Thank You, But I’ve Had Enough Value For Today
Could Leveraging “Marginal Utility” Lead to a More Valuable Roadmap Strategy for Product Managers?
A few months back, a LinkedIn connection of mine posed an interesting question to his network, he asked: “what are some of the best books that have lessons for product development that aren’t actually about product development?”
This question got me thinking about a book I read while I worked in Compliance at Goldman Sachs. The book is called “Against the Gods (The Remarkable Story of Risk)” by Peter L. Bernstein. It’s a mathematical book at its core, and a quintessential read for Wall Street quants. However, I recalled a portion of it potentially having relevance in my current product management life.
One theory that Bernstein briefly discusses in his book is the economic principle of “Marginal Utility.” Also known in part as “Diminishing Marginal Utility.” He writes that the economist William Stanley Jevons put forth the idea that “Value Depends Entirely on Utility.”
A common example illustrating this principle is the value of a glass of water diminishes as your thirst is quenched.
That is to say, when you are thirsty — a glass of water is exactly what you need, but the second and third glasses of water have little to no utility for you. You will reject the water entirely after a couple of glasses of water.
Right — But This isn’t Economics, Product is all About Evergreen Value, Not Utility!
If someone is thirsty give them 40 glasses of water! You could also create a few solid A/B tests to look at the different flavors of water and check how fast people are exiting on glasses of colored water vs cold water in taller glasses. Just focus on the water and you will add limitless value.
In those product team strategy meetings everyone will say, “Lets not get distracted from our North Star Goals. We sell glasses of water. We can’t abandon what we do, its our product. We are — at our core a water company.”
Maybe you should be thinking about what pairs well with that glass of water or why people who get thirsty are coming to your website at all? What are they doing when they get thirsty and what are they trying to do after they drink the glass of water? Is there a related problem you could be solving for customers? How about a book to read? You could also talk about mixing water with fruit to get something that tastes much better than water — a smoothie.
There will be different strategies for B2B and B2C but the underlying ideology is the same. Whether you are tracking DAU/MAU in B2C or doing validation work with design/beta partners in a B2B setting. I think the questions are the same — how do you tap into utility/usability and avoid novelty or gimmicky product choices, that diminish in value.
After reading this chapter in Bernstein's book, I've realized that I have incorrectly viewed value and utility as sort of two totally different things when thinking of product bets. Like outcomes vs outputs. I have realized utility will trump novelty in any SaaS tool, it should be something that you are asking yourself when building features. I.e. the Job To Be Done.
My product ideology over the years has been something like “Value in product decisions is evergreen and never diminishes, while utility deals with all purpose functionality/outputs and usefulness, like a utility knife or a utility truck.”
I have been (clearly) missing out on some insights in this narrow mindset. Utility and value should go hand in hand. Utility can diminish and so value will die with it.
LinkedIn is For People Who Are Sad At Their Current Job and Need a Change — Fast.
The mission of LinkedIn is simple: “connect the world’s professionals to make them more productive and successful.” If you asked me what the “Job to be Done” or “Utility” for LinkedIn is — I would probably say “connect with people to find jobs.” The utility is you need a job, the value is you get a new job. Then you just delete LinkedIn from your phone.
But…I am not currently looking for a new job, and I visit LinkedIn at least 3–4 times a week.
Why?
Because I am reading interesting articles, sharing content, I am celebrating friend’s accomplishments, I am using it as the worlds most sophisticated online directory, where I can learn who else works at my company, and where they used to work etc.
Additionally, when I do competitive research, I start with LinkedIn pages for competitors and I look through their posts for press releases. When I listen to a new podcast and they interview someone interesting, I go right to LinkedIn and pull up their page and see what they are all about and if we have mutual connections. I have taken courses on LinkedIn, joined product groups and created content etc.
The value builds and builds even when my LinkedIn utility is fluid and different by the month.
How Do We Combat Diminishing Marginal Utility of Our Product With Our Customers/Users?
This is where LinkedIn is different from pure “job search” sites. LinkedIn product people have figured out how to combat Diminishing Marginal Utility in the user interface. They’ve understood how to make the landing page and UI sticky enough that people keep coming back for different reasons besides glasses of water. I.e. — their UX/UI reduces the risk of diminishing value for the users.
The discussion of utility affecting value seems like one of product context and product timing at its core. What happens before someone becomes thirsty, and what could happen after they are full of water?
Roadmap prioritization is based upon what has the most value — which can be derived from various sources, like business value, user value, time horizons, cost of delay etc. What if we added one more layer to the product decisions matrix to better understand whether some of your features diminish in value at a faster rate than others?
One experiment is to look at how diverse the feature work is in your next 6 months worth of product roadmap choices. My guess is that your choices have contextual considerations to what needs to happen in the future based upon the past product builds, along with some sense for product outcomes tying into the business outcomes and so on.
But, could you also look at the specific utility of one feature choice over another, and how well it lends itself to your typical set of users not getting full of your digital water?
I 100% understand that utility translates to how usable your product is, and if if you aren’t building products with a solid understanding of how useful your product is, then you are failing. But, how much are you thinking about the diminishing usability of your product?
We could ask ourselves when planning, “what is the next most logical thing a user needs to accomplish once they have had a glass of (whatever your app does)?”
The second thing that immediately comes to mind is how your site is onboarding new users. Is it geared too much towards a early adopter/power user and not enough towards casual users who need to be walked through the site gently, so they can be converted to a power user? Is the sole goal of the UX to give people glasses of water or reduce diminishing utility?
Understanding Value/Utility in Churn Prevention?
I have worked in product in at least two different companies where product and UX groups have sat down and had the “Sheesh, churn is much higher than we would like, but why do we have customer churn? Anyone know why?” conversation. The answer is typically been “no” we don’t really know, but would love to find out. We don’t understand a few things about the stages of ancillary tasks our customers are doing. We just know the primary goal.
How can you make your product more sticky? What is the threshold users pass whereby you know they are — hooked?
Is it by adding in complimentary offerings to your core product? Loyalty Programs? What new value streams can you tap into when your users are no longer thirsty for water? What are competitors doing that you aren’t? The great thing is that you should be able to test out which of these works in practice through your analytics tool.
Consider Your User’s Diminishing Utility Along With Value — What’s There to Lose?
My sense is this concept of “Value is dependent Entirely on Utility” is a departure from what product people are taught daily at SaaS companies around the world. We are taught to make products useful, but in a static way, not in an evolving way. More like points in a journey, not a continuous exercise.
I.e. we should knock people over the head with the same scope of value and get the most bang for our buck on our primary product bet. The personas and roles have very specific goals. It all fits very neatly into a box. We have the “clueless new job seeker” and the “seasoned job seeker” and they each have one goal. But is it always that black and white?
Experiment with some features that are aimed specifically at stabilizing or building off of utility and see how well your users engage with it. Stage certain features with an eye to context around certain value streams diminishing and then measure that. When whiteboarding with your team, talk about what happens when someone is bored with your glasses of water. What else can you offer them to keep the app sticky?
It seems undeniable that economics is science and product is art, but is there an intersection there? Outside of product pricing decisions, can econ theory have a place in a product managers toolkit?
