Timetable

1. Timetable • 20.9. Introduction, Sakari Luukkainen • 27.9. Solution Business, Case Sun Microsystems, Topi Talonen • 4.10. Market Dynamics of Telecom Industry, Sakari Luukkainen • 11.10. Standardization Strategy, Sakari Luukkainen • 18.10. Case GSM, Sakari Luukkainen • 25.10. R & D Management, Sakari Luukkainen • 1.11. Linking Business Thinking with Res., Antti-Jussi Suominen • 8.11. Product Strategy, Sakari Luukkainen • 15.11. Platform Leadership, Eino Kivisaari • 22.11. Case Nokia Symbian Product Platforms, Lea Lahti • 29.11 Technology Foresight, Sakari Luukkainen • 14.12. Examination © Sakari Luukkainen

2. Michael E. McGrath: • Product Strategy • for High Technolgy Companies • Amazon et al ~35 € © Sakari Luukkainen

3. Content • Vision and Strategy • Product Platform Strategy • Product Line Strategy • Leveraged Expansion • Sustained Differentiation • Product Pricing • First-to-Market vs. Fast-Follower Strategy • Global Product Strategy • Cannibalization • Growth Through Acquisition • Process of Product Strategy © Sakari Luukkainen

4. Strategic Vision • Everything in a company should be done for purpose, which is to make money, tomake money company needs products and/or services, to know what they are there should be a direction which is defined in a strategicvision • Where does company want to go, how will it get there, why will it be successful? • Good strategic vision has focus, clarity, completeness, feasability © Sakari Luukkainen

5. How Vision Guides Strategy • Directing technology strategy • Defining core competence • Focusing the efforts of identifying new product opportunities • Establishing a framework for product platform strategy • Setting expectations for customers, employees and investors © Sakari Luukkainen

6. Product Platform Strategy • Platform is an architecture of the common elements implemented across a range of products • Key elements in the platform represent defining technology • Dictates life cycle, capabilities, limitations • Based on core competence • Difficult to copy by competitors • The choice if defining technology is perhaps the most critical strategic decision that a hi-tech company makes © Sakari Luukkainen

7. Product 1C Product 5 Product 1 Product 2 Product 3 Product 1B Product 1A Product Platforms Segment A Unique segmenting elements, common channel elements Segment B Segment C Common platform Defining and supporting technology elements Element A Element B Element C © Sakari Luukkainen

8. Benefits of Platform Strategy • Focuses management on key decisions at the right time • Enables rapid & consistent product development • Encourages a long-term view on product strategy • Dominant design position achievement • Resource and channel synergies – parallel cost and differentiation advantage • Can leverage operational efficiencies • R&D costs – reuse • Manufacturing costs – economies of scale • Makes marketing and support easier – segmentation and channel reuse –> more value by decreasing unit cost © Sakari Luukkainen

9. Product Line Strategy • A time-phased plan for developing products from a common platform, each product targeting a specific market segment • The true potential of a platform strategy is extracted with an effective product line strategy • Covers all primary targeted market segments • Each product offering should be sufficiently focused • Time-phased scheduling / sequencing • all products cannot be released simultaneously • priorization • Similar products / product lines are coordinated • To avoid rework and confusion in marketing and among customers © Sakari Luukkainen

10. Segmenting Products • Based on what customers are trying to do with product or who is customer • Based on differentiation • High-end version first and then low-end by subtracting value from it • • New features first to high-end, then diffuse to low-end as competitive upgrades • • Three versions is a good default choice, most revenue from the middle version • Creation of metrics for continuous evaluation of product profitability © Sakari Luukkainen

11. Leveraged Expansion • Case studies show that: • The success of expansions to new product markets depends highly on ability to leverage: • Existing market knowledge • Technical skills © Sakari Luukkainen

12. Leveraged Expansion (contd.) Diversification Leveraged Expansion Strategies New Segments Existing Platform Management © Sakari Luukkainen

13. Sustained Differentiation • ICT products cost of production is dominated by the “first-copy R&D costs”, and cost of distribution is falling • This cost structure leads to substantial economies of scale without capacity constraints • Competitive forces tend to move the price toward marginal cost • A vector of differentiation enables sustained competitive product differentiation by continuous incremental innovation along as specific path with distinct benefit or value proposition • Positions, segments, evolves through life cycle • Differentiation as vector not point, product roadmap © Sakari Luukkainen

14. Relative positioning © Sakari Luukkainen

15. High-Tech Differentiation • Unique features • Measurable benefits • Ease of use • Improved productivity • Protecting the customer´s investment • Lower cost of product failure • Higher-performance products • Unique fundamental capabilities • Design • Standards • Total solutions • Total cost of ownership • Brand • Convenience © Sakari Luukkainen

16. Risks of differentiation • Not sustained • Insufficient proximity to price • Customer preferences misunderstood • High cost • Unfocus • Subsegmenting the market • Emerging technology • Perception of differentiation © Sakari Luukkainen

17. Product Pricing • Offensive • Establish price leadership as the basis for competing • Penetration pricing to increase the market • Experience-curve pricing to discourage competition • Compete of price/performance • Promotional discounting • Defensive • Adapt to maintain highest competitive price • Use price to segment the market • Skim pricing • Value-based pricing • Redirect product line sales by bait-and-switch pricing © Sakari Luukkainen

18. Product Pricing • Risks of offensive pricing • price leadership not sustainable • price war • no supporting cost advantage • Sorces of cost advantage • design • economies of scale • supply chain • superior techology • R&D process • global scale © Sakari Luukkainen

19. Advantages of Being First to Market • Market share advantage • Earlier experience • Influence to standards © Sakari Luukkainen

20. Advantages of Being the Fastest • Nearer in time to the market • Get ahead and stay ahead • Can user newer technology © Sakari Luukkainen

21. First-to-Market Strategies • Be the first to upgrade products with new technology • Respond rapidly to market changes • Introduce continual product innovation • Be the first to create a new market • Fast-Follower Strategies • Wait until a new market is clarified • Reverse-engineer successful competitive product © Sakari Luukkainen

22. Risks of Timing Strategies • Entering the market prematurely • Compressing product lifecycles • Relying on an inferior product development process © Sakari Luukkainen

23. Global Product Strategies • Develop products uniquely for country markets • Leverage country-specific product • Customize global product platform • Develop universal global product © Sakari Luukkainen

24. Cannibalization • Causes of Unfavorable Cannibalization • New product creates less profits • New product requires siginificant retooling • Greater technical risks • Offensive Strategies • Attack market leader • Introduce new technology first • Defensive Strategies • Cannibalize yourself before competitors • Continue as technology leader • Pricing • Specific market segments © Sakari Luukkainen

25. Growth through Acquisition • Acquire product platform to expand into new market • Acquire technology and technucal skills to develop new product platform • Acquire market and channel expertise to enter new market • Acquire a competitor to strengthen a current market position • Acquire a company with the capability to diversify into new market © Sakari Luukkainen

26. Strategic Balance Trade-offs • Focus vs. diversification • Short vs. long term • Current vs. new platform • One business unit vs. another • Research vs. development • High vs. low risk • Financial return © Sakari Luukkainen

27. Process of Product Strategy © Sakari Luukkainen

28. Star Question Mark Market growth Dog Cash cow Relative market share Product Portfolio Management High Low High Low Source: Boston Consulting Group © Sakari Luukkainen

29. Principal Factors of Product Success A study on 158 product launches (50% failed, 50% succeeded): The developing organization, through in-depth understanding of the customers and the marketplace, introduces a product with a high performance-to-cost ratio. The create, make, and market functions are well coordinated and interfaced. The product provides a high contribution margin to the firm. The new product benefits significantly from the existing technological and marketing strengths of the developing business units. The developing organization is proficient in marketing and commits a significant amount of its resources to selling and promoting the product. The R&D process is well planned and coordinated. There is a high level of management support for the product from the product conception stage to its launch into the market. The product is an early entrant. Source: Maidique & Zirger (Stanford University, 1984) © Sakari Luukkainen