
- SWOT analysis. For example, think about your Strengths and core competencies that puts you in the best position to solve for those needs.
- Additionally, I like to use VRIO (Valuable to customer — Rare amongst competitors — Inimitable by competitors — Organized to deliver as company) model for choosing and prioritizing the needs to address.
- ROI Analysis or Cost-Benefit Analysis. Basically you want to see what is return (reach * impact) over the effort (cost) to do it.
Product Market Fit
Once you found the target market and the value proposition, you must validate that there is a fit. In other words you must validate that the hypotheses are correct and there is a market willing to use and pay for the value proposition.
There are many ways to validate the product market fit (PMF) by testing online and offline with prototypes or online experiments. (This is outside of scope of this article).
Lagging and Leading Goals
All in all, the goal of any strategy employed at each stage of the product life cycle is to find the PMF, by either targeting new market with the same product or by enhancing the product for the same market. However, you wouldn’t want to have a product market fit just once in a lifetime of a user, you want to have repeating users that get this value over and over again. Hence, the ultimate goal is to reach PMF repeatedly.
While reaching PMF is the ultimate goal, there are other intermediate goals that help achieve the ultimate one. I called them leading goals as they lead to PMF repeatedly and sustainably across different target markets. The ultimate goal I call lagging goal as it happens by default by achieving all the leading goals.
At each stage of the product you will be going through different strategies that will require to set different leading goals. Usually they go in order, from acquisition of new target market, to activation, retention and revenue. The revenue might be optional as sometimes at the beginning of the product life cycle you might not focus on making revenue right away, you have to be laser focus to cross the chasm, to have the product used by the early and even late majority before you think about charging and making profit. But it all depend on the nature of the product, if it’s an ecommerce business you have to charge people, but if it’s a social media site you might think about monetization at a later stage.
Metrics
Lagging Goal Metrics
The lagging goal is to achieve PMF repeatedly and sustainably across different target market. However, in order to know that you have achieve this you will have to measure it. There are many ways to measure the PMF, qualitative by surveying the users or quantitative by actual measuring usage of the value prop and retention.
- Value prop validation: by any core action rate (aka “AHA” metric)
- Repetition validation: by measuring retention rate for a time interval 1 day, 7 days, 30 days depends on how often the value prop should be exercised (e.g. Return Rate = Users at the end of the period — New Users/Users at the beginning of the period)
Leading Goals Metrics
Each leading goal can be measured by different metrics according to the nature of the product:
Acquisition
- New DAU, WAU, MAU
- Bounce Rate etc.
Active
- Core action Rate (the rate of users performing the core action)
- Signup/Subscription Rate
- Other engagement metrics: CTR, Referral/Share Rate,
Retention
- Return Rate/D1/D7/D30
- avg DAU÷MAU ratio (stickiness)
- Churn Rate (U. lost/U.beg) etc.
Revenue
- ARR/MRR (annual and monthly recurrent revenue)
- CLTV/AC (customer lifetime value/acquisition cost)
All the goals should be measured and measurable.
“You can’t control what you can’t measure.” Tom DeMarco
Tactics to employ for different strategies and goals
For each strategy, you will have to setup a measurable goal to achieve. There are tactics that allow you to facilitate this. Below there are some examples for each Goal at every stage in the lifecycle. Explaining these tactics is for another article’s scope.
The reason why I want to bring up the tactics here, is because many people call these strategies. I strongly believe these are just tactics to achieve the strategy because you may pick and choose different ones or change them as you sit it fit but your overall strategy doesn’t change.
See an example in action below:
- The strategy is market penetration, basically growing your user base, let’s say into early majority (as seen in the picture above) by providing the same value proposition that your product already offers.
- The market is early majority
- Leading goal: Then you will take a leading goal to improve acquisition, such as increase DAU by X%.
- Lagging goal: While you keep an eye on the lagging goal of achieving the product market fit in this new segment/market. For this you will look at let’s say Retention Rate D7 of xx% for that cohort.
- Tactics: As tactics you may choose to build acquisition loops in a form of paid loops; or you may choose to build content loops or social or viral. You get the point. Some might work other might not. However, you are still working towards the same strategy and same goal. You need to grow the market usage.
In conclusion, product strategy is value creation for a target market that leads to product market fit. Different strategies may be chosen for different stages of the product life cycle. The leading goals chosen to achieve the strategy should be a correct measurement of the strategy success of failure. Ultimately, you always have a lagging measurable goal to meet at that is product market fit goal, measured by retention and core action rates. Lastly, tactics to employ are numerous from Growth Loops, Scaling solutions to Monetization ones that allows you to achieve the proposed strategy.
