What business are you in? Beware of ‘marketing myopia.’
An essential ingredient in your strategic planning process is to complete an objective analysis of the effectiveness of your range of products and services (‘products’ is used subsequently as a generic term for ‘products and services’).
Effectiveness here is defined as the ability of your existing products and New Product Development process to meet the needs of customers both now and into the future. The objective is to enhance your perspective about all aspects of product sales including market share, margin, costs of production-delivery-opportunities for range extensions –further niche-micro-segmentation opportunities -alignment of the product with your brand and most importantly alignment with your business model and strategy..
Revenue from current products is of course addictive but like your strategy and business model it can anchor you in the past and blind you to emerging market potential.. particularly if emerging trends are likely to result in lower margins.
Theodore Levitt coined this phrase “marketing myopia” in the last century –in short the principle is that companies miss opportunities by focusing purely on product sales (i.e. this is what we have, who can we sell it to..) as opposed to ‘meeting customer needs’(which inevitably change and evolve).
For example Lead Your Industry offers services to assist organisations to develop a new Strategic Plan using a specific methodology BUT we are actually in the business of transforming businesses through the development of an inspired vision – a robust business model, an engaged leadership and team. It is the outcome from our service offering that our clients seek and hence we need to ensure our service suite continues to offer that outcome.
Having gathered understanding of customer needs through our research process (see ‘Developing Market Insight blog post….) the next step is to objectively evaluate the viability of your existing product suite in meeting those needs. You’ll need to assess your ‘market penetration’ of existing customers, segments –channels to market and price points and whether each is in growth, flat or in decline mode. You’ll need to benchmark your product suite against the competitive landscape. How effective is your innovation –New Product Development process –what revenue do you achieve from new products each year? Ultimately you need to determine if your challenge in building growth is either the attractiveness (or otherwise) of your product suite or the efficacy of your sales and marketing resources.
Eventually the law of diminishing returns applies- and that’s when the market penetration of your product has reached the point where the marginal cost to acquire new customers is almost equal to the lifetime value of those customers i.e. you have about as much market penetration as you can get… Tell tale signs of this are when – sales revenue reaches a plateaux –or starts to decline –aggressive, nimble competitors are putting pressure on margins, market pressure for range extensions – poor sales from new product launches etc etc. These signs suggest a new approach to product development is warranted –but there may be other opportunities for your existing product suite.
New Market Opportunities –the Ansoff Matrix
Are there new markets/ channels for your existing products –can you create, design, build once and sell via multiple markets? Exporting is an obvious example of developing new markets and that can be a lucrative way of extending the return on key products but what about new channels in your domestic market? This of course is a strategic decision –the Ansoff matrix is a useful tool for building a strategic approach to product and market development. See below
An example of the application of this model might be a legal firm that currently specialises in Commercial Law. A Market Penetration strategy would be to simply focus building more customers within the existing market. A Product Development strategy might be to add Family law to the product suite. An example of a Market Development strategy for a ‘local’ firm would be to establish a national or indeed international presence. A Diversification Strategy for a legal firm might be to offer dispute resolution services into the not for profit sector…. Of course as the strategy shifts towards the ‘new’ (markets or products) risk increases so too does resource requirement but so too does potential reward…. Hence the product development strategy followed needs to be aligned with the overall business strategy and appropriate resources applied.
Where to Next – Innovation?
So you have a picture of your current market penetration, the opportunities for new product / new market or diversification strategies so you can start to decide what resources would need to be allocated and the likely return on investment. But what of the longer term future? How important is innovation is to the success of your business and how would you evaluate the capability of your business in terms of the development of new product ideas and their successful implementation?