Today's modern association is creating more complex product strategies than ever before.
The increased use of technology and expanded competitive pressures are driving the association marketplace to innovate more rapidly and aggressively. Combined with the need for new revenue to finance this innovation and to continue subsidizing membership dues, associations are producing both extended and new products.
Unfortunately, this creates a difficult problem for associations. As new products are created, they cannibalize existing products and services. The cannibalization rate is the extent to which the new product takes business away from the association's existing product line.
Diagram 1 represents the existence of two products with distinct, unique markets. Diagram 2 represents two distinct products that target two different markets that have some overlap. This area of market overlap represents product cannibalization.
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In order to avoid extensive cannibalization, associations must integrate products to serve different market needs and create strategies that maximize sales and net income for the entire association.
By coordinating your product line strategy with market demand and market needs you can avoid cannibalization and lost revenue and sales.
The key to integrating your product strategies is to view your association with a holistic approach. You must focus on combining individual products and services in a manner that benefit the entire organization while minimizing cannibalization between individual product lines.
This outlook on association management forces you to clearly identify and prioritize potential opportunities. This means having to kill products that fail to meet estimated sales or revenue goals.
Many associations are organized into individual product silos. Department staff attempt to maximize sales and net income for their individual departments based on tactical program and budgetary goals. Often, this is done at the expense of the overall financial and marketing success of the association.
In order to make decisions regarding product and pricing strategies necessary to avoid cannibalization, you must proceed through the following steps:
Identify Specific Product Markets
Who is my market?
The first step in building an integrated approach to product strategy is to specifically identify the individual markets for each product.
The purpose of this step is to create a detailed and unique profile of each particular market currently served by the association. You must first understand who you are serving before you can make decisions on potential new markets.
A detailed market profile may include some or all the following information:
What problem does my product solve?
Identify how each market uses the association's product line to solve their individual problem. For example, some individuals may prefer to attend a conference to receive educational information while others may prefer to download this information from the Internet.
Is the problem solved by your product unique to this market, or is it common throughout all your associations markets?
If the problem you're trying to solve exists in all of your markets you can assume a greater potential for future sales.
At the end of this step, you want to be able to be able to specifically define the individual markets for each product. You should be able to create a detailed description of the individuals and organizations that purchase each product and the characteristics that make this market unique.
Assess Market Demand
How much is each individual market worth to the association?
The next step is to analyze your existing sales into these individual markets and use this information to estimate potential demand. You must further analyze potential net income resulting from the sales.
While a particular product line may generate more units in sales than other products produced by the association, it would be an inferior choice if another product generated more net income for the association's use.
For example, there are direct costs required to produce a magazine and a conference. What is the per person net income on an individual magazine subscription compared to an individual attendee? How many subscriptions would you need to sell for the net income to equal that of a single attendee?
Once you can identify this amount, you can look at the feasibility of producing marketing programs that would sell enough magazine subscriptions to generate more net income than the production of a conference.
By estimating demand, you'll be able to compare different markets and their relative value in terms of sales and gross revenue. You can also begin to assess how valuable each particular product market may be to the association.
There are several potential areas of demand that you might analyze as an association. The particular area important to you is dependent upon your organizational goals.
Collect information on the following:
Use this trend information to project potential sales demand for individual products.
Remember, if you do not significantly alter what you do, you cannot project significant changes in results. If your sales are stable and you change little or nothing about your marketing or product you can assume sales will continue to be stable.
If you plan on implementing new marketing strategies, you must take these activities into effect. Try to calculate a realistic return on investment given your historical experience with similar strategies.
A decreasing trend in sales indicates a potential marketing problem. An upward trend indicates a potential opportunity for expanded sales and revenue.
Identify Preferred Product Features
What are the features of each product solution? What features are unique to each product vs. common to all products?
A unique feature is one that can only be realistically characteristic of a single product. For example, only web-based products allow for 24\7 access. Only conferences allow face -- to -- face interaction between content experts and attendees.
Each individual product market will prefer an individual set of features unique to their desired solution. For example, an individual who prefers to attend a conference may prefer face-to-face interaction with content experts. An individual who prefers to download information from the Internet may prefer the convenience of 24-hour access to information.
There may be characteristics that are common among all product lines, for example, specificity of information to professional needs.
As you compare different products to assess cannibalization, the more these individual products share common features, the greater potential for cannibalization.
As a result, you want to focus promoting the unique product features to the most relevant market. Furthermore, you want to create new products that deliver a unique set of product features so that the different markets can easily distinguish them.
When you are able to specifically identify individual product markets and assess the characteristics that are most important to each market you will be able to see where individual product markets overlap with each other. In this manner, you can make assumptions on the level of cannibalization that might occur.
Prioritize the Value of Each Individual Market
Which market should I target?
You have now completed the following steps:
Since you have identified each specific market and analyzed the overall product sales, you can now prioritize these individual markets in a manner that allows you to minimize potential product cannibalization. This information allows you to assess the relative pros and cons of producing and marketing a particular new or extended product line.
Assess Competition
Who is my competition?
In order to effectively market any product you must understand the relative strengths, weaknesses and capabilities of your competition. This allows you to create a positioning strategy.
A positioning strategy is designed to specifically compare your products' strengths to the identified weaknesses of your competition. This allows your target market to view your particular product in the most favorable light, and thus, improve sales.
Attempt to answer the following questions:
If your product extension or new product introduction is to be successful it must be positioned appropriately against existing and potential competitors.
Evaluate Different Product Marketing Strategies
Now that you understand the relative value behind marketing different product lines you can identify which product marketing strategy delivers the best investment for the association.
You answered the following questions for each product market:
If you picture each product market as a circle, the area where two market circles overlap represents potential cannibalization. The larger circle represents the larger potential net income of Product A.
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In this case, the association should pursue a product strategy that favors Product A vs. Product B.
As an executive, you must constantly evaluate which particular product will deliver the best value to the association. Assess the following criteria:
You'll want to introduce or continue products that balance three criteria:
Only by identifying and assessing the size and relative financial and marketing value with different product markets can you make the important decisions necessary to prioritize which specific product line to promote and minimize potential cannibalization between product lines.
Dean West
President
Association Laboratory
dwest@associationlaboratory.com
Association Laboratory is a national consulting firm specializing in the research and development of marketing and organizational strategy for associations. The company has offices in Chicago, Illinois and Washington, DC. For more information, visit www.associationlaboratory.com.