Value Differentiation Strategy

As a Product Manager (PM), you need to develop innovative ideas to beat the competition. Innovative ideas that do not address the needs of the market are often useless. Therefore, a PM must be in constant contact with customers and potential customers to understand their needs. In highly fragmented markets, PMs usually spend most of their time imitating their competitors and miss the opportunity to innovate.

PMs need to closely monitor their product and its lifecycle. In the early stages of a product’s lifecycle, they can make investment decisions to increase R&D (research and development), as any additional functionality can lead to an increase in sales or attract new customers to the product. In later stages, however, they need to be cautious in their investment decisions as they are under price pressure and all their R&D investment decisions need to be made on the basis of contribution to return on investment. Companies that understand the role of continuous innovation are clear winners. Google, Apple and Amazon are the best example of this strategy.

The catch-up strategy is the exact opposite of the value differentiation strategy, in which the company tries to imitate its competitors and lose its lead. Competitors are always one step ahead and the company is always fighting for a share of equality points. This leads to a redundant product and lowers switching costs for customers.

With these two strategies, the central role of PMs becomes very clear as they need to develop features or products that are clearly different from their competitors. In a large organization, this will lead to satisfied customers or new customers, which in turn will lead to improved sales and profits. In a company that is still in its early stages, this will lead to a new customer or a buyer who is willing to pay a premium.