Champions of Product Management Extending your product line can be more complex than it appears | Extending your product line can be more complex than it appears |
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Product line extension is a key survival strategy for technology producers. But doing it right looks easier from outside than it does from within.
FreeMarkets’ Vice Presidents Doug Wnorowski and Chris Gormley (from left to right) shared their company’s experiences – for better and for worse – with the Pittsburgh Product Strategy Network at their December 9 Forum. The business case for offering more than one product or service is compelling: it’s that business growth sooner or later, depends on more than one offering. Unless there’s more than one leg to the stool, it will eventually fall. But transitioning from the single offering that made a business successful into a more diversified, multi-product line company can be treacherous. Just ask FreeMarkets, pioneer of the global supply management product category, whose experience with product line extension has been both good and not-so-good over the past six years, according to two senior executives who spoke at the December 9 Forum of the Pittsburgh Product Strategy Network. New markets bring opportunities and risks The original idea was simple enough. In 1998, during the course of setting up reverse supply auctions for one of its giant manufacturing clients, FreeMarkets discovered that many of the same companies which were already subscribers to its FullSource solution of sourcing technology and expert service also had specialized selling needs. Specifically, the industrial-strength stamping, milling, and material handling equipment they routinely replaced had considerable value – especially to other, usually smaller, manufacturers. But finding interested buyers, and selling that machinery to the highest bidder, was not something FreeMarkets was organized to do. At least not then.
Ok, so its sales incentives didn’t offer quite the same advantage as its FullSource solution. And its sourcing domain knowledge was below that of its more traditional asset recovery competitors. And its key customers seemed to be scattered throughout the client company instead of concentrated in their purchasing department. For a company like FreeMarkets, with its glistening reputation and its aggressive approach to new challenges, this seemed to be a logical and attractive opportunity. So toward the end of 1999, the white hot FreeMarkets – whose breathless buzz on Wall Street had, however briefly, made it Pittsburgh’s most highly valued company – introduced Asset Auctions 1.0. The company quickly built a core business team, set up its legal structure and, before the end of the first quarter 2000, sold its first surplus equipment. Opportunities close to home At about the same time, the company decided to act on another opportunity – this time on the buy-side. As early as 1997, FreeMarkets sensed a growing market interest in a largely automated, self-service version of its people-intensive FullSource reverse auction solution. And starting in 1999, several of its startup competitors put that interest to the test – with excellent results. That meant the time was right for FreeMarkets to leverage its reputation, contacts, and know-how into a new product, specifically designed for companies who preferred to run their own sourcing events, and for certain sourced supplies that couldn’t justify the full service version.
But here too there were challenges. The high-touch, contact-intensive culture that had grown up around FullSource was fundamentally unlike the remote, arms-length approach of QuickSource. The revenue model was different as well with FullSource pricing based on volume and QuickSource based on usage. And nimble competitors were springing up everywhere. Beyond that, the widespread acceptance of self-service auctions, including FreeMarkets’ own version, seemed poised to cannibalize the company’s established success with FullSource. But FreeMarkets knew that it’s better to eat your own lunch than to have competitors do it for you. Fail first, fail fast Over time, though, it became apparent that the Asset Auctions product didn’t fit into FreeMarkets as well as hoped. The decision to acquire two smaller but better established companies in the field had been intended to accelerate the entry into this market and to raise the company’s profile in the traditional asset recovery field. But the integration of corporate cultures – which was too overbearing in one case, and too laissez faire in the other – didn’t work well. And tradeoffs in mismatched cost structure, management, and technology largely offset the sought-after gains in market growth, skills, and infrastructure.
With QuickSource, however, it was different. For one thing, the company’s brand and its buy-side know-how gave it powerful advantages. Rather than losing FullSource customers who were ready for self-service to the company’s fast-moving competitors, FreeMarkets was able to supply them with the tools and expertise. Also, the company found that the same sales team was able to effectively represent both the FullSource and QuickSource lines – and often to the same customers. Existing services could also be easily transferred to the self-service product. And today, QuickSource is the company’s second highest revenue generator. Learning organizations reap the rewards
Those lessons were not lost on company management. From 1999, with just a single solution, the company learned how to extend its growth within existing and adjacent markets. By 2001, there were six new products and services offered. By 2002, it was twelve. And this year, FreeMarkets released nineteen new solutions – a 250 percent growth in just 18 months. The path to successful product line extension can be both difficult and rewarding
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