The Life of a Product Manager - Part 5

The Burden of Managing P&L for Product Managers - Part 2

David: "Hey John, what is the market share we want to target with this new product launch, we are now standing at 5% market share"

John: "Well........, I want to be conservative, I would say looking at the landscape and our strength in distribution and ability to grow vs competiton and the fact that our company doesn't spend that much money on the execution, I would say we can grow to by like 10-15% so our market share should grow by 1-2% within 3-4 years assuming the market continues growing at 5%"

David: "But John if we only grow in our share by 1-2% then this means that the financial outcome of the business case won't justify the investment we are doing and we cannot proceed, we must target 20-25%"

John: "David come on!!, 20-25% growth, if you want to achieve this you need to spend more money on the execution and with the budget I am getting, this will not happen, we would just be putting number on the paper....."

David: "We have to be aggressive; how will we grow then ?!!"

John: "I cannot commit to these numbers, you want to commit and put it, then it is your responsibility, you guarantee for me the investment in the execution then yes, otherwise it is just a number on paper"

This is what happens sometimes when a product manager discusses business case with their sales team. The product manager sometimes is not sitting on the ground, so he is reading the numbers high in the sky and don't understand the reality of the market that the sales team is explaining, and the sales team is sitting on the ground not feeling the burden of the investment to bring a new product to life and that the product manager is fighting for resources to allow him/her to create the new product. How does this get solved....

Building the business case for any new project can always be tiring, exhausting, full of high caffeine and stress level where the product manager starts collecting sales figures based on the initial concept to justify the investment needed for the new development of the new product. In the software industry, investments are less massive than in physical goods when there are machinery and equipment, that being said, an investment is an investment and the way product managers handle the investment justification has always to start from the market and hence the market share part.

What does a market share mean ?!!!

You have to understand that usually when you are talking to financial people or even top management, they are always talking value in terms of market share, yet there are two definitions of market share, one is Volume Market share and the other is Value Market share and both of them are important to know and understand.

If your value market share is much higher than your volume market share this means You are growing in the more premium segment of the market which can mean several things

1. That you are selling less but making more money with less quantity which means that your contribution margin is much higher.
2. That you are mixing up in your product which means that you are selling less from entry value product which are at lower average selling price (ASP) than the market to higher value product selling at higher average selling price than the market.

On the other hand if your value market share is lower than your volume market share this means you are growing in the more entry segment of the market which can also mean several things

1. That you are driving volume more with more produced units which can always help keep your factories running and helps with fixed cost absorption as well. Thats why sometimes you would find some of the brands in market not taking price up to avoid losing significant volume/share which will heavily affect their fixed costs absorption.

One person can say but at the end of the day it is the value that matters.......YES & NO. You have to understand that we are living today in an extremely dynamic market. You can always say that value is more important and I fully agree with you in general but please don't be Naive. If you drop your volumes and increase your prices beyond certain threshold, you will lose market share and your competitors will pick it up, then later they can raise their prices after you when they have already the volumes driving it.

Thats why Price Wars are extremely dangerous, and no sane organization wants to enter it willingly and the only one who will benefit from this is not the organization but the end consumer getting much lower price high value products.

If you are not really really careful with playing with the prices and enter a price ware, your financial returns will plumet, your cash flow will go bust and that is something any one with finance 101 background will tell you that t is the worst situation that you can be in right now.

Growing your market share.... it is not only the product!!!

But how do you really capture the market share with anew product that you are launching...?!! There is a lot of work in the background and it doesn't depend only on teh product. As easy as it seems when we were studying the principles of marketing in college, there are the 4Ps of marketing and product is just one of them, there is also place, promotion and price. So as a product manager, what is under your control...?!. Sorry, this was wrong. What can you influence is the right question. You can influence th price but again there is a market landscape where you have to understand where your product can really sit compared to competition in the market. There is also the PLACE of where you will sell, distribute your product and in which channels and finally PROMOTION, all the discounts and adverstising you will do. You can influence all of these but upto an extent and when you are in a complex organization and there is really little you can influence, you start panicking especially if your sales team are not actually giving you realistic figures.

It is very complicated isn't it....

No, not really, you have to understand as well that calculating market shares and understanding the market dynamics is not something simple that can be just done like this, but it is something that takes time study and has to take into consideration several factors

External Factors

1. What is the industry outlook overall in terms trends and trends here is your next Favorite word as based on the trends you will base your entire logic of how to grow, where to grow and what justifies your growth. Is the industry technological innovations are rapidly advancing and refreshes to product in market is happening on a faster cycle.
2. What is the economic trend in the markets that you are penetrating and which to achieve high growth rates in it. is the market outlook is showing positive or negative outlook. Will people be spending more into your categories of products or into other items.
3. Legislations and Compliance, if you are doing a physical product, how is the energy consumption of this product and its contribution to the environment, at the end of the day we are living in a world where the climate change and the environmental considerations are key for any company. Everyone and I mean everyone are shouting "Sustainability" even if their company is not really sustainable which is a shame.

Internal Factors

1. Your company investment plan for the future is key input, is your company's big bets are directed towards your categories and products and the regions where you wish to launch.
2. Your competitive advantage is going to play a very important role here where it can determine whether you are able to either utilize this in the product development as for example ability to accelerate product innovation into market technological advancement with a patent or if your competitive edge is with the execution in the market.
3. Commitment of the organization for the long term on the roadmap for growth as pulling our market resources and spend at the end of the year prior to launch to save the budget and meet the target can literally kill your launch and affect the G/R and market share for the year after.

At the end a simple PESTLE Analysis compined with Porter 5 Forces Model & SWOT Anal would do you very good understanding of what are the possible external factors affecting your growth

To be Continued............