Strategic Product Management

Question 1

Corporate strategy

Answer 1

Business and marketing strategy (how, when, where to compete - product market, market segment, marketing mix) needs to fit with the corporate strategy (where we want to go - vision, mission, objectives, allocation of resources, synergies)

Question 2

Key factors influencing product profitability

Answer 2

Internal factors
-development expenses
-development speed
-production cost
-product performance
External factors
-sales volume
-competitive environment
Net present value
*pricing affects internal (companies look to make good profit) and external (customers influence price)

Question 3

Typical cash flow for new product

Answer 3

• early development costs
• ramp up costs for production preparation
• marketing and support costs

Question 4

Layers are connected - lower uncertainty

Answer 4

• project
• firm (strategy: extend portfolio,improve existing products, cost reduction and synergise)
• market (tends/risks in market, competition, different local demands across countries)
• macro environment (opportunities/risk in economic and political climate, natural, demographic, social)

Question 5

Product strategy

Answer 5

1) INCREMENTAL PRODUCTS: target existing markets/technologies
2) NEW PRODUCTS: target new markets/ technologies

Question 6

Development activities as determinant of success

Answer 6

• strategic planning plays a strong role for really new products, but lowers the performance for incremental products (uncertainty linked to really new products, while incremental products do not require long-term planning)
• business and market opportunity analysis highly important for the success of incremental products, but not vital for really new products

Question 7

Uncertainty, risk and exposures

Answer 7

Uncertainty: Unpredictability of environmental or organisational variables that impact corporate performance
-general environmental uncertainties: political, government policy, macroeconomics, social, natural
-industry uncertainties: product market, input market, competitive
-firm uncertainties: operating, liability, r&d, behavioural
Risk: Unpredictability in corporate outcome variables
Exposures: sensitivity of a firm or project’s cash flows to changes in any of a number of interrelated uncertain variables
E.g. Burberry

Question 8

Product management varies across organisations

Answer 8

Apple: project manager as CEO - Steve Jobs
Microsoft: different divisions fighting for resources
-Functionally focuses organisations: aligned by marketing functions, marketing strategies developed by CEO and Vice President, good when companies have fewer products, no single person is responsible
-Product focuses organisation: centralised structure (product manager mini CEO), different products can use the same distribution channel, narrow focus, employee competition
-Market-focused organisations: segments defined, different marketing strategies required

Question 9

5 responses to mitigate risks

Answer 9

1) Avoidance (e.g. Divest where there is less uncertainty, delay entry, low uncertainty niches)
2) control (e.g. Lobbying, threats, vertical integration -different channels, sales, supply chain, advertising- low uncertainties)
3) cooperation (e.g. Long-term agreements, franchise/license)
4) flexibility (e.g. Diversification -global reach)
5) imitation (e.g. Follow other firms, learn form competitors - imitate products and processes)

Question 10

Imitation

Answer 10

Effective strategy to maintain the status quo

• under uncertain environments
• when initial advantage is high
• do dissimilar moved to avoid dethronement
• sometimes should not imitate at all in dynamic environments

Question 11

Uncertainties can create opportunities

Answer 11

• upward trend
• repeating/regular pattern: could be seasonal , benefit from the ups (e.g. Christmas market)
• if price of materials change over time, can use a cheaper alternative (switch to gain an advantage)

Question 12

Creating options to capture opportunities

Answer 12

Flexibility options: e.g. Switching materials or production between continents, internally competing products, mutual technologies in the race
Growth options:initial investment may lead to further opportunities e.g. New platform technology,market entry)
Learning options: staged investments e.g. Drug development, research, oil exploration, launch limited number if products before wider roll-out
Exit options: abandon projects, save and employ resources to other initiatives

Question 13

Uncertainty: real options view

Answer 13

Under uncertainty real options are valuable, they give management the flexibility to acquire, divest, and switch resources when such moves are advantageous
1. Core enhancement launches: improving profit streams and growth of core business, building in familiar business, extending existing brand e.g. Tide packaging size, usage
2. Platform launches: platform for significant growth in future revenue ps and profits e.g. Swifter line of cleaning implements
3. Positioning options: fairly confident long-term demand exists, underlying technology to address demand is unclear
-two key strategic purposes: learns out new capabilities and technologies, create a hedge in the event that the unexpected happened e.g. Boeing 2008 skyhook
4. Scouting options: learn and gather information from consumers, small investments and redirect path after most promising path is identified e.g. Apple stores
5. Stepping-stone options: deliberately staged and sequenced real options, series of small investments (technology is developing, firm needs to develop skills, consumers are learning) e.g. Nanotechnology
Portfolios with gaps…
-want immediate sales so focuses on stepping stone options, scientists have ideas that are focuses on enhancement launches rather than in the customer

Question 14

New product preannouncement

Answer 14

1. Product development and positioning
   - use feedback from market to improve design and positioning strategy
   - influence customer preference (information about market and why they need the product, how it can be used and influence expectations)
2. Product diffusion and adoption
   - use new product pronouncement to motivate pre launch orders (e.g. Virgin galactica
   - network externalities: consumers evaluate new hardware based on complementaries and installed based
3. New product pre announcement can influence analysts and investors expectations
   - people will write positive things about you
   - can help investors make better decisions about where to put their money

Question 15

Elements of a press release

Answer 15

Core information, additional information, dip into emotions

• information must have for communication to be successful
• edition all information that is helpful but not crucial
• would be nice if they had it
  1. Press release label (label document press release)
  2. Release date statement (for release on -date-/immediate)
  3. Contact information
  4. Headline
  5. Sub heads
  6. Body (begins with town, state, date; insert quotes; inverted pyramid)
  7. The lead (first sentences need to be attention grabbing)
  8. Boilerplate (descriptive paragraph about the organisation)
  9. Mark the end of the copy with ### centred at the bottom

Question 16

New product announcement decisions (whether, when, what)

Answer 16

Have to think about target audience (distributors, consumers -two separate paragraphs)
-customers: forecasting/product testing, make better decisions, cannibalisation of older products if new product comes out
BENEFITS: creating pent up demand, diffusion/adoption, product testing/forecasting
COSTS: risk of potential unavailability, cannibalisation
-distributors: want feedback from sales, want distributors to sell products
BENEFITS: feedback, securing channels
COSTS: losing credibility if unable to supple on time
-shareholders: want to secure funding, loss of market value if announcement lower than expected
BENEFITS: reduce unfit action asymmetries
COSTS: loss of market value
-competitors: careful not to release too much information, too early announcements may lead to problems with the law because they’re trying to influence market power (violating entire use laws - for company credibility and causes customers to avoid purchasing competitor’s products)
BENEFITS: deterring competition, induce rivals to exit, industry reputation as firm that sets standards
COSTS: information spillover, retaliatory action, anti-competitive legislation

Question 17

Multiple dimensions of value

Answer 17

New technology has to offer a greater overall value
A. Combined value of stand-alone technological utility, installed base, and complimentary goods offered by existing technology
-complementary goods availability: can I use it on other devices
-compatibility with installed base: the more people using the service the better
-technological utility: does it work when I use it
B. New technology competes only on the value of its stand-alone utility
-technological utility
-may have higher technology value but overall technology value is lower
C. New technology that is compatible with existing technology’s installed base and complementary goods
-have complimentary goods available and compatible with installed base, but does not need to be the best software e.g. I can connect on Skype which is the most important

Question 18

Influencing buyers perceptions

Answer 18

Value components (buyers perspective): proportional
-actual (objective information)
-perceived (subjective information)
-anticipated (expectations of the future)
Producers strategies of disproportional perceptions and anticipations
-advertising increases perceived install base
-announce new products to make buyers wait
-statements about market position increase perceived/anticipated install base
-promotion of vapourware (non existent products) to increase perceived availability if complements

Question 19

Timing of new product pre announcement

Answer 19

As the following factors increase…
Firm-related factors
-market dominance: later (under observation of the law)
-credibility/reputation: earlier (customers need information that helps them perceive the company as the leader)
Customer-related factors
-customer switching cost/learning requirements: earlier (help prepare for the product)
Industry-related factors
-competition: later (push competitors out of the market)
-growth rate of new market: later (highlight product category interested in)
-network externality: earlier (people can share information and gain buzz)
New-product-related factors
-cannibalisation to existing product: later (avoid so release announcement later)
-ability to stimulate development of complements: earlier (improve existing products/solutions)
-attributes certainty: earlier (clear about product, if unclear later release)

Question 20

First mover

Answer 20

Advantage
-Brand loyalty (people connect with the he brand first and stick to the brand - shape customers expectations)
-technological leadership (learning curve, protection through patents)
-preemption of scarce assets (location, distribution channels, government permits -charge a higher price)
-exploiting buyers switching costs (initial cost and cost of complements)
Disadvantage
-later entrants enjoy free-rider effects
-immature enabling technologies and complements (high r&d expenses, enabling technologies, provide complements if not available)
-undeveloped supply and distribution channels
-uncertainty of customer requirements (market research for new products difficult, less flexibility to react to changes in the market, customer education costly)
Timing decisions: holidays, government actions, industry traditions (e.g. Sport seasons, trade shows), weather(e.g. Travel), social phenomena (e.g. Single birth peaks, heart attacks peaks)

Question 21

5 forces

Answer 21

Level of threat in an industry

• threat of entry
• threat of rivalry
• threat of buyers
• threat of substitutes
• threat of suppliers

Question 22

Behavioural factors

Answer 22

Competitor analysis
-market commonality
-resource similarity
Drivers of competitive behaviour (AMC framework)
-aware of an action: aggressive name calling advertising, widely advertised price cuts, announcement of growth targets and strategies
-motivated to react: direct attack in central markets, direct attacks in markets that have potential for future growth, response would trigger price war
Capable of responding
-access to required skills, technology, resources
-complex coordination of functions within a company

Question 23

Action-reaction concepts and advantages

Answer 23

Response likelihood: the number of times a firm responded to competitors actions during a given year decided by the number of times the firm had an opportunity to respond
-the less likely the response, the grater the advantage to the actor
Response lag: the average time in days a firm takes to respond o a competitors action
-the longer the response time he greater the advantage to the actor
Response imitation: the degree to which a response imitated an action
-the less likely them imitation the greater the advantage to the actor
Magnitude of action: the extend of resources required to implement and action effectively
-the greater the resources required to undertake an action, the slower the response
Scope of action: the number of competitors directly affected by the action
-the greater the scope of the action, the faster the competitive response
Threat of an action: the number of customers an action could potentially steal from rivals
-the greater the threat of an action, the faster the response

Question 24

Headlines: new actions to disrupt status quo

Answer 24

• new promotional campaign: launched ad to counter…
• new signalling action: reebok vows to retake lead in the athletics shoe market
• new product action: Merck introduces mevacor
• new pricing action: FedEx offers rate discounts
• new capacity action: Mobil raises lube stock capacity 10%

Question 25

How to get ahead?

Answer 25

• be aggressive: disrupt status quo, attacks volume
• be unpredictable: random moves to avoid patterns
• undertake creative new and different actions
• delay the leaders reaction: complexity, speed response, unpredictability

Question 26

Avoiding warfare with rivals

Answer 26

• market singles to create cooperative atmosphere e.g. Alliances , prior announcements of moves, explanation of market moves
• initial response to complex attacks with words to find out real intentions

Question 27

Product diffusion

Answer 27

How a new product spreads through a market over time

• Innovators: venturesome, like to be different, willing to take a chance with untried products (can cope with high uncertainty)
• Early adopters: need comfort of knowing someone else has taken the early risk, similar characteristics to innovators, opinion leaders
• Early majority: deliberate and cautious in their approach to buying products, see products prove themselves on the market, interact frequently with peers (social pressure to adopt products)
• Late majority: cautious,skeptical of new products, only after majority have tried product, social pressure driving force to purchase
• Laggards: tradition-bound people, innovation needs to be perceived almost as traditional product, often older less educated

Question 28

Rate of adoption of an innovation: product characteristics

Answer 28

-different segments think differently about product characteristics e.g. Innovators want complex products because otherwise it won’t be worth it
-differential advantage: not only product features important for adoption but also social prestige (over adoption?)
+compared to existing products (cost, social prestige, over adoption e.g. fashion)
-compatibility: compatible with lifestyle
+with consumer’s values, past experiences/adopted ideas, needs
-complexity: the easier the understand the easier you can adopt e.g. iPhone
+products that are difficult to understand or use may take longer to be adopted
-trialability: more likely to buy if can trial
+degree to which the product can be tried on a limited basis
+inexpensive products can be tried without losses (Google search engine)
-observability: hard to quantify benefits
+benefits and applications can be readily observed or described to others
+services often hard to quantify, so management might not adopt them

Question 29

International product lifecycle

Answer 29

• innovation phase:pioneer product in advanced countries (production in home market, consumption also comes from other countries)
• export phase: product consumed in other countries (foreign markets lack technology know how)
• foreign direct investment phase: invest in other advanced countries (increased consumption all owns economies of scale, mass production requires less high tech skills, later invest in developing countries)
• re-import phase: production and export from developing countries (more foreign than domestic demand, cost becomes competitive factor)

Question 30

Expansion strategies

Answer 30

Sequential entries (waterfall model): starting from home market, company entries foreign markets one after another
-benefits from learning
-adaption to regional requirements
-exploration of (long) product life cycles
-non-favourable conditions in foreign market (small market, slow growth, low innovativeness)
Simultaneous entries (sprinkler model): company enters numerous foreign markets (nearly) simultaneously
-expensive option
-establishment if worldwide network standards
-prevention of imitation by competitors (strong/many competitors, no cooperation)

Question 31

Phasing products into market

Answer 31

• butt-on product replacement:existing product is dropped when the replacement is announced
• low/high season switch: same as butt-on but during low/high season
• roll-in, roll-out: spreading changes over time (e.g. Countries)
• downgrading: keep earlier product alongside the new with decreased support
• splitting channels: putting new item in different channel
• sell-off: sell a product line to another manufacturer
• specials: end of line kickers to stimulate demand
• teasing/leaking: using teaser campaigns or leaking news to media about impending changes
• fudging: reduce discontinuity by overlapping and not broadcasting the relationship between replacement and replace

Question 32

Competitive advantage

Answer 32

Able to command a higher relative price, or to operate at a lower relative cost, or both.
-create more buyer value
-create make economic value than rival firms
-a firms goal is to drive the largest wedge between the buyers willingness to pay and total cost to produce
-break down firm into key value activities (value chain)
Pros: provides guidance on how to improve a forms revenues and costs, helps implementing strategic changes once activities are identified
Cons:
-does not fit with every firm
-data intensive and often difficult to obtain data
-complicated and time consuming
-relative concept: can compete by executing better or by being different (activities, value created, advantage, competition)

Question 33

Identify key drivers

Answer 33

Drivers include those factors that explain why the cost of an activity is higher/lower than competitors, or the value generated by an activity is higher/lower than competitors

1) learning and timing (when was the activity started?
2) scale (how large are the activities compare to competitors?)
3) capacity utilisation (how large is the capacity of the activity relative to what is being used?)
4) linkages and interrelationship (how the activity is related/coordinated with other activities in the firm or with activities of suppliers/buyers/sister units)
5) policy choices (strategic choices regarding product features, variety , complexity of manufacturing processes, buyers served etc.)
6) location (where is the activity performed relative to our suppliers, customers etc.?)
7) integration (who performs the activity? In-house or outsourced?)
8) institutional factors (government regulations impacting an activity)

Question 34

Improve firms position

Answer 34

Low cost strategy:
Success factors
-economies of scale
-transfer of best practices to sister units
-superior low cost production technologies
Threats
-inferior product quality
-rivals adopt newer, lower cost production technologies
-social, economic and political risks of outsourcing production to low-cost countries
Differentiation strategy:
Success factors
-unique styling/superior product design
-customisation
-speed
-convenient access
-unusually high quality
-premium brand image
Threats
-buyers do not perceive difference or unwilling to pay higher prices
-the cost of differentiation exceeds buyer willingness to pay
-over-fulfil buyer needs
-lower cost firms successfully imitate the different offering

Question 35

What is a bad/good strategy?

Answer 35

Bad
1. Failure to face the problem
2. Mistaking goals for strategy
3. Fuzzy strategic objectives
4. Fluff
Good
1. A diagnosis: an explanation of the nature of the the challenge
2. A guidance policy: an overall approach chose to cope with or overcome the obstacles identified in the diagnosis
3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guidance policy

Question 36

How to achieve planned revenues

Answer 36

• do gap analysis

- ansoff matrix: market penetration, market development, product development, diversification

Question 37

Product portfolio analysis

Answer 37

Problems with product portfolios
-allocation of limited resources
-provide appropriate balance to other products
BCG Matrix: analysing the range of products possessed by an organisation against two criteria - market growth (connected to PLC), relative market share (experience curve)
Stars: produce medium cash, but require high investment (improve efficiency of product)
Cash cows: high cash, requires medium investment (sell as much as you can - cut price but don’t start price war (cash can be used for r&d or question marks
Dogs: produce very little cash, requires little investment (kill it, harvest, invest, divest, focus efforts) ->may have loyal customers
Question marks: low cash, go investment required
IMPLICATIONS
-take cash from cash cows to fund stars and invest in future products
-invest in question marks to become stars
-find out what to do with dogs
PROBLEMS
-measuring relative to strongest competitor
-how to define grid lines (what is high what is low? Dependent on industry)
-depends on how you define your category
-lowering cost through experience curve, but can lower cost through technological development
-highlights that we should stop investing in digs though e may need it for customer loyalty
-suggests market leaders will grow on the right side

Question 38

Not easy to exit a market or delete a product

Answer 38

• fixed cost of exit: e.g. Labour laws, contracts
• damage to corporate image: e.g. Loss of employees jobs
• disposition of assets
• signal to other product managers: e.g. Negative spillover of company’s commitment to its products
• perceived long-term opportunities