TMitTI 1 © Sakari Luukkainen Technological change Market change Standardization Productization Marketing R&D Technology Assessment and Forecasting Market Assessment and Forecasting Innovation process

TMitTI 2 © Sakari Luukkainen Michael E. McGrath: Product Strategy for High Technolgy Companies Amazon et al ~35 €

TMitTI 3 © Sakari Luukkainen Content Vision and Strategy Product Platform Strategy Product Line Strategy Leveraged Expansion Sustained Differentiation Product Pricing First-to-Market vs. Fast-Follower Strategy Global Product Strategy Cannibalization Growth Through Acquisition Process of Product Strategy

TMitTI 4 © Sakari Luukkainen Strategic Vision Everything in a company should be done for purpose, which is to make money, to make money company needs products and/or services, to know what they are there should be a direction which is defined in a strategic vision Good strategic vision has focus, clarity, completeness, feasability Where does company want to go, how will it get there, why will it be successful?

TMitTI 5 © Sakari Luukkainen How Vision Guides Strategy Directing technology strategy Defining core competence Focusing the efforts of identifying new product opportunities Setting expectations for customers, employees and investors Establishing a framework for product platform strategy

TMitTI 6 © Sakari Luukkainen Product Platform Strategy Platform is an architecture of the common elements implemented across a range of products Key elements in the platform represent defining technology Dictates life cycle, capabilities, limitations Based on core competence Difficult to copy by competitors The choice if defining technology is perhaps the most critical strategic decision that a high tech company makes

TMitTI 7 © Sakari Luukkainen Product Platforms Product 1Product 2Product 3 Product 1A Product 1B Product 1C Element A Element B Element C Segment A Segment B Segment C Common platform Defining and supporting technology elements Unique segmenting elements, common channel elements Product 5

TMitTI 8 © Sakari Luukkainen Benefits of Platform Strategy Focuses management on key decisions at the right time Enables rapid & consistent product development Encourages a long-term view on product strategy Dominant design position achievement Resource and channel synergies – parallel cost and differentiation advantage Can leverage operational efficiencies R&D costs – reuse Manufacturing costs – economies of scale Makes marketing and support easier – segmentation and channel reuse –> more value by decreasing unit cost

TMitTI 9 © Sakari Luukkainen Product Line Strategy A time-phased plan for developing products from a common platform, each product targeting a specific market segment The true potential of a platform strategy is extracted with an effective product line strategy Covers all primary targeted market segments Each product offering should be sufficiently focused Time-phased scheduling / sequencing –all products cannot be released simultaneously –priorization Similar products / product lines are coordinated –To avoid rework and confusion in marketing and among customers

TMitTI 10 © Sakari Luukkainen Based on what customers are trying to do with product or who is customer Based on differentiation High-end version first and then low-end by subtracting value from it New features first to high-end, then diffuse to low- end as competitive upgrades Three versions is a good default choice, most revenue from the middle version Creation of metrics for continuous evaluation of product profitability Segmenting Products

TMitTI 11 © Sakari Luukkainen Leveraged Expansion Case studies show that: The success of expansions to new product markets depends highly on ability to leverage: –Existing market knowledge –Technical skills

TMitTI 12 © Sakari Luukkainen Leveraged Expansion (contd.) Existing Platform Management New Segments Leveraged Expansion Strategies Diversification

TMitTI 13 © Sakari Luukkainen Sustained Differentiation ICT products cost of production is dominated by the “first- copy R&D costs”, and cost of distribution is falling This cost structure leads to substantial economies of scale without capacity constraints Competitive forces tend to move the price toward marginal cost A vector of differentiation enables sustained competitive product differentiation by continuous incremental innovation along as specific path with distinct benefit or value proposition Positions, segments, evolves through life cycle Differentiation as vector not point, product roadmap

TMitTI 14 © Sakari Luukkainen Relative positioning

TMitTI 15 © Sakari Luukkainen High-Tech Differentiation Unique features Measurable benefits Ease of use Improved productivity Protecting the customer´s investment Lower cost of product failure Higher-performance products Unique fundamental capabilities Design Standards Total solutions Total cost of ownership Brand Convenience

TMitTI 16 © Sakari Luukkainen Risks of differentiation Not sustained Insufficient proximity to price Customer preferences misunderstood High cost Unfocus Subsegmenting the market Emerging technology Perception of differentiation

TMitTI 17 © Sakari Luukkainen Product Pricing Offensive Establish price leadership as the basis for competing Penetration pricing to increase the market Experience-curve pricing to discourage competition Compete of price/performance Promotional discounting Defensive Adapt to maintain highest competitive price Use price to segment the market Skim pricing Value-based pricing Redirect product line sales by bait-and-switch pricing

TMitTI 18 © Sakari Luukkainen Product Pricing Risks of offensive pricing price leadership not sustainable price war no supporting cost advantage Sources of cost advantage design economies of scale supply chain superior techology R&D process global scale

TMitTI 19 © Sakari Luukkainen Advantages of Being First to Market Market share advantage Earlier experience Influence to standards

TMitTI 20 © Sakari Luukkainen Advantages of Being the Fastest Nearer in time to the market Get ahead and stay ahead Can user newer technology

TMitTI 21 © Sakari Luukkainen First-to-Market Strategies Be the first to upgrade products with new technology Respond rapidly to market changes Introduce continual product innovation Be the first to create a new market Fast-Follower Strategies Wait until a new market is clarified Reverse-engineer successful competitive product

TMitTI 22 © Sakari Luukkainen Entering the market prematurely Compressing product lifecycles Relying on an inferior product development process Risks of Timing Strategies

TMitTI 23 © Sakari Luukkainen Global Product Strategies Develop products uniquely for country markets Leverage country-specific product Customize global product platform Develop universal global product

TMitTI 24 © Sakari Luukkainen Cannibalization Causes of Unfavorable Cannibalization New product creates less profits New product requires siginificant retooling Greater technical risks Offensive Strategies Attack market leader Introduce new technology first Defensive Strategies Cannibalize yourself before competitors Continue as technology leader Pricing Specific market segments

TMitTI 25 © Sakari Luukkainen Growth through Acquisition Acquire product platform to expand into new market Acquire technology and technical skills to develop new product platform Acquire market and channel expertise to enter new market Acquire a competitor to strengthen a current market position Acquire a company with the capability to diversify into new market

TMitTI 26 © Sakari Luukkainen Strategic Balance Trade-offs Focus vs. diversification Short vs. long term Current vs. new platform One business unit vs. another Research vs. development High vs. low risk Financial return

TMitTI 27 © Sakari Luukkainen Process of Product Strategy