Platt Perspective on Business and Technology

Building for an effective portfolio of marketable offerings 6: meshing product portfolio offered and business model pursued 2

Posted in macroeconomics, startups by Timothy Platt on February 27, 2015

This is the sixth posting to a series on the factors and considerations that would help a business to more effectively determine its best range and selection of offerings that it would bring to its market, focusing here on manufacturers (see Startups and Early Stage Businesses, postings 173 and loosely following for Parts 1-5.) And I offer this posting very explicitly as a thought piece and with a goal of provoking my readers to reconsider some of the basics and their implications.

I began a more formal discussion of balanced product portfolios in Part 5, there focusing on the fiscal dynamics of maintaining a positive overall cash flow, with positive returns from revenue generating products covering the more cost-center stages of developing new and next generation products and product lines, and with the portfolio as a whole kept in overall cash flow-positive balance from that. And I ended that posting by noting that I would continue its discussion here, focusing on two specific product categories that both have time-limited productive, revenue-generating lifespans:

• Fad products, including the small percentage of such market offerings that begin as fads but that hang on long-term as niche market offerings with perhaps small but steady market demand levels, and
• Next-best-thing innovative products and particularly the new and novel as these products arise in rapidly changing markets, and where next, next-best-things are already in development before any current innovation iteration can even first hit its marketplace and its store shelves.

And I stated that I would discuss how product and product portfolio determination mesh with and support the business model in place, and how the business model in place and its underlying assumptions and momentum determine what types of product development efforts, and what types of products would even be considered for manufacture and sale.

I begin that by considering the similarities and differences between the first bullet point fad products, and the second bullet point innovative products noted above, and by addressing a point of possible confusion in my above statements.

Both of these product categories have to be innovative if they are to capture significant consumer attention, and create market share for the manufacturer from their sales. And the level of innovation, when considered in a more technical sense can be both clever and profound in both of these categories too. The core distinction between them here, is in how the consumer views these innovations. A fad product’s innovation might be surprising for its unexpected novelty but it is much more likely to be an innovation that is viewed as incidental. Fad products are essentially always non-essential if not strictly impulse purchase items. The innovative product offerings of my second bullet point are seen by the consumer as more functionally important and as more “serious” purchases – serious insofar as these products are used to fulfill larger contextual needs. These are items that people purchase in order to meet purposes that go beyond simply owning and using the products themselves.

And I add to that, that fads per se and with few exceptions are more of passing interest and tend to command lower price points, as shorter-term interest impulse buys. Some non-fad innovative products are also manufactured, marketed and sold inexpensively but at least as many are higher-end and higher price point items. And they, unlike fad items that are viewed as being less consequential, tend to specifically target pioneer and early adaptor consumers – and particularly where their innovation can be marketed as being more profound and as being more disruptively new.

And with that in place, I start connecting products produced and offered to the business model that would, through its implementation, provide them. And I begin with the fundamentals.

• A manufacturer’s primary goal as a business is to produce profit generating products that it can competitively offer in a marketplace.
• This can mean offering some same market-stable product or suite of them long-term, and certainly for the types of long-term in-demand products that I noted in Part 5 (where I cited the examples of bread and Coca-Cola.) These tend to be less innovative, and certainly as they become established as marketplace standards of long-term consumer interest. And they frequently draw in consumers from across the innovation acceptance/innovation diffusion spectrum from early adaptors to late and lagging adaptors.
• This, on the other hand, can mean offering highly innovative products, that as discussed in Part 5 tend to have correspondingly shorter life cycles.
• The more innovative and short life cycle driven a product, the more actively it has to move off the shelf to cover its development and other cost-center expenses and make a profit. And this puts pressures on economizing development and manufacturing, marketing and other cost-center elements to those product life cycles too.
• Fad products tend to be designed, manufactured, marketed and sold as inexpensively and quickly as possible, with this driven by the need to keep as many of these products going into the product portfolio as practical as any one time, so as to increase the likelihood that some will take off in the market and keep the overall product portfolio cash flow-positive. Businesses that focus on fad markets have to develop and pursue business plans that support this rapid turnover of product, with any offering that does not immediately catch on remaindered for what has been produced and dropped from new production, and any that catch in the marketplace maintained in production until they drop off for public interest too.
• Highly innovative non-fad products of the type I noted in Part 5 and then again above, call for lean and efficient business models too but innovation and invention, marketable product development, parts and materials acquisition and manufacturing, marketing and other cost-center life cycle elements are essentially always more cost-intensive, and fewer of them can generally be developed and in the pipeline at any one time than would be possible in a fad-producing manufacturer. So much more rides on any one given product offering that is attempted and brought to market. The business models followed by these manufacturers reflect that source of differences and have to.
• And crucially, and taking all of these scenarios into account here, an effective business model here is designed to improve the odds that a manufacturer can develop and maintain a cash flow-positive product portfolio and long-term and in the face of change in the marketplace and in consumer demands and interests.

What I am doing here, is to explicitly define good for a business model in terms of what is offered, so as create and maintain cash flow-positive competitive strength. And that means defining the business model strictly in terms of products and product portfolios offered and at what price points, and in terms of markets addressed and consumer preferences in them. Table of organization details and employee titles held, internal operational process considerations and other supportive business details are only important in this context insofar as they facilitate that. (Focusing on a business from this single perspective is here I seek to provoke my readers in this posting, where I invite a more ongoing consideration of how the rest of the business actually fits in and does or does not support this understanding of what constitutes a business’ highest priorities.)

I am going to end this series here at least for now, with this installment, though I will continue to discuss related issues in other postings and series. Meanwhile, , you can find this and related material at Macroeconomics and Business and its Page 2 continuation, and also at Startups and Early Stage Businesses. And also see Business Strategy and Operations and Page 2 and Page 3 of that directory.

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