Crafting a Winning Product Strategy: Key Considerations for Application Development Investments
Jun 25, 2024
By Vladimir Kirillov, Lead Product Owner, ClearScale
Investment in application development is growing year by year. Focusing solely on Software as a Service (SaaS) development, according to data published on statista.com, revenue in the SaaS market is projected to reach $282.20 billion in 2024. Revenue is expected to show an annual growth rate (CAGR 2024-2028) of 7.33%, resulting in a market volume of $374.50 billion by 2028.
Companies invest in application development to create digital products from scratch or to modernize existing ones, aiming for a multiple return on investment.
Surprisingly, it is common to find companies that, when initiating such projects, look only one step ahead. Simplistically, they think, “We need to implement this functionality and hope for this result, and then we’ll see.”
Furthermore, many businesses make investment decisions based solely on the experience they have gained in the industry.
Based on ClearScale’s many years of experience launching products from scratch and modernizing mature products, we can say that the aforementioned approaches sometimes work. However, to increase the chances of long-term growth for a digital product application, a more comprehensive approach is needed – the development of a product strategy. This strategy acts as a plan outlining how the product will remain profitable and competitive in the long term.
Developing a strategy is a complex issue. Many strong market players have their custom approach to building it. It would take a series of articles to cover all its aspects in detail. In this article, we will briefly discuss the parts of the product strategy that must be worked out before starting application development. This will help you, dear readers, to assess which aspects you have considered and which you have not before making an investment decision.
Product Strategy
Simplistically, a product strategy can be viewed as a series of questions to answer before launching a product. Answering these questions and taking a comprehensive view helps build a holistic plan for how your product will develop in the long term, remain profitable, and be competitive.
Having formed a vision for the product – where the product hopes to go and what it hopes to achieve in the long term – it is worth thoroughly working out the Product Market Fit, i.e., the place of the Product in the Market.
Target Audience Selection and Acquisition
The obvious step is to understand which target customer segments your product is aimed at by segmenting your audience. Many companies use profile segmentation (demographic, geographic, or other characteristics), but often, it is more effective to segment by the problem your product should solve for this segment, their pain points, and the cost of delaying the solution to this problem. To make your problem-solving solution most effective, you should research not only the problems but also the final value each segment expects to receive. When segments and their characteristics are defined, prioritize segments that should bring the most profit to your business.
When choosing target segments for your product, you should also decide which channels you will use to attract these customers. Which channel will be most effective for each segment? How much will it cost to attract such customers? Customer acquisition cost will be another factor in prioritizing your audience’s target segments.
Assessing the Competition
Competition is another aspect that must be thoroughly researched before investing in application development. Determine whether there are already solutions on the market similar to what you want to create, solving the same problems for the same target segments. What is the business model of these competitors? What are their advantages and disadvantages? How much market share does each one hold?
You should also study other parameters, such as current users’ feedback on these products, to better understand your competitors and determine how your product will differ and what your competitive advantage might be. A mandatory question to ask yourself is how easily competitors can copy your solution – this will help to foresee additional points in your strategy.
Analyzing Current Trends
When choosing how you will solve the problems of your target segments, you must consider the current trends in your chosen market and their dynamics. Trends can be technological or ethical, localized to a chosen industry or region, or macro trends. Understanding them clearly can adjust the initial vision of the solution you plan to develop. You can follow an established trend or a burgeoning one.
Establishing the Product Principles
Based on the researched trends, and the technological, business, and marketing expertise of your team or consulting partner, you will form the principles by which you will develop your product. Technological, business, and ethical principles throughout your product’s life will help answer which capabilities you will implement and how, and which you will not. A good example of a technological principle you can choose for your product is “mobile-first.” A product principle example is rapid releases of new functionality to get feedback as quickly as possible.
What’s the Business Model?
One of the fundamental parts of your product (some include it in the strategy, and some consider it as a separate entity) is the business model. If you are a startup, please note that many investors give more weight to business models rather than functionality when investing in digital products.
To plan your product’s long-term profitability, you need to analyze the cost structure in detail, choose one or several monetization models most suitable for your application (did you know there are about 50 variations of digital product monetization?), and forecast your customers’ lifetime value. You can go deeper and, by evaluating your customer acquisition capabilities, expected product growth, and income and expense structure, forecast your product’s break-even point.
Establishing Business Goals
Besides all the above, you should also determine what specific business goals you set for your product in the long term. Specific, Measurable, Achievable, Relevant, and Time-Bound (SMART) goals will serve as a beacon for your team, guiding them in the right direction. These goals are usually tied to Key Performance Indicators (KPIs) that most clearly reflect the state of your product.
By setting specific goals for your new product or its modernized version, determining which customers you target, which problems you solve for them, and what value you want to provide; planning how you will stay ahead of competitors, which trends you will follow, and which principles you will follow; evaluating the expenses you will face and the income you expect – you already have a long-term comprehensive plan for how your product will conquer the market. However, do not forget to assess the risks that may hinder you and plan how you will mitigate them.
Charting the Roadmap
By finding answers to all the questions described above and documenting them in a unified strategic document, you can move on to planning the implementation of your product, application, or other service. Build a long-term roadmap for your product, dividing the path to achieving your goals into iterations, each with its own goals, success criteria, blockers, and functionality. It’s time to move to tactics.
There is a good phrase: “Strategy without tactics is the slowest route to victory. Tactics without strategy is the fuss before defeat.” – Sun Tzu, ancient Chinese strategist and philosopher, 543-495 BC.
Conclusion
Now you understand how many aspects need to be considered before making an investment decision on developing your application. Some of these questions you will answer with the experience you have in your business area. Finding answers or solutions to other aspects will require deep market analysis and quantitative and qualitative research.
In some aspects, the solution will require strong expertise in digital product management. You can go through this long and important process yourself, or ClearScale will be happy to do it for you as your strategic partner.
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