Pricing power is the company’s ability to raise prices without reducing demand for its products. The more pricing power you have, the easier it is to raise prices. Pricing power is generally determined by how unique or essential a product is in the eyes of customers, or the unique value it provides to customers relative to competitors.
For eg: A customer who is taking medicine for a critical ailment would continue to buy the same brand despite the increase in price since it is an essential product for him & he has trust in the brand. Also, if you are buying jewellery from a branded store rather than a local shop you would be willing to pay more charges for the making because of the better designs & the trust in the purity of the product at the branded store.
Why do you need pricing power for your product?
Pricing Power is important because raising prices allows you to overcome the adverse effects of inflation and increased costs. For example, when there is an increase in the cost of crude oil, paint companies’ margins go for a toss, in order to retain it needs to pass on the cost increase to customers. Unless the company has differentiated products, a unique value to offer & brand reputation, it is not possible to command pricing power.
What do you need to have pricing power?
Companies would need to keep delivering a unique value to be able to command pricing power. This unique value can be superior product quality, faster support and service, brand reputation, number of alternatives available, switching costs etc.
Let’s look at these in detail:
Bring Innovative products to the market: The first step is to launch relevant products which address any unserved need or a customer pain point. As long as your product is relevant and a first mover in the market, you can charge a premium. The key here is to keep innovating and keep bringing differentiated products. By continuously bringing innovative products, customers won’t consider switching from your brand. Also, constant innovation doesn’t give too many alternatives to switch. After a company reaches that stage where customers believe that they will get the latest products, you can command pricing power even on the existing products despite the competition (who would have launched similar products later).
Build trust in the product’s quality and service: Your product should have superior quality which users should agree with. Quality should be tangible parameters which can be measured like the product’s ruggedness, durability, convenience or user-friendliness. In case of any failure or support, the service support should be super-fast. Once this is built for a few products and for a couple of years, customers start to build trust which then helps in successfully launching other products & services faster.
Build a brand: Brand building is important to get more first-time users. The more the existing users would promote the product, the easier it is for first-time users to trust & try. Hence sharing customer testimonials, and brand endorsements, and generating more followers is crucial to make it easier for new customers to try. Brand building is important to communicate your’s product’s quality promise to a larger base of customers. This also acts as a temporary cushion in case you are lagging on the innovation cycle for a short period. For eg. Maruti(the market leader in the Indian passenger vehicle car segment) didn’t bring more SUV variants or electric vehicles earlier than competitors and still didn’t lose the market leader position (lost market share though). However, since this is a temporary cushion, companies have to go back to point 1(i.e. keep bringing innovative & relevant products) to command pricing power over competitors.
Once you have innovative products, customers’ trust in the product’s quality & an established brand, the cost of experimentation becomes high for a customer to try and switch, hence ensuring the demand for your products doesn’t drop despite the price increase. This price increase also helps retain margins in case of an input cost increase.
Conclusion :
The important thing for companies and 4P managers is that the more you can decommoditize your product or service, the better your pricing power becomes.
For example, B2B procurement for IT hardware(laptops/desktops etc) traditionally has been dependent on product quality, price, brand reputation, and relationship with the client. In order to add that Unique Value company can look to add more Services to its product offering like Zero downtime (faster issues resolution, giving actionable insights in a single dashboard to the IT team), Flexible leasing plans like monthly or quarterly payments instead of a CAPEX to free business capital; end-to-end device management from demand-based device provisioning to Asset disposal and also to reduce business carbon footprint. These add-on services not only increase the stickiness with the customer but also allows the company to command pricing power.
In a nutshell, the key is to differentiate a product in such a way that customers are willing to pay higher prices. Innovation cannot stop, and to keep that pricing power, companies need to continue to innovate better and faster than the competition
In this post, I will talk about why is marketing function so important in growing the business? What are the different roles it plays, how does it help in different stages of the product lifecycle and how to effectively make use of marketing?
First, I will talk about the Importance of marketing function and its different roles:
Define & manage the brand identity: The marketing function is central to building a company’s unique identity by defining and managing the brand. This involves determining who you are as a company, what you stand for, what you say about yourself, what you do and how the company acts. This, in turn, defines the experience you want your customers and partners to have when they interact with you. For example, a technology company like Lenovo which stands for providing ‘smarter technology for all’, now the products, services & solutions it offers to the customers, should be able to provide the same value to the users that the company communicates, and that’s where Marketing function’s role becomes important in synchronizing company’s actions and words. So, the marketing function communicates this brand value and promise through press releases, corporate events, media reviews and other public relations activities. It establishes the goodwill of the company and the social contributions that the company makes. In today’s world, where your company’s culture matters more than ever since consumers want authenticity, marketing functions always find ways to showcase the company’s culture which is the values and beliefs of the organization.
Drive growth for business: When it comes to driving growth for business it helps generates demand for the company’s products and services. To achieve this, the marketing function conducts research into understanding what motivates customers to buy certain products and where they get their messages regarding products and services- which means which route of communication channel do they get the message. Basis the research, marketing functions decide what message needs to be communicated and where it is to be communicated. Communication Channels can be print, broadcast (TV), internet, outdoor or mobile advertising. It includes public relations campaigns, loyalty programs, coupons, discounts, sales promotions, social media channels, blogs, direct mail, and catalogues. The important thing to note here is only after the Product, Price and Place functions of the Four Ps are complete do marketing teams look at promoting products.
Market Research: Another important role of the marketing function is to act as the Voice of the Customer. Marketing teams use surveys, focus groups, retailer data and other research to learn what consumers want and then feed this data to the product design, development, and the R&D team. This helps gets ideas for product enhancement or a new product launch.
Marketing Communication: Marketing proactively identifies the products and services to focus on over the course of the sales cycle, and then produces materials and communications that get the word out.
Hence it is the Marketing function’s job to reach out to prospects, customers, investors, and the community while creating an overarching image that represents the company in a positive light.
How marketing function helps in business growth?
Now that we have looked at the important role which marketing plays, let’s talk about how marketing function helps in a business’s growth at different stages of a product’s lifecycle.
During the introduction stage of a product or service, where the objective is to onboard new customers, the marketing team helps to drive customer acquisitions by offering discounts, coupons or getting new customers through brand partnerships. Take the example of online ordering apps, you may get discounts for ordering groceries from APPs like ‘big basket’, ‘Flipkart’, ‘Swiggy Instamart’ or you will get 25% off on ordering medicine from TATA 1mg or Pharmeasy. Even so, you may get a discount on buying insurance from apps like ACKO, Digit or Ditto Insurance. The primary goal here is to create brand awareness and induce trials/ app downloads. The discount given here is the cost which the company incurs in acquiring the customer.
Growth Phase -> In the growth phase, the marketing function tries to grow the customer base through a referral program (since the cost of acquiring a new customer is low here). It starts to do promotion in the mainstream media like digital, social, print, and TV (where the cost per user would be lower than the Introduction Phase). This phase also involves cross-selling products to the existing customers to grow revenue from them.
Maturity -> During the maturity phase, the marketing team’s entire campaign and the program will shift towards the retention of the customer and Premiumization (which is selling higher-value products to customers. Upselling a better product than the customer was buying earlier. In this phase, the company understands that it’s time to find different avenues for growth due to market saturation or slow growth of the category, hence it starts to introduce different products or business lines. For eg: Lenovo is a world leader in providing smart devices like PCs, servers, tablets, smartphones & more. The company a few years ago pivoted itself & started building expertise & capabilities into creating a service-led technology solutions company much ahead of the maturity phase of PCs to enable different avenues of growth & also to become a brand of choice for all technology solutions to customers.
Now depending upon the product and the phase it is in the marketing objective changes.
Let me share some examples of a few products, their stage, and the marketing communications. Mutual funds as an investment instrument still have low penetration in India, hence, to drive growth, the job of the marketing function is to change the user behaviour towards equity investment and encourage people to save for the future. Likewise, if you see Cars, which is again a growth market in India, the marketers have the job of communicating its features, and benefits, evoking emotions – luxury feeling, ownership of having a call, the thrill of riding an SUV and so on. Only a few times, a product’s organic demand may be able to drive the business growth that too in the initial days, but as companies would look for more growth, the marketing function role becomes important in getting more customers to buy that product or service.
On the other hand, products like selling a mobile SIM Card or a DTH Satellite Cable connection, which is in its decline phase there the telecom companies start to pivot and start offering other product lines like the internet broadband connection, subscriptions for OTT apps and channels. Here the objective is to retain the existing customer by offering them add-on services or products rather than losing the customer.
As a business owner, category or business manager, before you ask the marketing function to help you grow the business, it is important to lay down what objective you want to achieve. Whether you want to create brand awareness because your brand or product is new or want their help to generate demand because you want to grow the business, or if you are a leader or a strong player and you want to protect your market share. In each of these, the marketing activities would be different – it could be driving trials to create awareness, offering promotions to grow the business, or communicating the unique features and value proposition to protect switching customers to another brand.
Many times, category managers miss this important point and ask to do too many things which may not give the desired result. Hence having a clear objective is important.
Now when you have launched a product and are looking for customers to join, your marketing pitch can be based on discounts, coupons, or lower prices than others; but as you grow forward into the growth phase differentiating product features from the competition takes centre stage than discounts; communicating clearly what additional benefits is that feature bringing to user’s life becomes important. Beyond that what is the higher objective that the brand is trying to achieve is what convinces customers to stick with the brand in the maturity phase of the product and when the company launches any new product. Like Nike as a brand which stands for extreme athleticism, its mission is to bring inspiration and innovation to every athlete in the world and communicate their story through different products hence at each different stage of a product, the customer sees this common objective and gets convinced with what the brand is communicating and thus sticks with the brand.
In this post, I will talk about the importance of sales channels and their different types. I will share the key factors to decide which sales channel to use and why a particular company chooses one sales channel over another. In the end, I will also help you decide or determine which are the best sales channel for your business.
What is a Sales Channel?
The sales Channel is the medium or route through which a company’s products and services reach its customers, meaning it is the place (physical store or online website or a mobile app) from where the customers buy the products or services. If you have recently bought a product from any E-commerce website, you have used the online sales channel of the company. If you walked into a car showroom or a in a shopping mall to buy clothes, then you have visited the retail store channel of the company. Alternatively, a sales channel can also be considered a source of revenue for a manufacturer through which products or services are sold. For example, farmers who grow fruits, vegetables, and commodities, take their produce to the city markets to sell. For them, the sales channel is the marketplace where they sell their produce.
Now the definition of sales channel is out of the way, let’s understand the Importance of Sales Channels
A sales Channel also called a distribution channel is a very important part of the 4P Strategy. Place in the 4P strategy denotes the Sales Channel. Howsoever, great the product is, unless the product is available at the convenience of customers, sales of the products would be poor. Because of the high importance of this element in the 4P Strategy, companies spend millions of dollars in ramping up their distribution networks so that the product is available even in the farthest and remote places in a vast country like India.
Take FMCG products like soaps, biscuits, and shampoos for example which are available in all the towns and even in villages. Another example is numerous finance companies rolling out gold loans, vehicle & property loans have opened their branches or sales channels in rural areas closer to the customer to ensure higher penetration of financial products in the country.
So, what are these different types of Sales Channels
Sales channels can be divided into two types – Direct and Indirect.
The direct Sales Channel is where the company is interacting with the customer directly through company-owned stores, showrooms or through the official website which is the company’s online brand store. It is also through a dedicated sales team or account team in the case of Business-to-Business sales, that interacts directly with clients or customers. In the case of direct sales channel, whether it is the physical store, online store, or an interaction with a customer through the sales team, the company always has the opportunity to showcase its capabilities & strengths & it also gives a window to give the best experience to the customer.
Moving on to the Indirect Sales Channel which is the Resellers
Resellers are the ones who sell products and services on the company’s behalf by adding value. For example, the distributors, stockiest and the retailers in the case of FMCG products are the resellers. They add value by keeping the inventory and offering different varieties of products which the customer may need. Online Market places like Amazon & Flipkart, and large retail chains like Dmart, Croma etc are also examples of Resellers who offer availability, variety and delivery of products.
Companies use different combinations of these sales channels depending upon the type of product and the type of business it is into. For example, a computer manufacturing company like Lenovo, HP or Dell will have a deep distributor network & also an online presence on E-commerce websites for its business to consumer products where it caters to home users who need a computer and would require the product to be available easily. At the same time, for its B2B business, it would have a direct relationship with the customers and clients. Hence if it is B2C the strength of the channel matters & in B2B direct connection is important.
This brings us to know How to decide the Go-To-Market for your business
Your Go-To-Market strategy really depends on the customer segment you are targeting. Obviously, this strategy can be different for different markets & companies even for the same product. The bottom line is products or services should be made available conveniently.
Let me give some examples, let’s say an FMCG company like HUL or Britannia wants to launch a new soap or a biscuit and wants to increase its presence. Since these companies already have strong distribution or sales channels, they can simply place that new product at all their retailers and enables customers to have a trial of it. This way companies make products available and create awareness.
On the other hand, there are smartphone companies like SAMSUNG, Motorola, and Xiaomi who may want to launch their new smartphone on an E-commerce website first (like Flipkart or Amazon) because that’s where most of the customers are buying the electronics from.
Few companies are also trying to offer the best of both worlds (traditional and digital) like lens kart, CaratLane, and Tanishq where you can choose online which sunglasses or jewellery you would like to buy, and they can come to your home to offer you trials. This is called Omnichannel where you can select which laptop or smartphone you want to buy and that will get delivered from a nearby brand store to your house. The best part about Omnichannel is, that you can also contact the same store for any software or service-related concerns.
If you are a new-age entrepreneur having your own business – you could also start ‘Direct 2 Consumer’ by offering the product through online channels & once your brand establishes, you could add more traditional channels like retail stores. Take Direct to Consumer FMCG products companies like mama earth, the man company, and WoW Skin Science, who are selling cosmetics through E-commerce platforms like Amazon and Flipkart and have built strong businesses and brands. A similar example from the financial products space is the neo banks, and fintech companies like digit insurance, and ditto insurance who are offering insurance products directly to consumers without the need for traditional agents’ channels.
So, what we learned here your go-to-market really depends on the customer segments you want to target and the selling focus required in selling that product or service. If it is a fast-moving mass-market product B2C routes to market like traditional channels and online channels are used. However, if it is a solution or a niche product or service it needs a dedicated salesperson’s involvement as it was in the case of a B2B sales.
The important thing to note is, that the higher the focused selling skills or value involved, the higher will the be the cost of the sales channel for the company. The cost of an account sales team would be higher than having a consumer website catering to all customer
Summary
A company can have multiple sales channels to sell the products like resellers, eCommerce, partners, kiosks, and branches. You need to be present where the customer is going to search for products. Not only this is true for traditional businesses but also true for new-age businesses.
Hence choosing the right sales channel needs studying the target customer segment deeply. If you are an established brand, then your wide presence becomes important, which means the brand should be visible everywhere. If you are a new business recently started, selling products to consumers directly online can be beneficial in the beginning then you can expand to traditional channels later.
In this post, I talk about the importance of having a winning pricing strategy & how to do pricing of products effectively when you are planning your business or product category. I will explain this through examples of different pricing strategies and my learning experiences in managing product categories.
Why is a winning pricing strategy important?
A pricing strategy is a way through which one achieves the revenue, margin & market share objectives of the company. The way you price your products or services reflects the business’s identity, how you view and treat your competitors and how you value your customers. That’s why it’s important to have a carefully planned pricing strategy.
How to decide the price?
Here, I will be talking about the first pricing strategy which is the Cost-plus price strategy.
Cost-Plus Pricing is a pricing method in which the selling price is set by evaluating all variable costs a company incurs and adding a markup percentage to establish the price. So, the price will be set as:
Price = Cost + Profit Margin
Cost is something that comes after factoring in the product’s manufacturing cost, freight, customs duty, distribution expenses, marketing expenses & other miscellaneous costs.
How much margin can you keep?
If you’re pricing for a category that is highly competitive with multiple players & no significant differentiation In the products, chances are your margins would be lower. An example is commodity products like groceries, staples, or metals where there is no value addition.
However, if the competition is low and there is considerable value differentiation in your product you can drive higher margins.
Let me take an example from the computer accessories category which I was managing at work. Since the branded organized market has lower competition and because Lenovo’s products were differentiated and of superior quality, we were able to drive a higher margin.
The cost-plus pricing strategy is mostly used for physical products from manufacturing companies where there is a relatively predictable fixed cost (such as raw material, labour, maintenances, shipping etc), it is easy to assign a profit margin percentage using markup pricing on top that sustains the business.
This strategy is fast to implement and easy to calculate, however, it lacks connection with the value your product provides to customers & it also makes it difficult to change prices when necessary.
This brings me to the second pricing strategy:
Competitor Based Pricing Strategy
In this type of pricing strategy, a category or product manager maps the products as per the competitor products’ pricing.
Have you noticed that you pay roughly the same amount for Netflix, Amazon Prime Video, Disney+ and other streaming services? That’s because these companies have adopted competitive pricing.
For a new player who wants to establish a foothold in the market, this type of pricing strategy is ideal. This gives us the current pricing structure running in the market. If the new company also has equivalent features or even superior product features, following this pricing strategy helps get a share of the market early as a similar product already exists in the market. If you’re in a competitive market, pricing for the companies involved should be close to what the market can reasonably sustain.
This is true for already existing/established businesses as well, who are required to offer equivalent prices as per competition for similar features products to maintain their market share. But the biggest downside of competitor-based pricing is that you are not using your pricing strategy but following the competitors’ pricing strategy.
Ways to overcome this challenge:
A company or product the company exists to offer customers something different to what is already on the market. A category or product manager should always strive for: Can they offer more value to customers and get a higher profit on their products?
This is a constant process where you as a product manager need to constantly work on improving and bringing differentiating features from your competitors. If those features are unique it may provide stickiness to your customers – then they will stick with your product as well as will pay you more.
Let me share an example of a product that is called a docking station or a multi-port hub. This product is used to connect multiple accessories to a laptop-like a keyboard, mouse, extra display, printer, charge your laptop and so on. Since it is a Universal product every big OEM like Lenovo, HP, Dell, and Targus would have their own docking station. What Lenovo, where I work, did is – we brought a Universal dock that had the latest ports and had free software bundled in it to allow automatic firmware upgrade whenever Lenovo would launch a new version of the software upgrade. Also, the software helped to manage all the devices connected to docks.
In this way – companies can offer better value for similar product features and can increase their margins. Also always communicate the benefits of the product to the customers and not the product features. The benefits are how your product is going to help the users – like this dock will increase the productivity of users because this dock expands the potential of the user’s laptop device by giving them the option to connect with multiple displays and peripherals.
The second way to overcome this margin challenge is by creating a superior brand value. Let me give an example from Paints Industry where there are multiple players in the Indian market and competition is also quite tough. Amidst all these, a company like Asian Paints has been able to create a superior brand value through its multiple brands, unique marketing, strong distribution network and channel-centric policies. Not only this superior brand value helps retain higher margins but also helps to pass down the prices in case of any input cost increase.
Penetration Pricing / Aggressive Price Strategy
Penetration pricing is an acquisition strategy for companies that are trying to gain a foothold in highly competitive markets. These companies “penetrate” the market by offering a lower price than their competitors—enticing customers away from their current provider to gain market share.
In this type of Price strategy, you take over a market by undercutting your competitors. Once you develop a reliable customer base, then you try to raise prices. Many factors go into deciding on this strategy, like your business’s ability to potentially take losses upfront to establish a strong footing in a market.
Penetration pricing is a popular tactic in the business-to-consumer (B2C) market. The competitive nature of these products and the number of choices most consumers have made it difficult to gain a footing in a new market without a strong acquisition strategy.
For example – Reliance Jio – a telecom service provider launched its telecom services few years ago in India and penetrated the market with an aggressive price strategy. It offered free data and voice connections to users and charged a fixed monthly subscription fee. As all these services were offered at a cheaper price, customers switched to Reliance Jio. If Reliance Jio had priced itself closer to AIRTEL as the biggest service provider at the time of launch, it would not have been able to build its customer base as faster.
When you’re deciding whether to implement a penetration pricing strategy, it’s important to understand when it can help your company and when it can hurt it. Entering markets quickly can be very enticing but will require more work to maintain your place once it’s time to increase the price.
This brings me to the last pricing strategy which is Value-Based Pricing or customer-based pricing.
It is mostly used for B2B companies where there is a customer-specific product or service is sold. It is used commonly for software products, cloud-based products & services.
What is the value-based pricing strategy?
Value-based pricing is a strategy that defines the price of a product or service based on what the target customer believes it is worth. It involves offering a unique value to customers, based on what they need and basing your prices on how the customer perceives the value of your product or service. Rather than looking at competitors or the market or the cost of the product, you go directly to the source, the customer, and choose a price based on what they’re willing to pay.
For example, in IT Services Industry for a software project, pricing is done basis the requirements of the client, the timeline of the project, the level of expertise required to execute the project and the number of resources required. Considering all these factors, the pricing for one client may differ from the other. Hence the pricing is based on the value that the customer is deriving and willing to pay.
Value-based pricing strategy can also be used in a product company that is selling services or software with their products. For example, a computer manufacturing company sells laptops to their B2B clients which further is to be used by their employees, the company can also upsell a lot of services & software like service of managing all the assets, 24*7 support services to reduce downtime of employees’ devices, remote device management software, endpoint security solution software to prevent malware attack on user’s laptop. By offering these value-based products/services which are unique and differentiated, a product company can price these products & services basis the value it gives to customers instead of a fixed price that is not derived from the product’s cost.
How is value-based pricing calculated?
To calculate prices using the value-based method, one needs to deeply study the customer profiles/segments or existing data on your customer base, as well as talk to customers about how much they value your product. You can use this data to create different price points based on different profiles and customer segments and the variations in what these segments are willing to pay. It also gives you unique flexibility in finding and implementing price points that suit different types of customers.
Why is value-based pricing important?
Value-based pricing is important because it involves looking outside to the customer, rather than basing prices on things like cost or competitors. This ensures you’re not restricted to basing your pricing on existing pricing structures or on achieving minimal profitability, but instead on a customer’s willingness to pay.
Also knowing what your customers value always will make evolving your product and features an absolute must. Finally, since your customers are determining product value, you need to communicate with them quite a bit. This constant communication builds great company & customer rapport. You’re building trust and this trust can lead to good things down the road, like higher retention and less churn.
However, figuring out customer valuations is more difficult than it sounds, which is why so many companies opt for cost-plus and competitor-based pricing.
Summary
Too many businesses set their pricing without putting much thought into it. On the contrary, getting product pricing right can act as a powerful growth lever. If you optimize your pricing strategy so that more people are paying a higher amount, you’ll end up with significantly more revenue than a business that treats pricing more passively. This sounds obvious, but it’s rare for businesses to put much effort into finding the best pricing strategy.
If you’ve already launched your business, you can experiment with these strategies until you determine what works best for your business. You can also vary strategies between products depending on the market for each good or service. For example, even in the same product category where you have a cost-plus strategy to achieve a certain profit, you can choose to have a few products which are more aggressively priced than the competition to gain a higher share of those products. In this way, you are having a hybrid strategy that is optimizing your profits and at the same time allowing you to gain more market share and thus helping you to increase the revenue.
The simple answer is to generate more revenue. But that’s not it. Because if companies won’t introduce new products, someone else, the competitors would do it and would take away the market share and the company would lose revenue. Now Let’s go a bit deeper also into finding more reasons.
So, customers’ needs keep changing, take cars for example – in the last 20 years, customers’ requirements have evolved significantly. Even a basic car today should have an infotainment system, automatic transmission, keyless ignition, and many other features which were once considered to be premium features, today most of those features have become essential, hence companies need to keep introducing new products to stay relevant in the market.
Another important reason is that technology is upgrading today at a much faster pace. Take the memory capacity, storage size or the camera of your smartphone. Due to this frequent & fast upgrade, the product life cycle is becoming shorter. Hence companies are forced to bring newer products faster. Another reason is those good companies who spend a lot of effort & money in their research & development. Those companies keep bringing newer products into the market to showcase their innovation, and strength & to establish their dominance in the market. An example would be Apple which keeps launching newer products like the apple watch or air pods or Nike would be launching a new shoe every year for runners to showcase their technology and R&D efforts.
Also, big companies that have multiple product lines or business lines – introduce newer products or platforms to diversify their revenue. Think about Alphabet (parent company of Google) as an example. Let’s say magically if Google Search is no more, YouTube still makes a lot of money for the company.
How do companies introduce or add new products?
Product line extension
A product line extension is when a company uses the same product or brand name for a new item in the same product category. For example, when a soft drink company offers a new flavour of the soda. Or when a toothpaste company has a product that focuses on whitening teeth and then provides a toothpaste that reduces tooth sensitivity. Another example could be 3 different sizes of iPad because there is segmented demand for three sizes, so Apple is going to make sure the demand is met. As opposed to, creating just one size, and having a percentage of people not buy it because the size isn’t right for them.
2. Brand extension
Brand extension is when a brand or company known for selling one type of product starts selling a different type of product or a new product from a different category. For example, Saffola is a brand name of edible oil from Marico, under the same brand name, the company had also launched Oats, Protein-Shake, Honey, & multiple Immunity boosting products. Similarly, Dettol which started as an Antiseptic liquid extended the Dettol brand name to many other product categories and launched new products like Dettol Soap, Dettol liquid handwash, Dettol hand sanitiser, and Dettol Laundry Sanitizer.
An important point to note is that companies try to keep the underlying brand messaging uniform while creating brand extensions, like Saffola’s is known as a Healthcare brand bringing related products and services, similar Dettol as a brand is also known for protecting health for over 80 years, hence all their products would try to convey the same message.
Both product line extension and brand extension have their own advantages. Extending a product line is less risky than performing a brand extension because customers are already familiar with the existing products and are more likely to try the new product. The new product can leverage the same retail partners, supply chains, packaging, and other things that it shares with the old products. Less advertising and communication are required because of the similarity to the old and well-known products. However, with this less risk, there is a less potential reward as well. The brand is essentially competing with its old products. There is less opportunity for incremental sales because sales of the new product might come at the expense of the existing products.
The third type of new launch is when a company decides to make the existing product end of life or is planning to launch an enhanced version of the existing product. In that case, the company introduces a rollover product or replacement to address the existing demand.
How to plan the launch?
If the new product being launched is a replacement of an existing product then a product or category manager must ensure with the distributors & channel partners, else chances are customers might not want to buy the old product when the new product hits the market, and the company would need to provide discounts to sell the old one. On the other hand, if the inventory levels are lower, a company need to ensure all the existing orders of customers & partners are fulfilled before launching the new one.
Generally, in the case of B2B products where companies work with clients/customers directly, they need to inform them in advance of the planned phase-in and phase-out of the products.
However, if the launched new product is an extension of the existing product category, it is important to minimize the cannibalization of the existing product, which means that the new products should not hamper the sales of existing products in the category. Let me relate it with an example I gave in my previous video, of the backpack which we launched as a part of my category manager role at Lenovo.
So, to cater to the specific requirements of an entry-level backpack or bag we had launched a backpack at $7, before this we only had a backpack of $13 in the portfolio. While this new product was to cater to different requirements, we also ensured this product is not being utilized for the current requirement else it would have hampered the sales and might result in cannibalization of the existing product.
Whether the new product is a replacement of an existing one or a new line extension, it is always ensured that all the quality checks on that product are completed before launch. Any testing to be done or the certifications required to market the product is also ready.
Then comes the final step of planning a structured marketing promotion spread over a period, which typically begins from a teaser of the new product also called a soft launch to a planned promotion on different media as per requirement (like blogger reviews, social media, direct marketing, channel events etc.) to the final launch event of the product.
Having discussed the importance of new products in growing the company’s revenue and how to plan the launch, it is also very important to manage the product’s entire lifecycle well from launch till the product gets the end of life. A product’s life cycle has 4 stages – Introduction, Growth, Maturity and Decline.
Companies that have a good handle on all four stages can increase profitability and maximize their returns. Let’s take the ‘Introduction stage’ for example, this stage requires substantial investment in advertising and marketing, while the company might have developed many products recently but which one or two products to launch out of the many in the pipeline is a decision that is to be taken wisely. Also, if the right product is launched, during the growth stage when the demand grows, it requires less marketing efforts and costs.
Another important factor to focus on is the duration of the product till it will be kept alive. Now different products have different lifecycles.
For example smartphones today typically don’t have more than 6-9 months lifecycle from launch to end of life, likewise, a laptop might have a one-year lifecycle, because as the technology upgrades, the current products become obsolete hence companies need to introduce superior products.
In this case, ensuring the supplies of products till their lifecycle is important and announcing the upcoming products to the customer becomes critical for companies to not lose their spot or market share. Lastly, even while managing the product lifecycle the key element is collecting feedback, which helps to gather insights to improve the product. This gives companies ideas to upgrade the next version of a product.
In this post, I will talk about the job of a product category manager, and will discuss the key roles & responsibilities through examples from my journey as a product category manager.
Product management or Category management roles have emerged as a great career option in the last few years. Besides the big MNCs, there are several Product & Category management roles that have been created by E-commerce companies & tech startups. If you aspire to become a PM or already working in this domain & want to know something more do read this post, watch this video or listen to this podcast.
1. Build a winning Product Portfolio & Roadmap
What is a product portfolio?
A product portfolio is the collection of all the products or services offered by the company. The company offers or sells these products to get more revenue/ profits and market share.
A product portfolio may comprise of different categories of products, different product lines & the individual product itself. For example, A Computer manufacturing company would have product categories like laptops desktops, monitors, accessories. Each of these categories would be managed by a Product Category manager.
How to build a winning Portfolio?
A winning or strong portfolio is where you have various products to offer to different customer needs & preferences.
For example, SAMSUNG which makes smartphones would have different product models like Galaxy M series for budget-conscious customers, Galaxy S series for value buyers, Galaxy A series, S series and Z series for their mainstream and premium product range which offer better features.
Likewise, Hyundai will have different cars in each of their hatchback, sedan, and SUV range (from economy to premium) to cater to different customer needs & segments. So, having a portfolio that can cater to different customer segments can help get the maximum market share of the company.
In this context, it is important to note – since Hyundai understood the different needs and preferences of Indian customers it was able to get a higher market share in the last 25 years, whereas Ford India which also launched its first car in 1996 couldn’t understand customer preferences and lost out in the market.
Identifying a product gap & creating a roadmap
Technology & Customer preferences change at a rapid pace. Hence a PM must constantly conduct market research to identify product gaps or to search for unmet customer needs.
A product gap is basically a market segment that existing products are not serving hence it also provides a business opportunity for companies.
Another way to find out a product gap is by checking what products competition companies have & and subsequently adding if there is any missing product in your portfolio.
For example: In my product manager role at Lenovo, where I was managing the computer accessories category, we observed that while we were able to sell a basic backpack (800 Rs bag) with the laptops (range over INR 30000), we were not able to sell the same backpack with the laptops (which were less than INR 30000) because the users of those laptops were budget conscious & increase of even 800 bucks meant the budget would go up. We identified that since we didn’t have a lower-priced backpack to sell with our laptops, the customers were buying it from competition or local backpack manufacturers as standalone. Since it was a huge business opportunity in lakhs of units, we created a specific design to meet the requirement, ensured the highest quality and then created a new product. By doing so we were able to increase revenue significantly of the backpack category.
2. Forecasting demand & Planning supply
Once you have planned & constructed what products to have in the portfolio, a PM needs to forecast demand on each of those products in the portfolio.
For example: If there are 10 different types of smartphones or 20 different types of backpacks in the portfolio, a PM needs to forecast & load demand on all the products.
It is done by first studying the last 6 or 8 quarters of historical sales of each of the products – how that product has been doing in sales. Then if the plan is to increase market share on one product or to reduce dependency on another product, PM would adjust the demand accordingly. While forecasting demand one also need to consider the supply situation & based on the availability or shortage of supply a PM builds the business plan for the next quarter or year.
For instance, as you may have read or heard that there is a supply shortage on semiconductor chips, due to which many products like laptops, smartphones, cars, consumer durables, smart gadgets which all use one or the other type of chip have a higher wait or lead time. A PM also needs to incorporate these supply-side challenges while planning business for the product category.
3. Drive business growth of the Product Category
As a product owner – you have the complete responsibility of growing the business of the category. After constructing the product portfolio & forecasting demand & supply, a PM needs to create a business plan of all the products in the portfolio. The objective is to use different levers or strategies (generally called 4P’s) to drive revenue & margin growth.
4Ps is a product marketing strategy based on – Product (which is basically the strong portfolio)
Price (let me give an example of aggressive price strategy – let’s say there are 4 car manufacturers in India making hatchback cars, the market leader let’s say in Indian context Maruti/Suzuki feels that this segment will not grow because customer preference is changing towards sports vehicles and already there is strong competition eating into Maruti/ Suzuki’s market share. So, it’s slashing the hatchback cars prices by 5% to maintain or even grow its share.
Place (sales channels) – is the go-to-market strategy by which your products will reach customers. The sales channels include retail stores, large retail chains, e-commerce and so on. If it’s a B2B product it will be direct sales.
Promotion – As a Product Manager you will also need to work with the marketing team to create high impact sales Promotion to drive category growth. For e.g. an FMCG company wants to launch a new product & want to encourage usage or trials of it, a Category manager may decide to bundle it with an existing high selling product at an introductory discount. Once customers have tested the product and it gets accepted in the market, PM would introduce it as a standalone product.
Using some or all the levers & strategies a PM build a business plan for the next quarter and year & works with the sales team to drive the business growth of the category.
4. PM as a Technical Expert
A product manager is considered the subject-matter expert. She helps answer all the technical queries from customers and sales teams.
As a PM your job is to create a compelling product pitch that the sales team can use to talk to customers. It should also outline key selling points & differences over competing products.
A PM needs to make a lot of product presentations; hence the product pitch should have a compelling story as to why the customer should buy your product?
For e.g., it could be because the products have a long history of serving the needs of customers, the innovation that the company does, rigorous testing standards, quality, industry recognition and awards, etc.
Top 4 skills to have:
1. Structured Thinking / Planning
Whether it is planning your product portfolio, forecasting demand, taking any pricing decision, or doing business planning with sales, if you are someone who likes to organize the facts & data available, structure your thoughts and then put things into a business plan. you should be able to do a great job at Product category management.
Because by simply structuring the thoughts, one can rightly assess the given challenge or business opportunity and can also use the data to come up with new ideas or plans. This is an important skill that helps in all walks of work.
2. Collaboration / Teamwork
Collaboration or Teamwork is the most important skill that a PM needs to have. A PM works with multiple cross-functional teams – demand/supply team to forecast demand on products, finance team to work on costs and pricing of products, marketing team to drive brand and product awareness, order fulfilment team to get supplies faster, logistic team to get customers’ orders delivered faster. At the front end, a PM works with sales teams, channel partners & customers.
Unless you have a genuine interest to serve customer requirements and delighting them you won’t be able to work strongly with these different teams. Hence teamwork and strong collaboration skills are a must to build.
3. Communication / Presentation
Having strong communication & presentation skills help you create a compelling product pitch and enables you to create the desired messaging or positioning of your products, which is a crucial factor to define how well your product would be received in the market. If you can communicate the key message & USP of your product or category quite well, you will surely be able to grow the category. Good presentation skills also help while explaining the products to your customer and channel partners. To build this one can practice first finding the key features or benefits of the product and then writing a short description of the solution it’s offering.
4. Data Analyzing
Analyzing data or insights to determine industry and consumer trends is an important skill that one should have or can build to be a product manager. While different tools (like MS Excel, Tableau or Power BI) can help you read & present data, you should be able to analyze the data & make sense out of it.
For instance: one can analyze customer purchase data of a company to identify key user trends/purchase patterns to identify any sales promotion strategy or to identify if there is any product gap in your portfolio. Then the data needs to be mapped with the market insights & customer feedback that a PM has collected to take any business decision. By doing so one can identify huge opportunities to grow the business. Hence data analysis has become the key important skill in today’s time.
Thanks so much for reading this post or watching the video.
In my previous post, I shared how important it is to collect customer feedback to build a strong product portfolio that results in a solid product strategy. A winning or strong portfolio is where you have various products to offer to different customer needs & preferences.
For example, SAMSUNG who makes smartphones would have different product models like Galaxy M series for budget-conscious customers, Galaxy S series for value buyers, Galaxy A series, S series, and Z series for their mainstream and premium product range which offer better features.
Likewise, Hyundai will have different cars in each of their hatchback, sedan, and SUV range (from economy to premium) to cater to different customer needs & segments. So, having a portfolio that can cater to different customer segments can help get the maximum market share of the company.
Premium Hatchback carSedanSUV
In this context, it is important to note – since Hyundai understood the different needs and preferences of Indian customers it was able to get a higher market share in the last 25 years, whereas Ford India which also launched its first car in 1996 couldn’t understand customer preferences and lost out in the market.
Hence you need to get your product strategy right & most importantly put consumers at the center of decision making!
In my previous article, I talked about the 3 biggest learning which I learned as a product manager :
1. Planning / Strategic Thinking
2. Building a compelling product pitch
3. To gather feedback & customer insights
Today, I want to share a product story that is focused on the 3rd learning that is gathering multiple feedback and customer insights to build a product. I thought this product story would be a perfect example to illustrate the importance of capturing customer insights & then meticulously implementing them during the product development phases.
Sculpted for Comfort – New Lenovo Go Wireless Vertical Mouse
Phase 1: Experimenting with vanishing bone lines.
Soft organic contour with optimal curvature to rest the palm with lines following the shape of the user’s hand
Phase 2: Optimize Bone Line contour
The silhouette should follow the shape of the user’s hand with bone-line/parting line contour
Customer Insight: Soften palm area
Keep bone line visible, but bring A and B surfaces closer to the tangent in the area that rests in the user’s palm
Customer Insight: Thumb Support
Integrate a thumb pocket to better support the user’s thumb. Add stability and comfort but keep it away from feeling too heavy or bulky
Phase 3: Explore button placement and sizes
Add side buttons and make models with varying sizes and shape for user testing
Phase 4: Iteration, optimize button clicks and cork coating
Ensure mouse buttons are easy to click with optimal click force
Optimize UV coating on the cork to balance reliability with a soft-to-touch feel.
Lenovo Go Wireless Vertical Mouse promotes a natural handshake position with a 45-degree vertical angle. Holding the mouse at this position helps reduce wrist strain.
Benefits :
Reduce pronation: Pronation is the muscle tension produced when the bone of the forearm and muscle crosses each other
Reduce carpal tunnel: The strain on the wrist area resulting from prolonging contact of the wrist with the surface
Reduce ulnar/radial deviation: Strain resulting from the movement of palm away from the neutral position
Unique and Comfortable Cork Material – Lenovo Go Wireless Vertical Mouse is the world’s 1st mouse that uses a Cork palm grip.
Cork not only makes the product stands out and looks good but also gives it a progressive feel. It makes the mouse feels comfortable and soft to touch. It provides a softer cushion, absorbs and disperses energy wider than plastic. Cork also has good thermal properties, maintaining a warm feeling to touch even in winter.
Last month, I completed seven years at Lenovo & was reflecting on my learning. In this post, I have captured the three most important lessons I have learned in the last three years as a Product Manager. If any of these resonate with you, please drop in a comment to share your thoughts!
Planning / Strategic Thinking!
Product managers(PMs) are the subject-matter-experts. They are considered technical evangelists & they are also the custodians of the products they manage. They get early information access to upcoming technology changes or expected supply shortages in the industry. Hence PMs should do the planning of demand/supply and pre-announce product transitions/upgrades. It helps minimize the turnaround time for customers & helps them in planning their product upgrades/refreshes in a planned way. I learned that a PM should also think strategically about what the company may need to grow to the next stage and drive the team forward. It could be suggesting a new product idea or promotion of a product for market share gain. It could be building partnerships to generate new revenue sources or doing cost optimizations by making products locally / achieving premiumization by introducing high ticket size products to grow profits.
2. Build a compelling product pitch!
I learned this with practice to keep the sales pitch simple (without jargon), minimal & focused on benefits than features. It also helps the sales team to grasp customer’s attention. The pitch should have a compelling story; as to why the customer should buy your product? It could be because of a product’s long history, innovation, rigorous testing standards, quality assurance, industry awards, etc. Lastly, all product collaterals should have a coherent message & should communicate the product benefits.
3. Gather feedback & customer insights!
In any organization, while product development teams would conduct user interviews/market research before the launch, what I have realized & is equally if not more important is gathering customer feedback post-launch. It is done in two ways: providing early samples for customer evaluations & gathering post-purchase feedback.
I recall a conversation with an enterprise customer who didn’t give me good feedback on a newly launched product; we later added the desired feature(which would extend the blue tooth range/coverage of that product by a few meters) in the next version of the product.
PMs should keep gathering feedback from multiple sources – customers / internal users of the product ( dogfooding ), surveys, and 3rd party research. It allows to build further enhancements & also to re-assess the market post the launch.
Lessons from Product Management 