Best Practices: Customer Driven Product Strategy (Part 2 of 2)

December 2002 Product

We all know that a market-driven product strategy is required for success. But how should we craft one? Richard Leavitt, Sr. Director of Product Management of Insightful, shared four best practices he deploys to drive product strategies.

First, Mr. Leavitt utilizes industry research provided by IDC and others. The analysts’ reports provide general industry knowledge, competitor knowledge, and market demand knowledge that can be used to jump-start his primary research tasks.

Second, to understand specific needs, Mr. Leavitt interviews customers and industry consultants directly. In the interviews, he uncovers data on demand drivers, competitive positioning, spending habits and tradeoffs.

Third, Mr. Leavitt elicits feedback from the front-line salespeople. In a recent national sales meeting in Seattle, a team of product managers facilitated the first day of the meeting to chart opportunities for improvement. In this effort, vertically-aligned sales people listed their near-term revenue opportunities by application type, requirements for product features, marketing support, and market positioning. These requirements were then ranked according to their importance in driving revenue. Finally, a drill-down exercise examined specific issues such as the job titles and companies requiring these changes, the size of the gap between Insightful’s offering and their competitors, and specific purchasing criteria. The final list ranked opportunities for improvement by “Musts” and “High Wants”.

Fourth, Mr. Leavitt deploys a “$100 Test” to understand the customer demand function. In his own words, “Listening and being close to the customer isn’t enough. Customers request unprofitable changes all the time.” The $100 Test is deployed to understand exactly which features will have the highest impact.

In a $100 Test, Mr. Leavitt asks customers to rank a list of features according to their desirability. He then goes the next step and gives each customer $100 to spend any way they want among the proposed features. The customers then allocate the $100 according to their desires. A recent test listed 7 potential feature enhancements which customers ranked between $5 and $35 in value. The result of the $100 Test is a list of features to implement prioritized by their impact on future revenue.

Each of the above 4 processes provides different information of customer demands. The job of product manager is to integrate all the information they can get into a coherent strategy. The techniques deployed by Mr. Leavitt are a means to capture information and generate understanding at the 10,000 foot level as well as the 10 foot level. No one said it was easy.

About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

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