The reading illuminated that a lot of products fail due to psychological biases in both the customer and the executives behind the product, which result in a product which is undervalued by customers, compared to the product’s they are used to, and overvalued by executives who overestimate the benefits of the product they’ve developed. Loss aversion, is an intense psychological force that influences consumers’ buying decisionmaking. We know psychologically people view the product currently meeting their needs as a baseline, from with improvements are considered gains and shortcomings are losses. The theory of loss aversion is that the impact of potential loss is psychologically weighted so heavily compared to the effect of potential gain, that consumers are not willing to take a risk unless the potential risk is 2-3 times greater than any potential loss. This is furthered by the notion of endowment theory, in which abandoning current technologies is already considered a loss which must be compensated by gains double or trifold. As the text enunciates,” it’s not enough for a new product simply to be better. Unless the gains far outweigh the losses, consumers will not adopt it.” Furthermore, any changes that the customer must adopt by switching to a new product represents labor for them and friction in their decision. While customers may undervalue products in relation to those they already have, on the other hand, company executives tend to overvalue the value of their product and consider it the baseline from which they examine losses in comparison to other products.
The fact that loss aversion has the ability to overpower logical reasoning means that as PM’s we must appeal to the psychology of the consumer in order to combat buyer resistence, rather than acting from our own standpoint of the product’s worth. Given this relationship, there are a few strategies that PM’s can use to make sure that the imagined product value assessed by the company executive aligns with the consumer’s internal value system. For one, the PM can shoot for the “9x effect” discussed in the reading. The rationale of the “9x effect” is creating a product that provides 9-10x as much value, to account for for both the 3x less customers value it given their perceived losses and the 3x more that the company executive overvalues a product due to their involvement in its creation. Secondly, the PM should always aim to create a product that has maximum product improvements, but has minimal required behavior change to utilize. This will lessen the perceived losses by the customer, resulting from changing familiar behavior. Alongside this point, the PM can utilize feature creeping and anticipate a long drawn out rollout of new product features, to ease consumer friction with adopting new product use behavior.
