Rise of the CPO
And the elevation of product leadership
Product has long been one of the four “Ps” of marketing, along with Price, Promotion, and Place (distribution). As digital services have become a pervasive part of modern life, the Chief Product Officer title has similarly grown in popularity. What does it mean that this particular P has been elevated to the executive ranks as a frequent peer to its former 4P host, the Chief Marketing Officer, often taking the “pricing” P with it?
It has to do with the changing nature of relationship economics, a dynamic that is morphing in both B2B and B2C contexts. Ironically, the increased prominence of Chief Product Officers and product-led organizations is a signal of increased customer centricity as opposed to less. The best product organizations are customer centric, and digital channels provide an entirely new standard for how providers interact with their customers.
The earliest roots of product management are often traced to “brand men” at Proctor and Gamble in the 1930s. The economics of a sale at the time were transactional. When a customer purchased a bar of soap, he took it home, and that was it. There was no CRM to update, no email list to join, and no usage data to analyze. The bar of soap never received updates between uses. Product management was focused on positioning and distribution. And product features? “It floats!” The relationship was a brand-level association to product benefits. If the benefits were compelling and memorable (to a nation of bath-takers in this case), then there was an increased chance of repeat purchase in the future. The role of product fit naturally in the marketing organization.
Then along came SaaS. With software-as-a-service and an increasingly direct channel to consumers, expectations changed. The relationship economics changed as well, becoming an even more critical driver of business value. While product managers in a SaaS world are still keepers of the P&L, the business drivers are new. Value is exchanged with customers as they progress through a life cycle, expecting products to improve over time to meet their ongoing needs. Even cars can now receive new capabilities through over-the-air software updates! Instead of consolidating point-of-sale statistics from a broad network of resellers, product managers can now go deep on individual-level behaviors that impact business performance, often directly and in real time. This provides a tremendous opportunity for businesses to develop with their customers! Companies that get product right experience increased customer lifetime value (CLV or LTV), higher net promoter scores (NPS), and reduced cost of acquisition (CAC). Product is the ongoing critical link between the P&L and the roadmap, constantly evaluating the trade-offs in order to connect customer-driven value to the resources needed to realize it. Against this backdrop, the split of the marketing function and the product function begins to make sense for many modern companies.
The future of product management will be even more customer centric. Many services that were once purchased ad-hoc, including software, are now purchased by subscription. Even non-subscription services, like coffee shops, increasingly look at customers through a relationship lens. This trend will continue as more consumers opt to pay for usage as a service rather than ownership. Savvy investors are increasingly scrutinizing cohort curves and applying advanced methods of customer-based corporate valuation (CBCV). After all, the sum of residual CLVs for all customers, properly discounted for the time value of money, fundamentally represents the value of a firm.
While customer-centric marketing sings the virtue of attracting high-value customers instead of trying to transform low-value customers into high-value customers (and they are right!), customer-centric product management calls for ongoing attention to serve the current and future needs of high value customers that do not stand still. What was once about selling static products through retail distribution channels that could only be evaluated in hindsight, is now about cultivating relationships that are monetized through ongoing engagement. The elevation of product leadership in the executive suite is a recognition of the changing role that relationship economics play in growing and sustaining modern businesses.
originally posted on Medium, May 12, 2019
Michael Scully is a product leader at Credit Karma and parallel entrepreneur at Crooked Chimney. Formerly, he was Chief Product Officer at Passport Labs and has held leadership roles at Virgin Mobile, Nokia, Skookum, and 2ergo. Scully is an introverted multipotentialite, a creative problem solver, a systems thinker, a pattern recognizer, an occasional coder, a good judge of character, a bad guitar player, and an awful heart surgeon since he has no medical training whatsoever.