This week’s reading describes the paradox of consumers’ resistance to change whereas companies are more drawn to innovation, often due to the same phenomenon of the psychology of gains and losses. This leads to companies facing slow adoption of their products due to customers defaulting to established behaviors. However, there are different strategies companies can employ knowing consumer’s habits.
Buyer and Seller Psychology
Both buyers and sellers are affected by the psychology of “loss aversion,” the idea that people are more motivated to avoid losses than they are to achieve equivalent gains. This directly results in the endowment effect, the bias to value what you own, but may give up, much more than what you don’t own and may obtain. Thus, buyers are hesitant to adopt new products because they overestimate the potential downsides or costs of switching from what is familiar. Paradoxically, companies are far more biased toward new products having worked on them for years, so this new product is their reference, what is familiar to them. It seems we reached a deadlock.
People tend to overvalue their existing products and their benefits by a factor or three- this happens to be the case for both consumers and companies with the products they develop. The reading describes this as the 9x effect, resulting in a significant gap between what buyers desire and what innovators expect. Thus, a product manager needs to be aware of this gap and design strategies to both minimize the gap and take advantage of understanding this psychology. This way, product managers can put themselves in the shoes of both buyer and company to determine whether a customer would perceive enough value in adopting a new product.
Strategies
Strategies that a product manager can employ may involve minimizing behavioral change. By allowing an “easy adoption” where consumers don’t have to significantly, if at all, change their habits to interact with the product, companies will face less resistance in their innovations. The reading highlighted the example of the Prius, who found success because they retained the traditional driving experience while adding the benefit of the electric engine. Consumers were able to engage with the new product as they normally did without feeling overwhelmed by unfamiliar features causing new behaviors. The highlight here: People are resistant to change, so make the transition as seamless for the consumer as possible.
Another strategy that could be employed is, in response to the 9x effect, to create a product that has a 10x improvement to what the consumer is currently used to. This way, product managers can focus on creating a product that is so clearly beneficial that it outweighs the perceived losses to persuade buyers. However, it is critical that eager sellers, in an attempt to create a fix-all product, avoid falling into the trap of “feature creep“. Feature creep arises when a new product accumulates too many features. Although this may intuitively seem like it would be beneficial to fix many problems at once, feature creep results in increased development costs (oh no, higher prices!) and product complexity which demands behavioral change from the consumer- a sure-fire way to make the product resistant to adoption.
