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    5 Ways Product Management Can Improve Your Margins

     Greek essayist Lucius Plutarchus once said, “Learn how to listen, and you will profit even from those who talk badly.” While it may be a bit of stretch to tie Product Management best practices to the Greeks, whether your company is embracing and monetizing a market-driven approach could mean the difference between increasing or declining margins. 

     

    But with so many things putting pressure on profitability, how do you know if Product Management can help?

     

    Here are a few things to look for:

     

    1.    PASSENGERS ARE DRIVING THE BUS

    At the end of the day, Product Management is responsible for making sure that your product investment is spent not only on what customers want, but also what they will pay for. They are essentially ‘mini-CEOs’ of their business with responsibility for listening to the both market and internal stakeholders to drive both revenue and profit for their product line. Other than a few C-level executives, most other roles in the organization are inherently motivated to choose priorities that may not balance both.   

     

    If you let the ‘passengers drive the bus’, even though they may seem happier in the short term, you’ll likely end up taking the wrong route, or maybe even reaching the wrong destination in the long run.

     

     

    2.    THE LOUDEST VOICE WINS

    Whether intentional or not, we all have biases about what our products ought to do, and we may even have a lot of experience to justify our opinions. The problem is that without current, objective data about what the market actually wants and will pay for, making important product decisions based on a few internal opinions is risky at best, and will likely erode your margins in the long-run. 

     

    Part of Product Management’s role should be to make sure there is an on-going process of gathering market knowledge, and that internal voices are only one part of prioritization decisions. To make this possible, company leadership also needs to support the approach so product managers’ recommendations based on market data are not consistently trumped by internal stakeholders with loud voices, organizational rank, or both. 

     

    3.    BEST HORSE IN THE GLUE FACTORY

    How often have you been in a meeting where somebody jubilantly proclaims victory by saying something like, “my product line grew 10% last year, which not only exceeds plan, but is twice as good as the 5% we grew last year!” It’s not that this is inherently bad of course; after all, who wouldn’t be happy about beating plan and growing faster than before? 

     

    However, before you start planning how to spend your bonus, you should ask a few important questions. What if the size of the market grew by 25% last year while you grew 10%? What if your top 2 competitors grew by 30%?  What if you are beating all your competitors and taking market share, but the size of your market is shrinking by 10% annually? How sustainable is your current growth rate in 3-5 years? If not sustainable, do you need to consider new products and/or new markets to pursue? You get the idea….

     

    4.    KILLING CUSTOMERS WITH KINDNESS

    Everybody knows that keeping customers happy is one of the most important things you can do, and that the cost of getting new customers is usually a lot higher than keeping the ones you’ve got. But what does this actually mean for product management? Chances are that your customers are not waking up every morning and thinking about what new problems they will be facing in the next few years, and how your products will need to evolve to address them. Most will be a lot more concerned about fixing that software problem they experienced yesterday, or about adding a new feature that a competitor conveniently pointed out last week. But then, why shouldn’t they? 

     

    Product Management’s job is to understand both current and future needs of the market, and to anticipate their customers’ problems so that their product is ready to address them when the time comes. Your development resources could almost certainly be consumed by addressing customer requests, but if you don’t set investment aside to innovate & develop for the future, you’ll find yourself at a competitive disadvantage, which will drive prices down, which will erode your product margins, which means less money to invest in the product, which means even more unhappy customers, which drives down retention, and so on.

     

    5.    DISCOUNTING YOUR WAY TO GROWTH

    It’s no secret that one of the fastest ways to improve your margins is to reduce discounting, but a key question for product management is why the discounting is happening in the first place? Although incentives such as sales compensation and behavior may not be directly in a product manager’s control, they can define what the product’s value is to a customer by understanding the underlying problems it solves for them, what those problems would cost them to solve without your solution, and why your product solves those problems better than any competitors.   Armed with this information, product management can establish a price that is justified by this value.  

     

    This same info can also help sales to overcome objections to price by communicating value. As importantly, it helps to avoid the trap of letting your competition set your price by demonstrating how your solution is uniquely different, and how it provides value your competitors cannot provide.

     

    These are just a few indicators that you may have room to optimize your approach to Product Management.  If you have others, please chime in!

     

     

    John Hanson is President of MarketView Consulting, which helps companies monetize more value with a product management process for discovering & delivering what the market wants and will pay for.

     

    For more info, visit www.marketviewconsulting.com, e-mail jhanson@marketviewconsulting.com, or call 651-261-0344.

     

     

     

     

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