The ROI of Being Market-Driven

By Phil Myers
October 20, 2010

Gain strategic visibility for the ROI of being market-driven. Read the Four Rules of ROI Leaders that speak the language of your buyer - the CEO.


Vol 5 Iss 3[PDF]

CEOs love performance measurements. As someone who’s sat on both ends of the table, I can recall the frustration of being asked to measure the un-measurable as a product manager, and, being incredulous as a CEO when folks asked me to approve large expenditures without any accountability for how they would help the business. So, it is with a sense of both humor and purpose that we began a study here at Pragmatic Marketing to answer a question our customers get asked all the time by their executives—what is the return on investment, or ROI of being market-driven?

Part of the issue is perspective. What does it mean to say that a company is market-driven? Google it—in quotes, and it gets over 1.2 million results. Every week, customers give us their own personal views, and their responses vary significantly. We’ve centered on a very practical definition: “every thought, word, and action within your company is based on the needs of the market.” Hard to argue with this right? But, is this definition enough to govern your corporate investment decisions?

At Pragmatic Marketing, our business is to study these things, analyze the patterns and develop best practice methodologies for leading a market-driven business. We’ve worked with thousands of companies over the past five years, including big, well-known, market leaders like IBM, SAP, Freescale, Microsoft, EMC, eBay, and Yahoo; with breakout products from Apple, BlackBerry, and Google; and offerings from consistent product leaders like Intuit, WebSense, Macrovision, Metavante, and SAS. We’ve validated many of the high-level anecdotal studies that support the value of being market-driven—companies are more profitable (31% more[1] according to George Day), twice as fast in getting new products to market,[2] and own 10-20% higher customer satisfaction levels.[3] And, we’ve found compelling convergence around best practices for building and leading a market-driven culture.

But, internal to these companies and many others, we still find ROI skeptics. So, most recently, we sat down for one-on-one discussions with 30 CEOs to get to the bottom of the ROI question. By far the biggest eye-opener was the way in which these CEOs dug into the questions and delivered a pragmatic assessment of how their company measures the value of being market-driven. They ask four very simple ROI questions:

  • How much faster can you bring a new product to market and how much money can be saved by eliminating development mistakes?
  • How can we ramp sales faster and lower the overall costs of sales and marketing by spending our dollars and resources more wisely?
  • What impact will this have on the fundamental measurement that we value the business by—improving customer satisfaction, retention and referrals?
  • Will any of these practices create better margins by improving productivity or retention rates?

This article helps you gain strategic visibility for the ROI of being market-driven. And while we can’t calculate exactly what that figure is for your company, product, or unique market scenario, we can document a simple strategy for justification. The Four Rules of ROI Leaders that speaks in the language of your buyer— the CEO—are time-to-market, time-to-revenue, time-to-value, and time-to-profit.

Rule #1

Get products to market faster and eliminate “do-over” development cycles

Time-to-market is the first measurement of an ROI Leader. When a product manager develops and defends a business case for a new product investment, decision makers want to quickly understand and rate the risk/reward vs. other alternatives—including not investing in the project at all!

Development costs and schedules are the first point of inspection. Typically, no matter what is included in the plan, the smart executive doubles it. They know from experience that these projects are almost always impacted by “feature creep,” inaccurate sizing, and changes in requirements. Yet, each month that a product is delayed beyond the planned ship date has a cumulative negative impact on the overall ROI over the life of the product. Schedule slips are rarely recovered, market windows are missed, and early customer adoption impacted. So, the ROI number in the plan is suspect right from the beginning.

Market-driven organizations improve development ROI by delivering more quickly, cheaply, and by meeting and often beating their schedules. The formula for success is simple:

  1. Focus the development organization on a specific problem.
  2. Reduce the scope through tight requirements definitions that are targeted to specific market segments and specific persona(s)
  3. Create a launch plan that justifies the release date target with quantifiable, measurable improvements that the company will realize in sales.

There are no short-cuts if you want to be an ROI leader. When do you realize that you’ve shipped the wrong product to the wrong market? We hear from companies every week that say they don’t have a process to effectively deal with change during the development cycle—in other words, when market conditions or product content changes, and the agreed-to business case is no longer valid, many companies “ship it anyway,” and wonder why revenue goals aren’t met. We sometimes hear this referred to as shipping an “anyway product,” and by doing so, companies typically hurt their market perception and rarely meet their revenue goals. This problem can be addressed by implementing a more agile product management and development process.

SIMPLE MEASURE: The typical technology product requires two to three versions to get it right. Take your product development cost and multiply it by two and add it as an avoided cost if you are market-driven.

Rule #2

Ramp sales faster and eliminate thrashing in marketing

Time-to-revenue is the second measurement of an ROI leader. You spend tons of money on marketing programs. And maybe even more in the training, support and staffing of your channel. The front-end of the launch of a new product is filled with expensive investments—new web pages and online campaigns, direct mail, advertising, brochures, e-books, press conferences and tours—a seemingly endless list. These investments, along with the series of activities that introduce your new products to the channel and the resources set aside to support it are real and tangible. But how fast do you typically get product adoption? Is it a six month ramp? A one year ramp? Longer?

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About the Authors

  • Phil Myers

    Pragmatic Marketing, Inc. has continuously delivered thought leadership in technology product management and marketing since it was founded in 1993.Today, we provide training and present at industry events around the world, conduct the industry’s largest annual survey and produce respected publications that are read by more than 100,000 product management and marketing professionals. Our thought-leadership portfolio includes the Pragmatic Marketing Framework, e-books, blogs, webinars, podcasts, newsletters, The Pragmatic Marketer magazine and the bestseller “Tuned In.”

    To learn more about our courses and join the growing international community of more than 80,000 product management and marketing professionals trained by Pragmatic Marketing, please click here.

Categories:  Leadership

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