Tony Hontzeas Page 1 7/26/2009

SOME THOUGHTS ON STRATEGIC PRODUCT MARKETING

By : Antonis Hontzeas,
Director, Product/Solutions Management,
Ericsson Hellas Telecommunications

Introduction
Strategic product marketing refers to the set of processes required to place products, services and overall
solutions to ensure long term profitability and growth. Typically, a company’s product management
department performs strategic product marketing with the assistance of the marketing and sales
organizations. Strategic product marketing is not selling, or marketing research or product marketing per se.
It is the strategic placement of products, solutions and services to lock in the market and thus keep
competition in check while ensuring that the target market evolves in such a way guaranteeing long term
demand for the supplying corporation’s solutions and services.

This article explains the organizational and procedural requirements required for any market driven
company to achieve a balanced portfolio. The article uses the telecommunication/information industry as a
target example, but the article’s concepts and thoughts apply to most growth industries.

Organizational requirements for a market driven company

There are many ways to organize a company so that it can be considered market rather than product driven
and any good text on organizational structure and organizational behavior can be used as a reference for
this. What concern us here are the required strategic marketing functions that will facilitate any market
driven organization to achieve long term profitability. We therefore define the three necessary functions of
marketing, strategic product management and sales that must function and interact properly in order to
allow the successful marketing of solutions. This article refers to functions rather than departments or units
because we are not per se concerned with organizational structure or efficiencies. For the purposes of this
article it is irrelevant if these functions are within the same unit, or within separate units. What is important
is that these functions exist and interact properly. Where they are placed is a question of organization
efficiency that has to do with the corporate culture of the particular company.

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Definition and interaction of Marketing, Product management and sales functions

Marketing

Imperative to any market driven company is a strong and effective marketing department. The marketing
department, aside from performing marketing research and trend analysis ( with the goal of identifying new
potential market areas and the phase that these areas are currently in), has also the burden of interacting
with particular customers and identifying these customers’ needs (there may a debate here whether needs
exists or are created, or both, but this debate does not concern us here). The identification of a particular or
set of customer needs must be at a level of abstraction to allow flexibility in choosing ways to satisfy this
need that is, any market communication activity that identifies needs should refrain at all cost from
mentioning a way to satisfy this need (ex: mentioning of products or solutions) since this will limit the
possibilities of offering an imaginative and cost effective solution that will indeed cover the customer
needs. Simply put, the marketing function is to understand the customer’s wishes and communicate these
wishes in an effective manner to the organization.

Product/Solutions management

Upon identification of the customer’s needs, the next goal is to put together and deliver a feasible solution
whose benefits cover the needs of the customer in question. This is the role of the product/solutions
management function. Note that the input to this activity is basically the marketing communication that was
mentioned previously. Good marketing input will give the product/solutions management function enough
understanding of where the particular customer wants to go in order to be able to conceive (perhaps with
the customer’s help) a solution whose benefits fulfill to a large extent the customer’s wishes. Again, if the
marketing information was at the right abstraction level, and did not consider or base itself on any
particular solution, this gives ample flexibility to the product/solution management function to use all the
available information at its disposal including competitor information and information pertaining to new
technologies and product trends including strategic issues important to the company (information that may
not be present at the marketing stages) in order to both satisfy the customer and keep in tune with the
suppliers long term interests.

Sales

The chief role of sales is to convince the customer that the proposed solution is worth buying i.e. to get the
customer to spend while simultaneously minimizing any resulting cognitive dissonance1, which always
occurs after a solution is purchased/installed. In order for the sales function to be successful, the solution
must be properly communicated to the customer and the customer must be convinced that this solution is
what they were looking for. Obviously for sales to be successful, the needs of the customer must have been
properly communicated to the organization (the marketing function), the solution must have been
developed based on those needs (product management and design) and this solution along with the right
price tag must be communicated and agreed with the customer with the usual public relation efforts (ex:
wining and dining). The after sales support function which supports the products that were sold should not
in any way be underestimated since again this function makes a customer feel that the supplying
organization is serious and responsible about supporting the products/solutions that it thrusts to the target
market. Again this all has to do with minimizing the cognitive dissonance and perceived risk that a
customer feels after a purchase (the perceived risk is high when you buy a house or a network and quite
low when you buy bubble gum). A happy customer always comes back and experience shows that 80
percent of new business is done by 20 percent of customers which are return customers.

1
Every customer feels after a purchase, dissatisfaction with the product solution. This is a psychological
state that cannot be avoided, but can indeed be minimized.

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Now that we have established the necessary functions we can focus on the product/solutions management
function and the process of strategic product/solution marketing.

The strategic product marketing process

Upon reception of the marketing requirements, the product/solution management function will conceive the
overall solution and prepare the necessary technical requirements to allow the relevant design
departments, manufacturing and deliver channels to design and deliver the said solution at an acceptable
cost. Proper cost control is essential for any future competitive pricing effort.
One important issue that will be tackled during the initial solution conception phase, and this is one of the
primary roles of solution management, is to design a solution that first of all includes an evolution roadmap
in order to secure future income from this solution, and in addition monitor/influence the customer’s
network evolution in such a way that will first of all benefit the said customer, but in addition will not
misalign the target customer’s installed base vis-à-vis the supplier’s products. Of course this means that
first of all the supplier’s technology must be state of the art, secondly that the supplier influences industry
standards so that future technologies are compatible with the supplier’s produce, but in addition that the
network evolution of the customer is monitored to ensure that placed items do not produce a discontinuity
with regards to products that are imperative to first of all lock out competitors, and more importantly ensure
a smooth evolution to future revisions of the suppliers products.
A common approach to securing the above is to have a thorough model of the target environment that the
solution is to be implemented in, before development of the solution begins. In the case of a
telecommunications operator, the supplier will have a detailed model of the customer telecom operator’s
target network where the solution will be implemented. Such variables as network node load as well as
signaling load, billing mediation systems as well as customer care should be well defined and understood
since those areas are considered of strategic importance to any operator and thus need to be addressed by
the relevant supplier.
A strong understanding of the target environment implies that areas can be identified that are crucial to be
addressed by the supplier in order to ensure future revenue. If we return to our telecom operator above, if
the particular supplier is in the core business of selling billing systems, then it is perhaps in the interest of
this supplier to have good information on what kind of billing equipment the operator has, what sort of
billing mediation equipment is included in the network, and how all this is connected to the customer care
units of the operator.
Another requirement for a supplier and its strategic product management function is to include roadmaps
for core products that address the issue of product evolution towards a target technology while at the same
time protecting present and past investments. Thus, a particular customer that invests in a particular
installed base will be assured that their investment is protected as long as their network evolves in the right
way.

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With the above in mind we can define the following procedure:

1. The solution management function receives from the marketing function the needs of a
customer. It is assumed that these needs can be satisfied by a solution that relates to the core
business that the supplier is in.
2. A detailed copy of the customer network exists, and an analysis is performed to identify the
area of the network that the solution is expected to play, as well as an anticipation of the
evolution of the part of the network (as well as related parts) that relates to the present and
future supplier core business.
3. Taking as input the customer’s requirements (including budget and competitive information
such as pricing, or related aspects of pricing such as network dimensioning) and the network
analysis plus the anticipated network evolution to future technologies (for example evolution
of a 2G wireless network to 2.5G and then 3G) a solution is drawn . It is imperative that this
solution first of all satisfies the customer’s full needs (ex: features, financial, etc...), but also
contains a roadmap that coincides with the anticipated technological evolution of the
customer network.
4. When the solution is considered adequate, a financial analysis is made to see if this solution is
worth pursuing. This financial analysis will of course include the cash outlays that are
required to produce this solution and in addition the incomes that will be received by
achieving and installed base, but more importantly the future cash revenues resulting from the
evolution of this solution towards future technologies as anticipated by the solution and the
product roadmaps.
5. If the result of point 4 is a decision to pursue the business, then requirements can be drawn
and sent to the appropriate departments in order to design, deliver and put a final price tag on
the solution, or the solution can be abandoned and other more favorable business
opportunities can be pursued.
6. Any decision (step 5) should be monitored on a quarterly basis and any changes to crucial
success parameters (ex: future cash flows, npv etc…) should prompt executive management
to take the necessary corrective measures.

The go decision is made in step 5. The only costs that have been incurred so far are the necessary pre-sales
costs that come with marketing efforts. The said solution is only on paper and has not been communicated
to parts of the company (example: R+D and design) that will develop the solution (and thus incur the
costs). Rather, steps 1 through 5 propose that a solution should first of all be developed if there is a need
(and not vice versa ie. develop a product/solution and then try to find a customer), secondly that any
solution should be viewed in terms of initial cash outlays in order to develop and achieve an installed base,
and then projections should be made with respect to the revenue income initially from the installed base
and then from any future upgrades of this base. The solution should be assessed by the initial cash outlay,
the income received from the installed base, and the future income that will be received from upgrades that
will evolve the solution towards a target technology. This evolution is ensured by adherence of the
roadmaps of the products that make up the solution to industry standards as well as overall technological
evolution. By using the right financial assessment model (example: Net Present Value) a decision can be
made whether to pursue the business or not. Also note that taking future income in account will deter an
erroneous decision from being made with regards to restrictive initial outlays. For example, it may be that
the costs and received income from producing and delivering a solution result in a negative profit.
However, if future income is also taken into account that the right rate of return, then the accumulated
present value of the profit may turn positive thus reflecting the solution’s strategic value to the corporation.
If of course the solution has a future cash discontinuity which result in a negative present value then either
this solution has an inadequate roadmap that guarantees future cash flows, or the break in cost is simply too
high and can never be recovered. Step 6 merely indicates that we live in a dynamic business environment.

The important thing to notice in these steps is that an opportunity is assessed in terms of breaking into a
business and ensuring future business and growth, rather than pirating in just to make a quick buck. An

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enterprise is assessed (in the same way that stocks are assessed ie. future dividends) not by its ability to
make a quick buck, but to convert this buck into future business and of course employment.

Conclusion
Although this article is primarily written with the telecommunication/infocom industry in mind, its
concepts can be expanded to other types of businesses. It is imperative to understand that in today’s world
where standards dominate industrial models, in order for a corporation to ensure its future viability,
strategic product marketing must be considered as a necessary process that insured, and is measured by
long term investment as defined by net present value analysis. The thoughtful reader or financial officer
may object citing that net present value is a tool that is used to assess the viability or rationality of project
undertaking ie. the assurance that a project is financially viable. The aggressive marketing of solutions and
services should be assessed in the same way since long term growth is not assured by placing a box here
and there, but by entering a market in such a way that the initial cash outlays due to different pre-sales
activities should be measured vis-à-vis long term cash inflows which can be achieved only by strategic
product marketing whose roadmaps guarantee evolution in favor of the corporation’s future products /
solutions and services thus effectively locking out competition in the long term.

Finally, emphasis is given to the fact that strategic product marketing will never work if the
products/solutions and services of a particular organization lack quality, cost effectiveness, time to market,
and simply do not satisfy the customer’s need. As the market rewards thoughtful strategies as mentioned
above, it thus punishes players with questionable tactics whose results are poor products and policies that
endanger the credibility of the overall business environment.

© 2001, Antonis Hontzeas

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© 2001, Antonis Hontzeas

all rights reserved