The Three Enduring Product Strategies
When it comes down to it, there's actually only three ways to persistently win in product.
You can win by creating the same value as your competitors except at a lower cost, creating more value at the same cost, or by creating more value at a lower cost. Period.
They focus on micro-details and customer surveys and market research and validation steps and all the other tactical things that are are important (ish), but I have yet to find an article that explicitly defines as simply as possible what every product team’s fundamental goal should be when building something.
So I’m writing one.
Some orientation. The picture above represents the Value Bar for your product. It’s a lightly adapted version of what is now called the Value Stick apparently? That sounds dumb so I’m sticking with Value Bar. The Value Bar shows the total economic utility your widget provides to the world. It is segmented into components.
The top section represents the total utility captured specifically by the customer (Customer Value)
The bottom line of the Customer Value section represents the price at which you sell your widget
The middle section represents the value you as a product owner capture (Value Captured) with each sale
The bottom of the Value Captured section represents the cost at which you produce (or purchase from a supplier) said widget
The entire bottom section represents the portion of your product which is either eaten up by production or captured by the supplier (if you’re a reseller).
Slightly complex to write out which is why we have a pretty picture.
There are no units for the x or y axis here, it’s a qualitative framework that’s purely relative between the components and I’m going to show you hot to use it to win for real for real.
How do you win temporarily?
Sell your thing cheaper than your competitors, but create the same amount of value with your product. Here’s what that looks like.
You’ll grab more customers in the near term, but unfortunately you’re reducing your share of value captured too. Not great, but usually manageable. Unfortunately, the real reason why this is only winning temporarily is because your competitors can just…lower their prices too.
This is called a price war. And while it is generally good for customers in the short term (they can buy the same thing they want more cheaply), in the long term you (and your competitor) each capture less and less value for your products and services until you run out of money and die. So how do you avoid this?
Certainly not by talking to your competitors about chilling out about undercutting each other on price. That’s called price fixing and it is bad (not legal advice).
You avoid death by being better than your competitors on either production cost or value creation. Full stop.
Being Better on Cost
Maybe you have a more efficient factory. Maybe you have a great supply chain. Maybe you have a more brilliant team of engineers that design a widget that uses less materials than your competitor, but still provides the same great utility for the customer. The source doesn’t matter, but the existence of your operational edge does.
Check it out.
See how you’re capturing a larger share of value than your competitor at the same price? There’s no need to cut prices because this creates a compounding advantage where the value you earn per unit sold is relatively higher so you can reinvest more into the already better processes you’ve built to grow the advantage even more.
So keep investing in ways to reduce your cost so you can stay better on cost.
Being Better on Value
Maybe your widget is just better. Maybe you’re filling a need that other competitors in this space haven’t realized is a real need. Maybe your competitors let their quality standards slide. Again, the source doesn’t matter, but the fact that you’re providing more value is key.
Again, your sale price doesn’t need to change here. You will gain more customers over time because you’re providing objectively more value than other products in the market. Accordingly, while the relative share of value capture per unit sold stays the same, the higher overall number of customers means your pot of reinvestment capital is bigger. This let’s you build better products to extend the value gap even further.
So keep investing in ways to increase your value so you can stay better on value.
Being Better on Cost and Value
Maybe you’ve somehow managed to have better factories AND better widgets. Wild.
So now you have a higher quantity of customers because of the value component and then you also capture a higher amount of value per customer to create an incredibly powerful flywheel of progress.
Don’t let that advantage become complacency.
Use those advantages to build a better product and design better processes and create more value and reduce more costs.
That’s it. That’s the framework.
There’s tons of variation on these themes and most products aren’t perfect substitutes, so there’s plenty of room to play around with the price and cost and value capture components, but all of the nuance in the world doesn’t change the fact that you need to either create more value, create the same value at less cost, or both with your products.
I hope this added value to your day.
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