Product Strategy #3: The Switch

One of the most popular quotes I’ve ever used in my presentations is from Whale’s Justin Kan. He once observed that start-ups mostly don’t compete against each other, they compete against no one giving a shit. This neatly encapsulates the overwhelming choice of products, services and content that app stores and the web now present to consumers.

Startups are often so focussed on building their product, they forget just how unlikely it is that anyone is ever going to care less about it.

The app store offers millions of new options every day. The harsh reality is that we’re full. Our minds are full. Our devices are full. Our lives are full. We have more information and more content than we need.

Our attention has coalesced around a very small core. 80% of people’s time is spent in just three apps. The top eight mobile apps are owned by Google and Facebook and 50 per cent of people, at least in the US, download zero new apps per month. Product adoption is a far bigger challenge than most founders realise.

It’s interesting to explore the evolution of thinking in respect to new product adoption. Initial orthodoxy originated from a guy called Everett Rogers. It was Mr Rogers who coined the term ‘early adopter’ and ‘late majority’ in the context of a curve he called the Innovation Adoption Cycle. Everett’s curve paved the way for Geoffrey Moore’s chasm. But Everett himself has been largely forgotten.

Everett’s explanation of new product adoption was refreshingly simple. It was basically this: the best product wins.

Consumers evaluate each new product qualitatively against existing options and switch to ones they judge to be better. Very logical and rational. This was accepted wisdom for about 30 years.

Then, sometime in the 1980s, along comes Daniel Kahneman, who most of us now know from his 2012 book Thinking Fast and Slow. He turned Everett’s thinking completely on its head and proved that new product adoption is highly irrational and entirely constituted within our sense of loss and gain.

This is now known as Prospect Theory and Kahneman won the Nobel Prize in economics for his groundbreaking ideas.

The three tenets of prospect theory are:

1. Outcomes are judged in terms of gains and losses.

2. Judgements are relative to our individual situation. (A big reduction in the price of petrol in France would still be viewed as expensive to someone in the US.)

3. We hate losing stuff far more than we like gaining something new. (This is known as Loss Aversion.)

Our innate tendency to overvalue the status quo is called the Endowment Effect.

When we switch products, we feel the pain of what we are losing much more than the pleasure of the gain. Time is a factor in this as losses are experienced immediately but the gains aren’t felt until much later.

Our innate tendency to overvalue the status quo is called the Endowment Effect. This helps to create what John Gourville dubbed ‘the 9x problem’ of new product development.

If you multiply the degree to which the average consumer over-values their existing products (3x) by the degree to which innovators over-value their new products (3x), you get a 9x differential. This, claims Gourville, explains why so many new products fail despite offering demonstrable advantage. They are better, but not by enough.

Why it’s not enough to simply be better, as explained by John Gourville.

Alongside Clay Christensen, Bob Moesta has been described as ‘one of the key architects’ of Jobs to be Done theory. He’s extended the initial theory in multiple directions, one of which is his Switch workshop, which he delivers under the banner of the Re-Wired Group.

Moesta and his team believe strongly that consumers don’t simply adopt a product, they switch from something else. Each time you ‘hire’ a product, you ‘fire’ the incumbent. And, during this period of change, there are four forces that act upon you which influence your decision.

Two forces incline you towards making a change and two incline you against doing so.

First is the push. This starts with frustration with your current situation, a sense that the ‘as-is’ is sub-optimal, or even downright broken. This triggers the action of looking for something else.

Then, there’s the pull. When you hear about something else that’s better, you want to check it out. I’m old enough to remember when Google’s search engine was first released. The word of mouth was incredible. People would just tell you ‘This is so much better than anything else’ and you only needed to try it once to jump onboard.

There are also two forces that preserve the status quo.

The first is habit, which is a huge thing to overcome. As a new product developer, ‘Good enough’ is your biggest enemy. Many Product Managers still use Excel to manage their backlogs because it’s good enough. There isn’t enough of a push to cause them to switch to Trello, Jira etc.

Next is the anxiety which accompanies loss aversion, the innate fear of the new.

Re-Wired’s ‘Progress Making Forces’ Diagram.

An analysis of the 4x ‘Progress Making Forces’ that consumers experience as they consider your product is another activity I would encourage all product teams to undertake. If you don’t understand the switch moment for your product, you won’t understand how to market it effectively or iterate upon it over time.

Switch analysis can also transform your understanding of the competition. This is best exemplified by Reed Hastings’ quote about Netflix competing with a bottle of wine.

I believe Reed has since observed that his new competitor is sleep. Either way, his comments illustrate the diversity of the actual competitive landscape. Brands like Netflix, Facebook, Snapchat etc are now locked in an epic battle to monopolise your time. All other activity undertaken during the day now competes with them directly.