In traditional product development, the focus is output - ship more features. Unfortunately, this approach often results in a product lacking the essential ingredient: value. In fact, as per research, the top problem of software product managers is to understand the true value their customers seek in a product.
But what if, instead of fixating on the number of features shipped, your guiding principle was the actual improvement in people's lives? This is where value-based development becomes a game-changer. By continually weighing choices against value-added, you build solutions that truly move the needle for users.
In this article, we'll explore the principles of value-based product development. Discover a framework to craft products your customers can't live without!
Understanding Value in Product Development
So, what does value in product development really mean? Value is all about the benefits a product offers to customers compared to the costs of obtaining and using it.
Value comes from how effectively the product solves actual customer problems and makes their lives better. It's assessed in terms of satisfaction, return on investment, time saved, and the overall positive influence it has on the user.
By following a value mindset, you can evaluate every product decision based on the potential value it brings to the target users and the business.
Apple's product development approach is heavily value-based. They focus on delivering exceptional user experiences and innovative features. For example, the introduction of the iPhone with its user-friendly interface created significant user value, which translated into remarkable financial success.
In 2022, Apple generated over $394 billion in revenue, out of which 52% was from just iPhone alone.
The Value Mindset
Value-based product development centers around a value mindset that asks:
- Who is the target user and what do they really need?
- How can we solve high-priority problems for them?
- What's the potential business value if we get this right?
This mentality shifts the focus from outputs to outcomes. It makes you think beyond features and specifications to build solutions that make a meaningful difference in users' lives.
Leading companies like Amazon, Tesla, and Ikea obsess over understanding what users truly value. This insight guides their development to maximize value delivery.
For instance, Tesla's electric vehicles (EVs) are designed with a clear emphasis on providing value, from sustainability to performance. Their EVs offer cost savings in the form of reduced fuel expenses and maintenance costs while delivering a high-quality driving experience.
In fact, as of today, Tesla’s Model Y is the bestselling EV worldwide.
Measuring Value Throughout Product Development
How to measure product value? A hallmark of value-based product development is continually measuring value. To do this, you can use a value scorecard, which monitors how your product decisions impact value across various metrics.
User value - This means making sure the product is doing a great job of solving the problems your customers have. It's all about giving them a better experience.
Business value - Here, you look at how your product is helping you make money, increasing your profits, and gaining more ground in the market. It's about being successful as a business.
Strategic value - This is all about keeping your eyes on the big picture and making sure your product aligns with your long-term goals as a company.
Experience value - Last but not least, you want your users to have a positive and satisfying experience with your product. It's about making them feel good.
By using this tool, you can figure out what's adding value to your product and what isn't. These value measurements help you see if your product is a good fit for the market and if it's going to be a success in the long run.
Value-Based Pricing
A value-focused approach doesn't just affect how you develop products; it also plays an important role in your pricing strategy. Here's how value-based pricing works:
Prices based on value: Instead of setting prices according to your costs or what your competitors are doing, you determine your prices based on the value your product provides.
Different price tiers: You offer various price levels depending on the value your product brings to each group of customers. Not everyone gets the same price because not everyone gets the same value.
Flexible pricing: Prices may change based on how much the product is used and how much value each user gets from it.
Let’s look at Asana's pricing strategy:
- Basic: This free plan suits beginners but offers limited features.
- Premium: It builds upon the basic plan, delivering more value through additional features at a higher cost.
- Business: With even more features, the business plan provides greater value and is priced accordingly.
Asana keeps it simple: more value equates to a higher price, ensuring that customers pay according to the value they receive.
How Value-Based Product Development Works
Let's break down the key steps in value-based management, one by one:
Identify target users and problems
The first step is to know the people you're building this product for. Understand their struggles and challenges inside and out. For instance, if you're building a time management app, you'd want to know the pain points users face in managing their time effectively.
Define success metrics
Next, you need to figure out what success means for you and your users. Define it in clear, measurable terms. If you're creating a product that helps businesses increase their revenue, success metrics could be the percentage of revenue growth or the number of new customers acquired.
Ideate solutions
This is the creative phase where you brainstorm different ways to address the problems you've identified. For instance, if your users need a way to better organize their tasks, you might consider features like to-do lists, reminders, and time tracking.
Evaluate through a value lens
Now, it's time to put on your "value glasses" and look at those ideas you brainstormed. This is where you can apply the value scorecard approach. Assess your ideas based on how much value they can deliver to your users and your business.
Test and refine
After picking the best ideas, you create a basic version of your product, the Minimum Viable Product (MVP). You put it out there in the real world and see how it performs. If the MVP isn't delivering the value you expected, you make improvements.
Let's say your MVP of the time management app isn't saving as much time as you thought, and you'd make changes to increase its time-saving capabilities.
Key Takeaways
- Keep your eye on value: Make sure you're always super focused on delivering value to your users and your business. That's what it's all about.
- Measure with value in mind: Keep checking whether your product decisions are delivering value. You can use tools like the value scorecard to do this. It helps you stay on track.
- Pricing that reflects value: When you set your pricing, don't just use random numbers. Make it based on the value your users get from your product. It's a fair way to do it.
- Focus on improving lives: Your goal is to create outcomes that make your users' lives better and also help your company reach its goals.
By taking on the value mindset, you'll build products that connect with your users, win a bigger slice of the market, and make more money. It's the product manager's ultimate job to deliver this kind of transformative value.