Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Category: market research

Flattening of the Growth Curve

In every company’s history there comes a time (or two or three or four times!) when your momentum slows and the sales curve begins to flatten. This can be one of the most trying and frustrating times for software and hardware companies. I don’t believe it’s as difficult as the startup phase, when “crib death” is an ever present fear. And of course a no growth, flat revenue scenario is much preferable to declining sales combined with negative profitability that follows, which leads to a “death spiral” if no effective action is taken.

Image demostrating a Flattening Growth CurveWhat Do You Do When Your Revenue Curve Stops Climbing?

 

But I do find this situation is often more confusing to company management than either the start up or death spiral scenarios. This is because it often occurs just after a period of fast growth and prosperity, where it seems that the company can do no wrong. As a result, senior managers are often in denial about what is happening—whereas in the startup or death spiral situations the situation is much more obvious, usually motivating folks to take fast, decisive action.

Search for the Culprits, Blame for the Innocent

With flattening growth, it’s easy to blame things that may not be the true cause. I often here excuses and tactics such as the following:

“The marketing department just needs to put out better promotions. Fire the VP Marketing and bring in someone who will get the job done”.

“The sales force isn’t selling hard enough, they just need to close more deals. Get the VP Sales off the golf course and tell him to kick some butt, or he’ll be the next to go”.

“The channel is useless; they’re taking 30-50% but they aren’t pushing the products—take more deals direct”.

“We just need to charge more for our products; we’re leaving money on the table”.

“Cut the price to stimulate demand.”

“The UK distributor is fat, dumb and happy—sign two more of his competitors to motivate him and maximize sales in that country.”

Now, some of these reasons may even be accurate and some of the proposed tactics could possibly be useful. But I have found, quite often, that things of this nature aren’t the fundamental issue and beating up the sales force, cutting or raising prices, or messing with your channel balance may exacerbate the situation and make things even worse—not better.

The Real Problem

Sometimes the answer is as simple as “All good things must come to an end.”

Growth cycles don’t last for ever, as much as every technology company CEO, VP marketing and VP Sales wishes it would. There is  a natural cycle that occurs with revenue that is related to the life cycle of your products. Also, the economy changes, competition heats up, novel marketing programs age and are copied by competitors which reduces their effectiveness.  Market segments get saturated and customer budgets are re-targeted to the “next new thing.” Stuff happens—always! The only real questions are when and why.

So what’s a befuddled and perplexed tech company CEO to do?

Finding a Solution

The first thing I recommend is to really spend some time getting to the bottom of things. Instead of shot-gunning blame that may be misplaced or impetuously blowing up established pillars of the business—conduct a real, objective analysis of the nature of the slowdown. I don’t suggest paralysis by analysis by any means, but do take the time to gather some data, so that your actions will be based on more than knee-jerk reactions.

Past that, it’s hard to generalize on a course of action because the proper action will depend upon what you find in your analysis. But for the sake of discussion, let’s say that while there are a few factors that you find which could be leading to slower growth, there isn’t a “silver bullet” reason that can be “fixed” to get the revenue curve again pointed up and to the right. Below are some general steps that I’ve found may enable you to “restart growth”. I might add that many of them are most effective if you begin them prior to actual revenue flattening:

Try marketing programs you haven’t used before
Usually when you get in a period of high growth, there is a workhorse program or two that has worked well for you and there is a tendency to “keep doing what works”. Unfortunately, even the best conceived marketing programs eventually run out of steam. One of the keys to having consistently good outbound marketing is too be constantly testing new ideas, placing small bets and fine-tuning them if there is enough success to continue. As I’ve written before, product marketing is part art, and part science—with the art portion unfortunately usually being upfront. You need to do a little trial and error to find a good program and then the science part kicks in, using data you’ve gathered to optimize it. But the key is to be constantly testing new ideas, in good times and bad. If you wait until your growth has already slowed, you may scramble for quite a while trying to find a new answer.

Have an internal “growth” brainstorming session
Ideally you are doing this before you fall into a revenue rut. But regardless, do bring together people in your organization to give visibility to their ideas that may give the top line a kick start. Do hold these sessions in an open, non-threatening and non-political environment. It’s important that people are able to speak freely and not be ridiculed if they come up with an idea that appears “too far out of the box”. That is often where strategic breakthroughs are made. And don’t just limit these sessions to executive managers. Remember, the people at the bottom of the org chart are often the ones closest to the business, and are sometimes able to more easily spot a big opportunity that the company could capitalize on.

Hire some outside help
Consultants have a very bad name in some companies—unfortunately, sometimes with good reason. But bringing in someone with deep marketing, sales or management expertise with a different viewpoint than the internal management team, can sometimes be the quickest way to new approaches that will turn the ship quickly. Sometimes internally it’s hard to see the forest for the trees. I’d recommend staying away from folks that  a) have a cookbook formula, b) have only been consultants and not operating executives, or c) take too much of an academic approach. Every company, market and point in time is different and needs to be analyzed as such. But hiring the right outside consultant or firm who is creative, analytic and “been there and done that” can have a big impact.

Look at entering an adjacent market
If it’s determined that your current market space is getting saturated, one of the first things to do is to look at adjacent spaces. Preferably, look somewhere that you can leverage your current marketing, distribution and brand, but also possibly where you can apply existing company technology to a totally different customer’s problem. The key here is don’t go to a complete green field that looks attractive because it’s large or growing fast, but where you have no real strategic advantage to compete on. Again, it’s best to be taking this step in anticipation of slowing growth in your current business—rather than waiting until it happens. Getting traction in new areas can take some time.

Consider M&A to fill out your product line or distribution system
If you’ve been caught by a surprise slowdown and you need to do something quickly, a strategic acquisition can sometimes be the answer. I warn you to proceed with caution here. M&A is fraught with danger—statistics show that most acquisitions don’t work out well. You need to think it through, proceed carefully, and don’t get overly excited by the thrill of the deal chase. If done well, however, a strategic acquisition can be a real shortcut to entering an adjacent space, filling out your product line and utilizing  an existing strong distribution system, or adding sales channels to your strong product offerings.

Think it through before you start shooting

There are obviously endless other potential avenues to explore when attempting to jump out of a revenue rut. I wanted to suggest a few to stimulate your thinking—and more importantly, steer you away from some “knee-jerk” reactions that often make a situation even worse.

What have you done in the past when you need to restart growth? Post a comment below and fill us all in on your strategies.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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Automated Information Tracking on the Internet

I wanted to make you aware of another cool Web-based, free resource that I’ve become aware of and have started using.

It’s called PubSub, and it allows your eyes and ears to be extended greatly on the Internet. The service works somewhat like a search engine, except a “future” or “forward-looking” one.

PubSub is a service that notifies you when new content is created that matches your subscription. The core technology of PubSub is an Engine that matches new information events against stored queries such as yours, at more than three billion matches per second. This allows the PubSub service to constantly monitor millions of information events for you.

It’s very easy to use. You enter a phrase, or a set of phrases in a list box. Simply click “Start Matching Now” and you’re ready to roll. This creates the subscription on PubSub that will continuously search for the chosen phrases across a wide variety of Internet content. PubSub claims to monitor over 2o million Internet sources, including weblogs, Newsgroups and Edgar SEC filings. You can have PubSub monitor all its sources, or narrow it down to specific categories such as “Airport Delays”, “Weblog Entries” or “SEC/Edgar filings”.

PubSub creates an RSS feed containing new matches, which you can read in a browser or have constantly available in a newsreader. I have my PubSub feed linked to my personalized Google Page, which I use as my browser homepage. That way I instantly see any new matches right when I boot up in the morning.

If you think about it, this type of service could be useful monitoring information for many different reasons. You might, for example, tell PubSub to look for “New Plasma display TVs”, if you’re in the market for a TV upgrade in the near future.

You could use it for monitoring reviews and mentions of your software product. Or track the marketing moves and financial results of your competitors.

I use it for monitoring the presence of my high technology management consulting business on the Internet. It’s very useful to know how often your company is being mentioned–and more importantly what’s being said!

This is a tool whose usage is only limited by one’s imagination. How will you use it? Post a comment, or write me an email, and let me know.

Phil Morettini
PJM Consulting
www.pjmconsult.com

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The Internet Marketing Start Page

It’s time to clue you all in about another nice resource I’ve run across on the Web. This site is called the Internet Marketing Start Page. It’s a great place to start your day, if you’re a professional Marketer, Entrepreneur, or otherwise just want to keep up with the latest tools and trends in marketing online. The Internet Marketing Start page basically is just what is says it is: a great start page, with anything and everything to do with marketing that’s available on the Internet. For anyone that doesn’t already have a favorite page, I’d recommend that you configure your browser and start your day on this page. There is so much information available, that it can actually give you a “creative push” to consider new things, rather than just being a passive resource that you refer to from time to time.

Included are entire sections on portals, search engines, marketing discussion forums, Webmaster tools, Business/Marketing/Technology News sources, Marketing & Advertising references, Industry Stats. It’s a resource with a truly rich array of great stuff for the High Tech Marketer. Give it a test drive and let me know what you think!

Phil Morettini
PJM Consulting
www.pjmconsult.com

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Free Web Analytics

For those of you involved in Internet Marketing, you know that you just can’t get enough data. Most of you, I’m sure, are already using a web analytics package today. Certainly anyone with an ecommerce site is a very heavy user of web analytics data. There are many popular commercial packages out there, including websidestory, websense, urchin and omniture to name a few.

But even if aren’t selling directly from your site, say you have a B2B site, in a niche market with high-priced products, you should still be tracking your sites traffic with a web analytics package. It is still very important to measure your traffic, and see the effect that various online and offline marketing campaigns are having on visitors to your site. Or it may be very helpful to see what content on your site is getting the most attention. If you don’t measure what’s going on with your site, you might as well just have a paper brochure–you aren’t taking advantage of having an intelligent, electronic home for your company.

There are a number of free (advertising supported) services out there, which do a good job of tracking basic data on the visitors to your site.

I use a service called statcounter (www.statcounter.com)

It is one of the free sites I referred to earlier. I’ve been using it for a couple of years. It works great, and is very easy to use. I set it up on my entire site in a couple of hours, and was off collecting data about my website guests. If you have a modest budget or just don’t have a need for extremely detailed analytics, I suggest that you check out StatCounter.

Phil Morettini
PJM Consulting
www.pjmconsult.com

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High Tech Product Planning

There are many ways to skin a cat, so the saying goes. Planning high technology software and hardware products seems to fit in the same category.

While there are some models that you tend to see over and over again, there are a lot of different ways that planning of products occurs in the technology industry. And there are new buzzwords for this activity appearing all the time–”Customer Development” is the current rage– but the fundamentals of good product planning don’t really change.  And no, communities built around SaaS business models don’t obsolete the need for product planning/management as I wrote here.

 

Product Planning/Management requires and inter-disciplinary approach

Exceptional Product Planning/Management Requires an Inter-disciplinary Approach

Technology-driven Product Planning

One typical method of planning products is what I call “technology-driven”. That’s when an engineer, software programmer, or inventor comes up with a new way to apply an existing technology in a novel way to a different, unsolved problem. Or in some cases the developer is a true visionary and actually invents a new breakthrough technology that blows away the existing way of doing things.

While this technology and developer-driven model is very common–and when it works it can lead to blockbuster successes–this approach in many cases is rife with problems. I have repeatedly been brought in to clean up the results of this approach in my consulting practice. The reason for this is that companies using this approach usually have a technology or product-centric view of the world. And what’s missing in the view?

Customers!

Now I don’t want to insult all the technologists out there who have taken the lead in developing products. Of course, technology professional understand the need for customers and the importance of getting their feedback in the product development process. Some have a natural knack for product planning and are highly effective at it. Yet the reality is that product developers aren’t trained to–nor do they generally derive pleasure from—trying to extract product preferences, unsolved problems and workflow issues from potential customers. Let alone put all of these in the bigger context of an overall MARKET.  In addition, often customers don’t really know what they want or have some other agenda which can lead any product planner in the wrong direction—unless the planner is experienced and savvy in uncovering the desired information. Let’s face it, developers are trained to design hardware or write software code. Many do pick up product planning skills—but in my experience, it’s not generally a natural fit with their interests or training and far from the majority excel at it.

A common end result of a technology-driven product is often one that is launched and gets a few customers, but then stalls long before gaining full traction and critical mass in the marketplace. Precious cash has been burned through and a typical lament is “it’s a great product, if we could only find someone to sell it”. What is frequently believed to be a customer-facing sales and marketing issue is quite often a product that doesn’t meet broad market needs—a result of flaws in the product planning process.

Customer-centric Product Planning

Another common way that I’ve seen products planned is what I call the customer-centric approach. This method is characterized by focusing on a few “model customers” coupled with a fanatical devotion to using their input to develop the product. Often you will see this in a company that has previously failed using the developer-centric model discussed above. Sometimes, it’s the same technologists on their second try. Now you may be thinking, this is the way you do it! But while this approach is definitely an improvement in some ways over a purely technological approach—it too has some limitations.

The customer centric model works well if you are developing for a very limited, niche market—or at least one that is quite homogenous. The problems occur in two areas. First, if your target market is of a heterogeneous nature, it is easy to miss that part of the market that isn’t represented among your select few model customers. Secondly, this approach can sometimes stifle innovation. In high technology, customer input is very important—but customers shouldn’t be doing your product planning for you. Each has their own quirky agendas, unique to their individual companies. In addition, customers often can’t see far enough past their current problems and needs to imagine how to best apply new technology to make a radical improvement in their workflow looking 1-3 years down the line. So if you only build what they tell you to build, you will often end up with a “state of the art today” product, as well as  one that contains a few features that the greater market will scratch their head over why they were included. Worst of all, the product may be nearly obsolete by the time it hits the streets, because you haven’t looked far enough ahead of the market and built-in what’s possible and desired for the future. These products get stuck in the present of when they were planned—which in the tech world is the distant past by the time they are introduced.

Market-centric Product Planning

Finally, let’s talk about the way most products OUGHT to be planned and built. I call this approach a market-centric model, although it includes elements of both the customer and technology-driven approaches.

The most basic requirement for success in this approach is to have a skilled, balanced product planning team. The core of this team consists of an experienced Product Manager with a marketing background and an experience Engineering Manager or Technical Project Leader. I call this the “2-headed monster” of product planning.

Having two leaders to a project sounds like a prescription for design-by-committee, which usually satisfies no one. And there are definitely dangers to this approach. The most problematic (and frequently encountered) issue is when the Product Manager and Engineering Lead clash, or just don’t like each other or clash for other reasons. Then you have a real problem—and one that must be dealt with quickly. But that’s a topic for another article. The important thing here is that to make a truly GREAT high tech product, both the Product Manager and Technical Lead possess key expertise that needs to be brought to the table.

The Product Manager is the market expert and customer proxy when necessary. He is the one who is trained, experienced and skilled at uncovering the true needs and latent desires from potential customers. He also has to have a broad perspective, so he will see to it that all important segments of the market are canvassed to ensure that the resulting offering is MARKET-driven—not shaped by love of a cool technology or requests from a few key individual customers.

The Technical Lead brings a couple of critical skills to the table. He keeps the discussion centered on what’s POSSIBLE, ensuring that you don’t plan a product that can’t meet the required timing and budgetary constraints—or worse yet, can’t be built at all! In addition, he or she can “see ahead” and inject the use of new technology to solve a problem in a way that those less technical might not be able to envision.

I won’t pretend that this approach to planning products is easy to implement. In truth, it’s hard to pull off. The key ingredients to success for this model are an honest, open process and culture, where everyone is motivated by the success of the product and ultimately, the company. In companies with a high degree of politics, or rivalries between departments, the process tends to fall apart quickly, to no one’s benefit or satisfaction. Mutual respect is critical. Anyone should be allowed an opinion on any aspect of the product.

An engineer can express an opinion on the customer base or marketing approach. A marketer can have an opinion on what technological approach is most appropriate. This cross-fertilization of ideas is very valuable, and can lead to innovative approaches that just aren’t derived from orthodoxy. But at the end of the day after all the discussion has taken place, there must be mutual respect and trust in the competency of each functional area. Marketing people must be trusted on marketing matters; developers must be trusted on engineering matters. If that trust isn’t there or is lost during the process a successful product far less likely.

Best for Success

When done right, the Market-centric approach to product planning is optimal. It usually leads to solid singles and doubles, with the occasional home run. It reduces your risk of an outright flop, while increasing somewhat the normally long odds of creating a blockbuster, market-leading product. Once a company has evolved their product planning process in this manner, it’s poised to introduce a succession of market winners.

That’s my take on planning great high tech products. I’m sure with some people it will be controversial. What’s your view? Post a comment or drop me an email message to discuss.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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CRM Blog

For you marketers and CEOs out there, I wanted to share a great resource to educate and keep you up to speed about this important topic. Jim Berkowitz is a long-time CRM expert, and his CRM Mastery E-Journal is just packed with information on the topic. This blog does a great job of tracking industry events within the CRM space, in addition to Jim’s enlightening commentary on customer management. In my experience, high tech companies (particularly early stage) spend shockingly little time “managing the customer experience”. I find that for the most part, high tech companies aren’t even doing a good job of gathering and organizing basic data on their costomers–let alone using the data to its full potential. Maybe it’s the focus on gathering new customers, since technology changes so quickly. Anyway, I recommend to take a look at Jim’s E-Journal–let me know what you think.

Phil Morettini
PJM Consulting
www.pjmconsult.com

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Technology Acceleration

Technology is a GOOD THING. Well, most of the time it is.

I’m sure you’ve seen articles bemoaning the NEGATIVE role that technology advancement has played in our lives. I have recently joined the ranks of those doing the bemoaning.

Gadgets are Great

Don’t get me wrong—I’m a tech guy through and through. I’ve chosen to work in the technology industry for 20 years, and I love gadgets as much as the next guy. I’ve got TIVO, a laptop, a mobile phone, Wi-Fi, all the standard Hi-Tech fare. I’m an email fanatic. With great anticipation I’m eyeing the latest and greatest Home Theater equipment,  just waiting for prices to drop a little more. I love many of the things that technology does to enrich our personal lives, and I embrace the productivity improvements that it brings to doing business. And I believe that those who create new technologies and products ALMOST ALWAYS have good intentions, from a societal perspective.

The Law of Unintended Consequences

But I also believe that the law of unintended consequences is alive and thriving in the technology marketplace. In creating products and services that didn’t previously exist in our world, the good is sometimes offset (and occasionally overwhelmed) by effects on the negative side of the ledger.

Take automobiles, for example. Certainly cars are no longer an example of new technology. But at the turn of the century, they represented one of the greatest leaps forward in technology, and have had wide-ranging, positive societal effects. Autos provided a completely different level of personal mobility, with too many positive effects on our daily lives to list. For businesses, the enhanced business productivity was so enormous that it not only lowered costs, but also allowed totally new businesses to be conceived. Autos and the internal combustion engine that enabled them, are truly among the great inventions of all time.

However, do you think the inventors of the internal combustion engine and the automobile had the foresight to envision the amount of pollution this invention has ultimately created? Not to mention the greenhouse gas effect, which is causing significant warming to our global climate, with potentially devastating consequences?

Of course, they couldn’t. I think this should cause those of us in the technology biz to pause and reflect a bit.

Negatives with Positives

There are many more innovations that one could list as having major negatives associated with great leaps forward. Cell/Smart Phones are another such example. They have provided a leap forward in society, that while not quite as profound as automobiles, approaches the same level. They’ve provided great productivity gains for businesses, and have allowed us to stay connected in our personal lives, like never before. But haven’t they also contributed negatively to our ability to get away, relax, and enjoy some uninterrupted privacy? I feel this has been a big negative for society, and it’s one of those steps that probably can’t be undone.

I think even the most driven Type A’s among us believe that human beings need at least SOME time to recharge our batteries. Just to get away from it all and relax. Technological advancements have connected us to the extent that it’s very hard to do that. You used to be able to take a vacation or a day off, and honestly say you didn’t have a phone or an Internet connection available. If you say that now, people might begin to question your veracity. It’s possible to be connected nearly everywhere—as a result, it becomes less acceptable than ever be “disconnected”.

This leads to the biggest complaint I have about the unintended consequences of the technology revolution:

The general speeding up of our lives.

I’m exhausted–I’ll bet you are too
For context, most people would consider me a type A personality. So this isn’t the complaint of some mellow, laid-back surfer dude. I generally embrace a fast paced life, and particularly enjoy the ability to make progress in business in a rapid-fire matter. But honesty compels me to admit that, at times, the pace of modern life even overwhelms me.

I live out the most gnawing example of this “Acceleration” of our lives every day on the freeways of Southern California. I live in San Diego, which granted, is a big city. And big city traffic has, of course, never been much fun. But San Diego isn’t New York or Paris by any stretch of the imagination, when it comes to congestion, or the attitudes of the locals. So I don’t think I’m reaching for the extreme here.

Compared to even 10-15 years ago, life on the freeways has become hell. I am a pretty fast driver, but on the freeway, it’s never fast enough. No matter how fast you want to go, there is always someone coming fast upon you—tailgating and itching to get past you. And it isn’t enough to just get around you. The guys in the BMW 3 series have to accelerate and weave in and out of traffic, like it’s the 20th lap at LeMans.

Those guys have always existed on the highway, you say. And you’re right. But the lack of common sense and courtesy seems to have spread throughout the driver-sphere like a bad flu. These days, you try to move into a lane in front of a soccer mom, in a huge SUV, at your own peril. She may be toting two kids in the back, and of course is talking on her mobile phone (those phones again!). But she’s also caught that LeMans mentality, and no way she’s going to intentionally concede that position to you—let alone the extra ten feet of highway to a “competitor”.

I find it especially ironic how the technology acceleration has made other pieces of useful technology obsolete. My favorite example is how the speedup on the freeways has eliminated the need for what was once an essential piece of safety technology for drivers: the “indicator”, or “turn signal”. It no longer serves a useful purpose on the road. Should you put your indicator on before changing lanes in front of that soccer mom? Fifteen years ago you certainly should have. But now soccer mom puts the pedal to the medal, and cuts you off to prevent you from “moving up a spot” in the unofficial freeway race. These days, using this once essential technology now only “indicates” to everyone else that it’s time speed up, to prevent you from making that lane change! God forbid if you need to get to that lane to exit the highway; that next exit down the road better suffice if you don’t want to risk a crash. Soccer moms don’t glare at you menacingly while cutting you off like the guys in the BMW 3 series will, but the effect is just the same. It’s a jungle out there.

So what’s the takeaway to this rant?

Can downtime make a comeback?

Once again, I believe that the law of unintended consequences is hard at work. There is a big market being created that while not completely ignored, is under-served. That’s the market for enabling our lives to “efficiently” slow back down. Don’t misunderstand. I don’t mean “giving us more time in the day”. That time generated by productivity-enhancing devices, seems to just fill back up with more frenetic activity. I mean actually slowing us down, so we can re-charge, to sprint another day. This might be a difficult concept for companies to get their arms around, so that they can create new products and services to capitalize on it. But business formation and product creation around this theme would be really revolutionary, and potentially very rewarding.

So the next time you’re sitting on the side of the road with a flat tire—and a dead smartphone battery— write me a note or post a comment. Assuming your wireless Internet connection is still up. I’d love to get your thoughts.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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Pricing High Tech Products

Pricing is always an interesting topic, but even more so in the Hardware and Software worlds. In the consumer products business, if there is a package of frozen peas from Green Giant that’s priced at $3.99, you’re not likely to see someone else offering the same-size package of peas priced at $14.99. But in High Tech, things are different.

Things move fast in tech markets

The pace of innovation in the High Tech world leads to pricing that’s all over the map. It’s not unusual for a brand new competitor to come out at a higher price than the current established market leader—especially if their product is based on market-changing advances in product functionality due to a new technology. This is unheard of in most other markets. Then there is the PC business, where rapid technological advancement over a long period of time has led to continuously lower prices—with great benefit to consumers but squeezing margin (and indeed many competitors) out of the market.

Again, things move fast in Tech.  Sometimes it’s a high initial price to harvest profits while you have a feature advantage, other times aggressive discounting based upon your lower cost structure due to less expensive technology. Whatever the case, you can often count on pricing moves to be dramatic and to have a profound effect on technology market segments in the long-term.

Value-based pricing

So what’s the best way to price High Tech products? Is it best to add up your fixed costs and, allocate them to a forecasted number of units to ensure you are recovering your investment? Or is it better to take your variable product costs and use a standard multiplier derived from history? Maybe you just set your pricing based on the prices of your competitors. Or let your customers tell you what they’re willing to pay. While all of these approaches have merit and a place in pricing policy, none of them should be the over-riding factor in your pricing strategy.

And the most important factor to consider in Pricing? The most important thing to focus on in setting prices is VALUE. What is the value of your product to your customer as an economic, functional or emotional return? And how does the customer value the benefits of your product relative to your competitors?

Market segmentation

So let’s talk about the nature of Value. Value is the underlying need or want that drives a customer to purchase a High Tech product. If the benefit that the product provides closely fulfills that want or need at an acceptable price, you have a sale! The most important consideration in value-based pricing is to SEGMENT your market properly prior to the pricing decision. Segmentation, by definition, is the process of separating the total addressable market into “buckets” or segments of potential customers who have similar values and therefore will react similarly to a specific offer. What this means is that once you have divided your marketplace into appropriate market segments, you will be able to charge individual segments different prices that are based upon the perceived value the product provides them.

Let’s look at an example of this segmentation approach, marketing a security software product to Corporate IT departments. Through your market research you have concluded that the potential customers with the highest pain threshold for the particular security problem you are solving are banks. By adding only a few important banking-specific features to build a “fence” around this market segment, you may be able to charge a price for a banking-specific version of your product that far exceeds what other segments might pay. If you extend this model to multiple segments and do it properly, this approach will lead to far higher total revenue than if you set just one price for the entire market. The process of establishing value for each market segment, pricing to that full value and communicating this value to the marketplace is the essence of Value-based pricing.

Don’t price in a vacuum

Finally it’s important also to remember that pricing actions should not be done in a vacuum. Pricing is one of the 4Ps of marketing, and all four are inter-related. You cannot properly price a product without at the same time considering the features and benefits of the product, how it will be promoted and distributed–and most importantly what the competition looks like. The price for an Internet-distributed software product will almost certainly  be in a lower range than one distributed via a sophisticated direct sales force or VAR channel. If you aren’t going to have much of a promotional budget, you most likely will need to be a price leader to have any chance of being successful. If your product is at a perceived value deficit, your price relative to the market leader will probably need to be very aggressive. I’m sure you get the picture.

Pricing is a complex topic that many books have been written about. This post is meant to be an introduction to pricing in the software and hardware world and to get you thinking a bit more creatively about pricing tactics. So when your next new product comes out, you’ll look a little harder before just pulling a price out of the air. Leave a comment with your own pricing observations and experiences…

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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Structuring High Tech Product Management

Product Management–what does this mean in a Software or Hardware company? What is the function, and where does it belong? I have a broad view on this as I’ve held permanent positions in a number of high tech concerns, as well as with many more software and hardware companies in a consulting capacity.

Product Management graphic

Product Management sits in the middle of important functions

Wide Variety in emphasis and strength of role

Product Management is resident all over the organizational map in High Tech. Most often it resides in the marketing department. Sometimes, it’s in the engineering/product development department. Occasionally you will see it as it’s own separate function. Again, what does the term mean in a High Tech company? Sometimes it is used interchangeably with the term “Product Marketing”. In this case, it means responsibility from cradle to grave for the product planning and outbound marketing functions for a particular product or product line. In other words, working with the developers to define the product (product planning), as well as driving the other “3 of the 4Ps” for the product–setting pricing, distribution strategy and promotional strategy.

In larger companies you will often find this function separated into two distinct jobs: Product Management as the new Product Planning portion, and Product Marketing as the function that manages the product after it is released into the market–driving pricing, promotion and distribution as stated above. In this case both functions may still reside in the marketing department, or the Product Planning portion is sometimes in the engineering department.

The last variance on this theme that is sometimes seen is that the Product Management resides in the engineering department, but it only vaguely resembles the traditional definition of the term. In this case it is “Product Planning”, but the job and skill set more closely fit the definition of an engineering project manager, with very little weight put on exploring the market to match marketplace needs with engineering capabilities.

In High Tech, the Product Management function is most typically a “matrix” position: lot’s of responsibility for a product’s success, with very little actual authority to ensure that success. Normally a Product Manager’s success will be decided based upon his/her ability to convince other stakeholders in the organization that the path laid out is the best thing for the company (and the individual stakeholders as well!) People skills are therefore just as important as having technical & marketing skills in a Product Manager’s ultimate success.

In consumer markets, the Product Manager typically holds much more direct power–much like a mini-GM for his product line. Often product development will even work for him. The term Brand Manager is most often used in consumer businesses instead of Product Manager. (In a big High Tech company, a Brand Manager titled individual will fulfill more of a Marcom role).

The ideal product management role from my perspective

So what’s the best way to structure the Product Management role in your business? Well there really isn’t one best way. It depends upon your business, culture and personnel. But I do have my biases:

I believe strongly that most high tech businesses would benefit by structuring the Product Management function to be on the strong end of the scale in terms of authority. And there is generally much to gain by putting a savvy, experienced Marketer with a strong technical background in a Product Manager role, where they are graded and compensated by the results of the P&L of their product line. Along this line of thinking, I prefer that both the product planning and outbound marketing functions be unified under the marketing department. In larger companies there may be separate individuals fulfilling these role for an individual product line, but there is significant synergy in unifying these functions as they should both be market-focused.

Lack of strength of product management function can hurt the company

I wouldn’t go so far as to suggest that Product Development should report to the Product Manager in a High Tech company, but I would give them discretionary budgetary authority on at least a portion of the marketing budget for the product line.

I would also make sure they have management backing to deal with the developers from at least an equal position of strength. A lack of strength in the product management function is a real problem in many software and hardware companies, particularly those founded and run by developers.

The Product Manager’s mentality should be that of a “mini-CEO” of  his product line analogous to the overall company for a real CEO. He doesn’t have the same type of authority, of course, but a similar mindset is useful. And as implied above, it’s very important that the position does need to have some “teeth”.

Strong product management should limit product disasters

Too often in technology companies the Product Management/Marketing functions do not have the ability to stand on an equal footing with Engineering. This can lead to a culture of building what suits someone’s fancy, not building what the market needs and will buy. This can sometimes work for a product or two, but is a very dangerous thing in the long term. A strong Product Management function should serve as the customer’s voice in the product development process, and be an advocate for that product line.

The Product Manager’s sole business “purpose in life” is for his product to succeed. This outlook ensures that the big picture will always been looked out for, eliminating the potential for a product line’s performance to be reduced by turf wars– or sub-optimal tactical moves due to poor inter-department communication. The Product Manager is there to rationalize conflicting agendas, and orchestrate events to ensure the product line has the best chance of “success”–whether that means hyper revenue growth or maximizing cash flow for investment elsewhere.

That’s my take on how the Product Management should be structure conceptually–what’s yours? Leave a comment below on your own experience and philosophy to enrich the discussion

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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