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Synopsis

How do you take your product management to the next level? In this Product Management Toolkit (Part 2), we're going to review some of the top tools that product managers at companies like Tesla, Airbnb, Apple and Virgin Atlantic use to manage their products. We'll explain everything from how to create a price sensitivity matrix, define your total addressable market, conduct a cost benefit analysis, evaluate your product ideas with a MoSCoW feature prioritization, and make use of a KANO diagram to produce successful products.

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25 questions and answers
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The trends in product management tools and techniques include the use of a price sensitivity matrix to understand how price changes affect demand, defining the total addressable market to understand the potential market size, conducting a cost benefit analysis to evaluate the financial feasibility of a product, using a MoSCoW feature prioritization to prioritize product features, and making use of a KANO diagram to understand customer satisfaction and product features.

Product management tools help in competitive analysis by providing a structured approach to evaluate and compare your product with others in the market. They allow you to define your total addressable market, conduct a cost-benefit analysis, and prioritize your product features. This helps in understanding where your product stands in the market, what are its strengths and weaknesses, and how it can be improved to gain a competitive edge.

A KANO diagram is a product development and customer satisfaction tool that helps product managers understand customer preferences. The key features of a KANO diagram include: 1. It categorizes customer preferences into five categories: Must-be, One-dimensional, Attractive, Indifferent, and Reverse. 2. It helps in understanding what features will satisfy customers and what features may disappoint them. 3. It aids in prioritizing the features based on customer satisfaction and dissatisfaction. 4. It helps in making strategic decisions about product development.

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Outcome

With this explainer, you'll learn some advanced tools to manage product development like the pros. You'll hear some real-world examples of how these companies weigh the costs and benefits of an upcoming venture, prioritize important features and build delight into everything they create. As usual, you can download this framework to use in your own product management process. Plugin your own data and customize each slide according to your needs.

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The effectiveness of a product management process can be measured by evaluating the success of the product in the market, customer satisfaction, and the achievement of product goals. It can also be measured by the efficiency of the process itself, such as how well it manages costs, prioritizes features, and incorporates customer feedback.

Effective product management can significantly impact a company's success. It helps in prioritizing important features, weighing the costs and benefits of a venture, and building delight into every product. This can lead to the creation of products that meet customer needs and expectations, thereby driving sales and revenue. It also aids in efficient resource allocation, reducing wastage, and increasing profitability.

You can stay updated with the latest tools and frameworks in product management by regularly reading industry blogs, attending webinars and workshops, participating in relevant online communities, and networking with other professionals in the field. Additionally, you can also subscribe to newsletters from leading product management organizations and platforms. It's also beneficial to attend industry conferences and events where new tools and frameworks are often introduced.

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Tool highlights

Price sensitivity matrix

As a product manager, you need to develop a product with features and price

When Tesla decided to lower the price of all its North American electric vehicles in May 2020, the market initially saw this as bad news. Traditionally, automakers use discounts as incentives to increase sales during periods of low demand. However, because Tesla is a tech and automotive company, Tesla wanted to reduce costs to increase its product availability. Because price sensitivity is a huge factor to EV adoption, lower prices dramatically increased the amount of cars Tesla sold in the US in the following months.

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Tesla's decision to lower the price of its electric vehicles could potentially influence government policies in several ways. Firstly, it could encourage governments to provide more incentives for electric vehicle adoption, as lower prices could lead to increased demand. Secondly, it could prompt governments to invest more in infrastructure for electric vehicles, such as charging stations. Lastly, it could lead to stricter emissions standards, as more affordable electric vehicles could make it easier for governments to enforce such standards.

Increased adoption of electric vehicles can have several societal implications. Firstly, it can lead to a significant reduction in greenhouse gas emissions, contributing to the fight against climate change. Secondly, it can lead to a decrease in dependence on fossil fuels, promoting energy independence. Thirdly, it can stimulate economic growth by creating jobs in the electric vehicle industry. Lastly, it can improve public health by reducing air pollution.

Tesla's decision to lower the price of its electric vehicles could potentially influence the broader tech industry in several ways. Firstly, it could set a precedent for other tech companies to follow, encouraging them to also reduce their prices in order to increase product availability and sales. Secondly, it could lead to increased competition in the tech industry, as other companies strive to match or beat Tesla's prices. Finally, it could stimulate innovation in the tech industry, as companies look for ways to reduce costs while maintaining or improving product quality.

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To determine how sensitive your customers are to your prices, you need to divide demand quantity by the percent of change in price. The difference is your customer's price sensitivity. PMs will often introduce discount codes to check conversion on a decreased price to determine their customer's price sensitivity. (Slide 9)

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Price sensitivity can be incorporated into a product's value proposition by understanding the customer's willingness to pay for the product. This can be determined by dividing the demand quantity by the percent of change in price. This gives an insight into the customer's price sensitivity. Based on this, the product's value proposition can be adjusted to match the customer's perceived value and their willingness to pay. For instance, if customers are highly sensitive to price changes, the value proposition could emphasize affordability or value for money.

Price sensitivity significantly influences promotional strategies. If customers are highly sensitive to price changes, businesses may use promotional strategies such as discounts, sales, or special offers to attract customers and stimulate sales. On the other hand, if customers are less sensitive to price, businesses might focus more on promoting the quality, features, or benefits of their products or services. Understanding price sensitivity can help businesses tailor their promotional strategies to meet their customers' needs and preferences, and ultimately drive sales and profitability.

Price sensitivity has a direct impact on sales volume. If customers are highly sensitive to price, a small increase in price can lead to a significant drop in sales volume. Conversely, a decrease in price can boost sales volume. However, this depends on the elasticity of demand for the product. If demand is inelastic, changes in price will have less impact on sales volume.

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A price sensitivity matrix helps PMs determine how many people would use a discount that's hard to get vs those that will buy your product at its current price. While all customers will pay less for a product, some customers will wait a longer period of time to buy. This waiting tells you about demand. Other customers may not value a product if it's considered too inexpensive and will pay top dollar to get it as soon as it's available.

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This range of acceptable prices is what product managers need to know to price their products in an optimal way, and can be used to create a gradient of different price tiers with different features that are attractive for each customer type.

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TAM - total addressable market

Knowing how to price your product for the market is vital… and so is knowing the total size of your market to begin with.

In 2008, Airbnb was a startup trying to raise money from investors across Silicon Valley. The company estimated it could grow to $2 billion in revenue in three years by capturing 15% of their total addressable market, or TAM. Airbnb was rejected by nearly all the investors it pitched because its assumption that it could capture 15% of its TAM was too optimistic. After an initial seed round and some promising years of growth, in 2011 Airbnb ended up raising $100M at a $1.3B valuation — a dramatically smaller valuation that assumed the company could capture 2% of its TAM.

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To calculate your own TAM, follow this formula: take the total number of customers times the annual revenue value each could bring. (Slide 4)

For example, your market could include 600 million Excel users, 225 miilion cloud CRM users, and 20 million accounting users. You can then use the TAM formula to determine how many customers are serviceable and available, and how many are obtainable right now.

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Since TAM is calculated differently across various geographies, like a domestic company that operates in different regions or an international company operating in different countries, don't forget to take each region's purchasing power parity -- also known as PPP.

For instance, if you capture 1 million customers in India, the total revenue value is quite different from capturing a million customers in the UK -- based on each country's PPP. You can then break down your total available customers into additional segments as needed. (Slide 5)

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Cost-benefit analysis

As product managers prepare new features or developments, they need to account for the associated cost and weigh it against the potential benefit to determine if they should move forward. Nowhere is that more true than with the battle to fight climate change.

Over 110 countries that account for over 70% of world GDP and carbon emissions have net-zero targets by 2050. Unless all emissions are limited to 400 gigatons, the temperature on earth could rise above the 1.5 degrees Celcius tipping point within a decade. To meet these goals, the IEA has projected that a total of $5 trillion annually must be spent in energy investments for a total of $35 trillion by 2030. With so much money on the line, how can each government figure out how much they need to invest to reach their country's pledge? The answer is a cost-benefit analysis.

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Cost benefits analysis can be used by PMs to determine if a new product or venture is worth the cost of investment. To do a cost-benefit analysis, calculate the costs associated with hardware, labor, and training required to produce the product or feature in question. Then, add up the total potential benefits, either in cost savings, improved sales conversions, better customer retention and loyalty, or enhanced productivity and workflow efficiencies. If the costs outweigh the benefits, definitely don't proceed. But if the benefits outweigh the costs by a substantial amount, then you have a clear path to move forward. (Slide 11)

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Product features

You've run a cost-benefit analysis and you decide a new product is ready to go. So how do product managers determine what features a product should and shouldn't have?

In 2009, Apple's video editing software Final Cut 7 had a 50% market share. But when Apple launched its Final Cut X in 2011, the new version clocked in over 955 negative reviews and instantly became the lowest-rated Apple application. So what did Apple do so wrong? They didn't prioritize the right product features.

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There are a few important tools PMs can use to decide which features they should pursue and which they should not. A MoSCoW Prioritization tool helps PM prioritize according to "must-have", "should have", and "could have" features. (Slide 13)

A product idea evaluation can be used to analyze an entire product across metrics like financial feasibility, strategic alignment, customer usability, market demand, and value created for its customer. Each category can be weighted according to its relative importance to your company or department, and then multiple product concepts can be rated against each other for a total score. (Slide 7)

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Last, a product feature prioritization matrix can be used to determine which features are the most feasible and the best strategic fit. If a project has low feasibility and low strategic fit, then it's a low-value project, while a project with high strategic fit but low feasibility cost, is a low hanging fruit and should definitely be implemented. (Slide 6)

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Kano diagram

So if new product and feature development is all about the customer, how do you know when your customers are satisfied?

When Richard Branson started Virgin Atlantic in 1984, the airline world was largely expensive, lacking in choice, and put very little emphasis on customer satisfaction. In fact, Branson started Virgin Atlantic because he himself was an unsatisfied customer with a canceled flight. By 2000, Branson transformed his business from a single leased Boeing 747 into a multi-airline empire worth at least $1.2B. How did Virgin compete against so many legacy competitors that already dominated the market? Branson's focus on customer delight.

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You can use a Kano Diagram to compare new features against one another and control for customer delight. The Kano matrix measures customer satisfaction on the y-axis and customer expectations of a product's functionality on the x-axis. (Slide 15)

The threshold line is the baseline level of functionality a product requires to meet a customer's expectations. The performance line indicates a product meets expectations and is satisfying. The excitement line measures products that not only meet a product's basic needs but add an additional layer of magic. As a PM, you can use the Kano Diagram to decide between features that add value vs excitement for customers.

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When you download this framework, you'll gain more analytical resources like product vision boards, BCG growth matrices, product release plans, customer cohort analysis, KPI dashboards, and more. For more tools to help make product managers successful, check out our Product Management Toolkit (Part 1).

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