Your company is doing well with the core product. However, you want to dip your toes into a new vertical, which looks quite promising. So, where do you start? At some point in development, many companies start looking toward product diversification.
We will go through several steps that product managersLearning (PMs) can take to unleash the product’s potential and recommend juggling the new and core products to ensure that both are on track.
What is product diversification?
Product diversification is a strategic business approach where a company expands its range of products or services. It is done to increase market share, reach new customer segments, and mitigate risks associated with a limited product line. Examples of such diversification include Uber starting Uber Eats or LinkedIn venturing into learning by launching LinkedIn Learning.
Product diversification can be very exciting and challenging, especially for product managers. In some instances, it brings all the excitement of starting a new venture without the hassles of raising money, setting up infrastructure, and, if you are lucky, hiring a team.
Uncovering market opportunities: Conducting effective market research
The first step of product diversification is knowing the needs of your customers and partners and having a comprehensive understanding of the market. This begins with conducting research for product development. Understanding market research trends allows you to uncover new opportunities, understand potential risks, identify gaps in the market, assess the competition, and make informed decisions about your product diversification strategy. If not done right, you risk building products that don't resonate with your target audience or have already been saturated by competitors.
Essentials of market research
There are several methods for conducting market research for product development, each with its own strengths and weaknesses. Here are some techniques you might consider:
- Surveys: Surveys allow you to gather data directly from your target audience. They can be conducted online, over the phone, or in person. Key questions might concern purchasing habits, product preferences, and attitudes toward your brand.
At Carwow, an online marketplace for buying and selling cars, our user research team regularly surveys specific pages of our website to understand and quantify unmet needs. Using surveys, we discovered that around 70% of our users in the UK were open to buying both used and new cars, which gave us the confidence to explore further the idea of relaunching our used cars product line.
- Focus groups: These involve gathering a small group of people and facilitating a discussion about your product or business. The interactive nature of focus groups can yield rich insights. At Uber, I remember doing focus groups with Fleet partners in India, which helped us discover significant pain points. These were then addressed through the Uber Fleet app.
- Market analysis: This involves looking at data and trends in the industry to understand the broader market context. This can help you identify potential opportunities and threats. Dunzo, an online marketplace in India, launched bike taxis in addition to grocery and food delivery. This increased the overall utilization of the existing delivery riders, thereby increasing their earning potential while acquiring new customers.
Interpreting market research and trends
Once you've gathered your data and completed the market analysis, the next step is interpreting it. Look for patterns and trends that can inform your product diversification strategy. For instance, if survey respondents express a need for a product feature your competitors don't offer, this could represent a market opportunity. Similarly, if your market analysis reveals a growing trend that your products don't currently cater to, this could suggest a potential area for diversification.
Market research aims not just to gather data but to gain insights that can guide your diversification strategy. It can help you make an informed decision, invest resources wisely, and help differentiate yourself from the competition.
Key responsibilities of product managers
As a product manager, you are the indispensable cog in the wheel of product diversification. Your responsibilities fall broadly into five categories.
- Aligning stakeholders: PMs must ensure all stakeholders, from design to marketing, are on the same page regarding the product's direction and timeline. It’s important to keep key leaders involved and updated on the progress and flag any issues early on.
- Facilitating market research: PMs should work closely with the user research team and, in some instances, fully own the market research process to build confidence in the idea of launching a new product line.
- Competitive benchmarking: PMs analyze competitors' products and strategies to determine where their product stands in the market and where improvements can be made.
- Planning: PMs create detailed plans outlining each step of the product development process, from initial concept to launch and monitoring.
- Defining clear milestones and success criteria: PMs set clear, measurable goals to track the product's progress and determine its success once launched.
Potential traps for product managers during product diversification
While PMs have a lot on their plate, they must avoid falling into common traps that can hinder product diversification.
- Scope creep: This happens when the product's scope expands beyond its original objectives. PMs must stick to the defined plan and resist adding unnecessary features or tasks. Try to determine the project’s scope and align all stakeholders to understand and agree to these limits. While launching bike taxis at Dunzo, we tried to clearly lay out the scope of the Minimum Viable Product (MVP) and had a loose future roadmap for enhancements visible to everyone to avoid scope creep.
- Saying yes to every meeting: Time is a valuable resource. PMs should only attend meetings that are necessary and contribute to the product's progress. If the meeting does not impact the product launch timeline or functionality, try to avoid it and use asynchronous communication instead. For example, attending a meeting on regulatory or legal sign-offs that could impact the new product line might be valuable. Discussions regarding how the marketing team is planning email campaigns could be skipped. In short, prioritize your time in addition to your features.
- Not keeping relevant teams in the loop: Communication is vital in product development. PMs should always keep all relevant teams informed about the product's status and any changes that may affect them. For example, informing the partner acquisition team of any delays in the launch will help them manage expectations with key partners who would be crucial for the product’s success.
Key metrics to track for measuring product success
When launching a new product line, don’t forget to track specific metrics to assess the success of your product diversification strategy. These metrics help keep you honest and influence your future decisions. The objective is to help you measure the impact of the new product on your business. Metrics can be broadly classified into the following categories.
As the name suggests, these metrics gauge the success of your new product line. They help to determine the traction the product is gaining in the market, which is a vital indicator of whether the diversification strategy has been successful.
Key success metrics might include the number of new customers, revenue growth, or market share growth. Remember that these metrics may take time to track and report accurately, so relying on estimates during the launch phase is expected.
Health metrics offer a snapshot of the new product line’s impact on the overall health of your business. These could encompass factors like completion or fulfillment rate, customer satisfaction measured through a Net Promoter Score (NPS), or the volume of customer service tickets.
By monitoring these metrics closely, you can identify potential issues early and take corrective actions to ensure your new product does not negatively impact your business' health. Setting up tracking for each step in the consumer funnel will also help diagnose any problems early.
Guardrail metrics are crucial to ensure that the launch of a new product line does not negatively impact your core product or exceed the allocated budget. These metrics can also help determine the extent of the cannibalization of the existing core product lines.
New customer acquisition cost and average revenue per user is a good example. It is, however, important to define acceptable thresholds for these metrics early based on budgetary constraints and the organization’s risk appetite.
Considerations for creating and launching a new product while maintaining a core product
Extending on the topic of guardrail metrics, the job of a PM is not limited to just the new product line. It is crucial not to lose focus on your existing core product. This demands a delicate balance to ensure both products thrive. Here are a few considerations to keep in mind:
- Monitor cannibalization: One product should not excessively eat into the sales of the other. Be vigilant in tracking the sales and market reaction of both products to ensure healthy growth and mutual sustainability.
- Maintain organizational focus: Diversifying your product offerings requires additional resources, both human and financial. However, this shouldn't deter your organization's focus from the core product. It's crucial to allocate resources effectively to manage both products. For PMs, this means allocating some buffer to manage the upkeep and maintenance of the core product when needed.
- Manage product focus: While it is exciting to launch a new product, remember the value of your core product. It has already established its place in the market, so it's essential to continue its development and innovation alongside the new product. This is tricky for startups with limited resources.
PMs should take the lead on prioritizing and double down on areas that would deliver the most value to the organization. For example, while at Dunzo, we launched bike taxis; however, we decided not to add new features till the marketplace health improved. Product focus shifted back to the core delivery product soon after.
The key to successful product diversification is the balance. Striking the right balance between the new and the core product will ensure the growth and sustainability of both.
Product diversification can require significant financial investment and allocation of resources, and there is no guarantee of success. However, if done correctly, it can offer multiple benefits, including increased revenue, improved market share, and enhanced brand reputation. So, as PMs, ensure that you rigorously plan and evaluate all aspects of your diversification strategy to maximize your chances of success.