In a recent discussion with a client, we were talking about how well their recent strategic shift was going towards a new market segment. They told me that at first blush, it looked pretty good. Sales of the product were robust, so SVP of Sales was quite happy.
Since we focus on marketing, we asked the SVP Marketing, why this product was successful. Upon further analysis, the marketing leader revealed that the new products were selling to the existing customer base, not the new market, as was intended. So, we started to drill more deeply.
The products were actually designed for a new market, not the existing one. They were designed by looking at the needs of the new market (bravo). But, there were several things not taken into consideration when creating the product market fit:
- Did their existing market have a need for this new product?
- Were they willing to potentially cannibalize sales of old product for sales of this new product, especially when the new product has lower margins?
- How could they get channel partners to sell to the new market?
Let's look at each of these issues briefly:
- Existing market needs. On the one hand, our client didn't even consider the needs of their installed base when designing this product. Clearly they should have. On the other hand, being opportunistic, they have discovered market demand for their product.
- Cannibalization. I feel very, very strongly about this point. Either our client is going to cannibalize sales into their installed base with lower margin products or the competition is going to take that business. It is a strategic imperative to ensure you get those revenues, and not pretend that your customers aren't going to buy the new products anyway. Companies must cannibalize to survive.
- Channel Partners. Our client admitted two errors. First, they expected their current channel partners to sell to the new market. Ummmm, channel partners will sell where they already know how to sell, not where you want them to. Second, they didn't recruit new channel partners - the ones who were already selling to their target market for this new product. (for more info on a solution-based approach to channel sales, see "The New Solution-Selling Paradigm" by Allan Adler and Dylan Charles)
How might you have handled this situation differently than our client?
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