The Pros and Cons of different product/service strategies

Do you have a product/service strategy? If you do, then this post will be a great guide to confirm that you have picked the correct strategy. If you do not (60% of small to medium enterprises have no strategy at all) then this will provide a guide for selecting one.
In selecting a product /service strategy (there are numerous ones), one should consider many macro items i.e.; is the product/service simple or complex, what is the preferred method of distribution, who is the end user, and who is today’s competition and who might be the competition tomorrow, etc.?.
The following lists of strategies are the more popular ones. The first strategy is pricing leader; this is when your product/service leads the market in pricing. Wal-Mart and Southwest are examples of companies viewed as price leaders.
Typical characteristics of a product or service that would be a good candidate for price leader are: simple or easy to understand/sell, decent margins (room for price reductions), many potential users/buyers, if the product/service is not easily differentiated within your market segments.
Pros
• It is easy to be unique
• A way to eliminate the competition.
Cons
• One can get into a price war and if you do not win or plan or sustain for the war you can lose everything.
• You have no other strategy if pricing does not work out
Differentiation strategy is when one you can differentiate your product/service with a distinguishing feature or service. An example of this strategy is BMW, where they stress design and performance. Products that are best suited for this strategy are; can support rapid changes in technologies, many different buyers’ needs and many ways the unique features can be used by the different end clients.
Pros:
• You can offer a premium price
• Will gain loyalty
Cons:
• Copy cat can come along and eliminate one or all of your differentiations
• Technologies “disruptions” can alter or eliminate your differentiation completely
Innovation is the next most popular strategy, which is when one is leading the market by providing advanced features and /or technologies before anyone else. Examples of innovation are RIM’s Blackberry and Apple’s iPhone.
Products/services best suited for this approach are when they can easily have technology changes or additions, but still maintain their key features.
Pros:
• By being ahead of the “curve” you can command a premium price
• Your have great value propositions and you are seen as a leader
Cons:
• It is a large task to keep providing innovation
• Again technology “disruptions” can eliminate your innovation
The next strategy is providing unique service with a product or unique service alone. Examples of companies in this arena are: IBM, Accenture and Globe Telecomm. This selection is best suited when service is a requirement for the success of the end user’s business or it is cost advantage to have your enterprise perform the services.
Pros:
• Potential for a good and profitable revenue streams
• Service can be a huge differentiator
Cons:
• Requires skilled resource, which can expensive
• Service contracts can have “hidden” issues and thus can become non profitable
The fifth strategy is providing a solution offer versus just offering a point product. Microsoft’s Office suite is an example of a solution set. This strategy is well suited when you can combine/ integrate some of your existing products that would deliver solutions for certain types of industry’s processes or functions.
Pros:
• A complete solution can command a premium price
• Eliminate the point product competitors
Cons:
• Proving a solution can be expensive and complex if integration is required
• Probably requires trained sales persons and/ or teams to sell the solution
The last strategy is having a best in class method of distribution (your channel for getting the product/service to the end user). The major methods are direct (your sales force), indirect (via resellers/ distributors) or online (web based). The best well known of online channel method is Dell, Amazon and eBay, where they bypass the middle man. Selecting which channel to use is largely dependent on the product or services. A complex product or solution strategy is best via direct distribution. A commodity type product could be best for online.
Pros:
• Can reduce overall expenses
• Can augment your resource and provide additional reach
Cons:
• Potential reduction of margins
• Potential loss of end user information
A couple of additional comments regarding choosing a strategy. First, understand that you should review your strategy on a periodic basis and analyze how it stands against the competition, the current external environment and how customers are reacting to your strategy.
Second, strategies are the “how” of doing things, not the implementation or execution. Additionally strategies have to be sustainable as they do evolve.
Third, you may have multiple strategies depending on the number or types of products or services, and the end users who acquire these product and or services.
Last, if you do not select a strategy, your competition will not only have one but will also have a strategy on how to take market share from you. Not having a strategy is like a boat without a rudder; you will just drift in the market place with very poor results.
RHL 5/5/14

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