The evolution of the product portfolio
Typically your portfolio starts with a single product. After some time your product becomes successful, and you start to create a few offsprings of your product – a cheaper version, a variant with more features, your product translated into a few languages, etc. It feels like starting a family.
Your product is doing well, and you feel it’s time for a brother or sister product. A second product line is being added to the portfolio and all of a sudden you are ending up with quite a portfolio of offerings. We are all collectors right 🙂
Then things become a bit tricky. Adding products is nice, but after some time your portfolio needs maintenance. You have to start spending some of your expensive resource time in keeping the portfolio current. This energy cannot be utilized for expanding your horizon. At the same time you are recognizing that some of your new babies are not selling at all, did you make the wrong choice, or are you not spending enough time on marketing. Other products are doing fine but the margins are very low, did you set the wrong price, or do you need to work on upsell alternatives. OMG, this is starting to feel complicated. Recognize the feeling? Welcome to the world of portfolio management.
What is a product lifecycle
Every product goes through a lifecycle. The product is born, it goes through a phase of growth, followed by maturity, and eventually.. decline and retirement.
Wikipedia says that the product lifecycle model was created by Raymond Vernon in 1966. A good example of how products go through such a lifecycle is the Fax machine. Fax Machines were introduced in the early 1970s, and were revolutionary in the way they allowed to transmit messages from A to B. In the 1980s fax machines costed approximately $12.000 USD (this would be equal to about $40k in dollars today). From a novelty, the market grew to a $9 billion dollar industry at the beginning of the 2000s. Then other technologies started to enter the market like email, and eventually the market for fax machines started to decline. In the end a fax machine would cost approximately $100 USD. And now, in 2021, can you imagine using a fax machine for something? I would not even know where to plug in the cable that comes with the machine. The product is dead and has been retired.
Let’s look at the various product lifecycle stages in more detail.
The introduction phase
Every product starts somewhere, we call this phase the ‘Introduction’ phase. The product is new, there are no, or only a few customers. People are not aware your product is available and nobody is talking about your product.
The diagram below outlines the lay of the land for the product. I already mentioned there are hardly any customers, but there is also hardly any competition. You just have one product to take to market and there is no need yet for a differentiated portfolio. Let’s focus on getting this product right before we start offering a range of alternatives ok? Finally, price – you can set a high price as you don’t need to compete with others. At the same time, you could also consider a low price as well to drive adoption. Just keep in mind that increasing the price later is very difficult. Lowering a price later is easier than increasing a price.
What should the product manager do in the introduction phase?
There is only one thing important in the introduction phase and that is driving adoption. Your only goal is to find customers or users for your product and learn from them. Are they benefitting from your product, does the product meet their needs, is there potential to scale the product.
You find customers by going out there and talk to relationships, find distributors or resellers who are willing to run a pilot with you, or use other means to find your first users. The team to work with during this phase is primarily your sales team (account managers, sales droids, business managers, or any related group of people in your company). There is no need to spend a lot of money on marketing at this stage. The world is an ocean, and any marketing money that you are spending will be like drops in the water, nobody will notice. Once you have found launching customers for your product, work with them towards building a reference. Create a case study, or write a paper together with your customer. Next, try to get exposure for your first findings. Engage with an internal guru, and see if he/she wants to speak at a conference, perhaps your customer wants to get a podium, write a few articles, etc. Hopefully your product fits the bill, otherwise keep experimenting and enhancing. Then you should be set for growth..
The Growth phase
In the second phase your product is starting to fly. If things go well, this is the most exciting phase as you can feel the success of your product every day. The focus shifts away from supporting single customers to growing the customer base. People start talking about your product, and the organization needs to professionalize to support the growth of the product. Competitors smell the success of your product as well, so they will come up with competing products. The war is on, what will you do?
What should the product manager do in the growth phase?
Let’s start with the competition. If you are a first entrant, the competition can do three things. First, they try to come up with a copy of your product and make it just a bit better than your product, or add a unique feature to the mix. The goal is to draw the attention away from you, and to their product. Your job is to monitor the competition quickly, and see if you need to alter your roadmap. Are they coming up with something interesting enough that you also need to add it, or is it just a gimmick.
Second, they can come up with a me too product, and just make it cheaper. Your job is to just monitor the uptake of the product and typically not worry too much. In this phase in the game the price is not the most important factor. Interest is growing, and people are willing to spend money on the product. The market is big enough for everyone. Third, the competition can focus on their brand. If the competition has a much stronger brand than yours, they can obtain the trust of the market, and now a similar product is available from the competition, customers may decide to get the product from them. This is a tough spot to be in, if you anticipated this, it could have been better to join forces at the beginning, and forge a partnership to develop/launch the product together.
Now, customers. The tricky part is to keep your first movers happy but to reduce the time you are spending with them. You were treating customer with a silk glove to get their credits and case study, but now you have to support a much larger customer base. This means shifting gears, and work towards scalability. Your job will change into a pre-sales consulting role, where you support your sales teams with big prospects, gigantic opportunities and special customers.
Marketing needs to kick in now to fuel further growth. You are supporting the marketing teams with webinar sessions, events, train the trainer events, automated mailing campaigns, thought leadership sessions, lunch and learns, etc. Your brand is growing and the product is becoming an important asset to the company.
The Maturity phase
Maturity typically means many customers, many competitors, price pressure and declining margins. The double digit growth numbers that you saw in the growth phase are no more. Your product can continue to grow, but it’s hard work.
What should the product manager do in the Maturity phase?
The biggest risk during the maturity phase is that you are sleeping. A mature market is not super sexy, as you are not doing a lot of new things. The sales team knows what to do, marketing continues to run campaigns, and customers are used to your product. Your focus is shifting to building out the next big thing, and that is drawing all your attention.
Then, after some time you see that your revenue is dropping. You start to run reports, and see that customers have left you and moved to the competition. Everybody panics, as your product is the flagship product and is critical to a positive P&L for the company.
Your product continues to require attention. Product differentiation is a good solution to deal with price pressure. Consider offering an economic, premium, gold version of your product allowing you to retain customers who are sensitive to prices of competitors, and give your sales team an opportunity to upsell the product. Next to differentiation, you can also focus on big new releases of your product. There can be reasons, such as legislation, governance, etc, that require your product to undergo a major revision. When the entire market needs to undergo such a change, consider it a major opportunity to win over new customers and not lose existing ones.
Recognizing that growth will be reduced, and prices are declining, it’s time to run an efficient ship. Lean will help you to optimize your processes and start negotiating prices with suppliers.
The Decline phase
Every product has an end. When the market is in decline, it means interest is fading and customers typically are moving on to the next big thing. Consider the fax machine.. With email, the interest in faxing has started declining and this interest will not come back.
What should the product manager do in a declining market?
Stop investing in your product. The biggest risk is that you are spending valuable resource time on maintenance and you will not easily recover this investment. Every product costs money to keep it in the catalog. From mindshare, to insurance, costs to maintain an accreditation, machines that need to keep running, etc.
The most important decision for the product manager in this phase is to know when to retire the product. Are you still making money from the product, how rapidly is the decline, are resources spending time on the product and not working on fast growing products? It’s a tough choice, but retiring products is just as important as launching products.
From a pricing perspective, there could be an opportunity to increase prices slightly again as well during the last phase of the cycle. If everyone’s retracting from the market, and some customers are still hooked, they are willing to spend a bit more money on it. They would typically not worry too much about pricing anymore either – so something up for consideration.
It’s a rocky ride, but try to enjoy it as much as you can
If you are fortunate to see a product all the way from inception through to retirement you will have learned lot. The ride is amazing, and every phase has remarkable characteristics. The challenge is to actually be conscious about where you are in the lifecycle. Often the ride itself is taking up all your energy that you are not aware of the phases and the smart thing to do. Step into your helicopter every now and then to oversee the landscape and reflect on where you are, it will help you a lot.