Profitable Product Management

In particular in these days of economic crisis, products, and product related profits are important. Many companies understand that innovations might help them to achieve growth after the financial crisis has finished.

Having these objectives in mind, I think, we must find out, how Product Management can add value to this objective.

The Business Case for Product Management

It is commonly known that products, which support a strong unique selling proposition tend to lead to profit margins, which are higher, than the margins for commoditized products.

From the theoretic perspective, unique products often allow for a premium price, or vice versa commoditized products often tend to compete over the price, at razor thin margins.

Both type of products require totally different organizations, and company objectives. For example, when selling commodities, the cost structure of the company is very important, and the efficiency. When selling non-commodities, topics such as features, R&D, or innovation are more relevant.

Thus, it is important to be careful about the commoditization of products, and you need to understand the commoditization process.

To make my points understandable, I will briefly mention a theoretic background, which I found helpful in understanding this point.

The Innovator’s Solution

In their book The Innovator’s Solution, Christensen and Raynor give several examples, where commoditization took place. Using their ideas from their book The Innovator’s Problem (see Innovation – The Innovator’s Dilemma (German), they discuss whether the commoditization of products is an inevitable process, or whether it can be avoided.

They come to something, which they call “the process of commoditization”.

The commoditization process will lead to a situation where formerly high margin products become commoditized. Important moment for this to happen is the moment, when a products becomes more-than-good-enough in its features or in its quality, as then the basis of competition changes.

„If a company supplies a performance-defining but not-yet-good-enough input for its customers’ products or processes, it has the power to capture attractive profit. Raynor/ Christensen

To avoid commoditization, companies need to constantly question themselves, where the money will be in future. Often the future money is in areas, where the company is without core competencies.

Thus, to properly develop counterstrategies, it is necessary to step back from the idea of core competencies, and portfolio decisions which rather rely on „what we can do best“, instead of „what we should do“.

This is, where Product Management comes into the game, and adds real value.

The Role of Product Management

Customer Orientation

Without doubt, customer orientation is important, so, go and see your customers regularly, and try to understand them as far as possible.

However, I think, it is dangerous to understand the customer orientation to narrowly. If you for example just concentrate on products, which your best customers demand, as they demand it (the products, where the money is), you run into the danger to oversee products, „where the money will be“.

You thus should not only see your best, or most demanding customers (and design your product around them), but you should also have an eye on critical customer, or even non-customers.

Standing, Experience, and the Myth of Youth

I think that it is sometimes critical to your company, if your Product Managers have standing, when they talk to customers or customer associations. To avoid commoditization, it is sometimes needed to say „no“ to requirements, in a way that this does not endanger your customer relation.

I think that your company is in a good position, it your Product Management equally consists of young and demanding people, and of older/ experienced personnel.


Some might say, „well, why do we need Product Managers, we have sufficient sales, who talks to customers“. I think if your company wants to avoid commoditization, it needs to see portfolio planning as a very important element.

For me, a proper portfolio case does not just concentrate on the demand side, but it includes a very detailed and thorough understanding of the technologies, including their economic parameters. This understanding will help you find out, which product features you might offer, where the customers do not even think about.

Core Competencies

The to-narrow-customer-orientation is dangerous for a different reason: You/ your company might think that your current core competencies will be sufficient in future, and that emerging fields are less important.

As soon as your products turn to be good enough, and the competitive landscape changes, you might find your company in a situation in which the needed competencies are missing (they have shifted meanwhile).

To avoid this, you should take care that your organization keeps open minded, and open for new influences. I personally think that an open innovation climate can help, if it allows your people to „play around in new areas“ for a certain amount of their working time. Go, and see how Google does it – for example.


It is important for your company to properly manage your products, and your innovation potential.

This requries that you have a proper understanding of customer needs, technologies, and driving forces that shape the industry in future. I recommend:

  • Implement a strong Product Management.
  • Have them go, and see your customers, but have them always avoid to understand customer orientation too narrowly.
  • Make them understand the technologies, including their economic/ commercial parameters

Proper innovation will lead you into a situation of higher profit margins, or will have you stay there. Higher margins help you recover from the current crisis.

Weiterführende Informationen

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