Perfecting the Value Exchange
How to ensure your products will deliver value for your customer and business
Let’s face it — product development is challenging. One of the reasons it can be difficult is that, at times, we focus too much on the solution’s features and getting it to market, and not enough on whether these features are delivering value to our customer or back to the business. Can we also point out that understanding how we deliver value to our customers and business is a challenge?
Some of the biggest factors contributing to this challenge are:
- We don’t always have a clear line of sight as to how the features we create will address the customers’ unmet needs or the goals they’re looking to achieve.
- We may not have a handle on the behaviors we need to change in order to deliver value for them.
- Product features are created and released before determining that they will deliver value for the customer and for the business.
So, how do we solve these problems? In this article, you’ll learn about a Product Management and Design Thinking exercise you can do to ensure your solution will strike a balance between customer and business value. This exercise is called the Value Exchange.
Outputs vs. Outcomes
First, it’s important to recognize the difference between outputs and outcomes, and to understand why the distinction is arguably the most important part of product development.
Outputs tell the story of what you produced and/or your organization’s activities. They don’t, however, address whether the product or solution is valuable to the customer. An outcome, on the other hand, presents the impact that the output has on your customers. For example, instead of team members asking the question “how soon can we roll out a new daily journaling feature on our app?”(output), they should focus on the question “how might we help users track their daily experiences?”(outcome). Generating viable outcomes as opposed to outputs will ensure that your team is focused on alleviating the customers’ pains and solving the right problems, in turn delivering value to the customer and business.
The Value Exchange helps to visualize the relationship between the customer and the business so both parties find value in the product. Let’s take a deeper look into the components of the Value Exchange
Value Exchange
To start, that value exchange is made up of six components:
- Customer Goal: What your customers are trying to achieve.
- Customer New Behavior: The changed behavior you expect or want to see from your customers, including elimination of inefficient workaround behaviors. What are new behaviors required for the customers to achieve that goal?
- Value to the Customer: The outcome achieved once the customers’ problems have been resolved or the new behavior is initiated.
- Product Features: Tools we are delivering to customers which help them fulfill their unmet needs
- Business Outcome: The measurable business goal achieved when the customers’ problems are solved. These can be treated as leading indicators towards achieving value for the business.
- Value to the Business: Something that fuels your business. Often business strategy targets, such as increasing revenue by 10%.
Figure 1
Customer Desirability
There are a few important things to note when it comes to customer desirability:
- The most critical components of the Value Exchange are all centered around the customer (Customer Goal, New Behavior, Value to the Customer).
- The customer could be a current customer, a customer of one of your competitors, a member of the business’s new target market, or even someone within your organization.
- A successful Value Exchange requires that the pains, goals, and other assumptions about the customer are confirmed prior to starting.
By determining the customer desirability of your product, you can begin to develop an authentic Value Exchange. You may want to consider the following questions:
- Who are your customers? What learnings proved this?
- Have you confirmed that if the solution existed today that their behaviors would change, and it would remove their current workarounds?
- What value does the Customer recognize by leveraging your product? What learnings prove this?
If you find you do not have sufficient evidence from prior experimentations (e.g. customer interviews, search trend analysis, discussion prototypes) to support your answers to these questions, you may want to test your customer value proposition before completing the Value Exchange exercise; there’s no point in identifying the value to the business if there’s no clear value for the customer. The Value Exchange you would be building would be based solely on assumptions that require experimentations, research, and other methods to prove. As Melissa Perri states in her book Escaping the Build Trap, you must get to know your customers by deeply understanding their needs to determine which products and services will fulfill the needs for both the customer and business.
Ok, that was a lot. But now, let’s get a bit more specific about how to actually generate a Value Exchange and what you will gain from doing it.
Creating the Value Exchange
As mentioned above, this Design Thinking and Product Management exercise links the customer goals, new behaviors, and value gained from the product with the business outcome and value delivered to the Business.
There are two approaches you can take to running this exercise: in-person (e.g. conference room), or virtually via Mural.co
In-Person Instructions
Materials and Support You’ll Need:
- Facilitator: the individual who leads the group through the Design Thinking session
- Brown paper or Post-it Self-stick Flipchart paper
- Masking tape
- Sticky notes (3” x 3" and 8” x 6”)
- Permanent markers
Set up
Tape a large piece of brown paper to the wall (horizontally). On the larger sticky note, write “Value Exchange” and place it on the top left side of the brown paper. The facilitator should label six columns using the larger stickies:
- Customer Goal
- Customer New Behavior
- Value to Customer
- Product Features
- Business Outcome
- Value to the Business
Instructions
- Facilitator instructs each team member to write answers to the questions referenced in Figure 1 on the smaller stickies as the facilitator walks through the exercise
- Facilitator helps the team identify examples for each of the six columns. Facilitator collects the stickies and places them in correct columns
- Team discusses the stickies starting with the Customer Goals and moving in the bulleted order mentioned above
Once the stickies are posted, Facilitator leads conversation to map the stickies in each column with the stickies in the adjacent columns (i.e. Customer Goal to the Customer New Behavior that comes from that goal, the Value to Customer that comes from the Customer New Behavior, the Features that provide Customer Value, the Business Outcome achieved from the Feature, and the Value to the Business that’s delivered as a result). Mapping can be done by drawing lines connecting the stickies. The goal is to draw traceability from all features to both the customer goals and the business value. Any goal that isn’t traced fully needs to be investigated to see if it is worth solving, or if it can be deprioritized.
Virtual Instructions
Setup
- Create an account with Mural.co (or another whiteboard application)
- Once logged in, use the Value Exchange mural template to create your own
- Use the 3x3 stickies on left-hand navigation pane to complete the Value Exchange
- Use the 3x3 stickies to type answers for each column during the exercise from Customer Goal through Value to Business.
Instructions
Instructions for building a virtual Value Exchange mirror the in-person approach. Leverage the shapes and connectors on the left hand navigation pane to map the stickies to each other.
Value Exchange Examples
A great example of a well done Value Exchange is Netflix’s idea to launch a streaming service. When Netflix was in its infancy, they determined that one of their customers’ primary goals was to avoid commercials and get access to their content from anywhere. This was a learning from their early days when they were pivoting on their business model to focus on streaming vs. DVDs. Solidifying their target audience helped them understand that their product had to be easily accessible from any device and any location in order to fulfill this unmet customer need (and become the multibillion-dollar company they are today). Even with this realization, Netflix decided to create their own streaming device called the “Netflix Player.” Weeks before the launch of this product to market, Netflix CEO Reed Hastings decided not to move forward with the plan. He realized that if they created and shipped their own hardware, it would ultimately jeopardize their Value Exchange. It would complicate potential partnerships with other hardware makers, limit the number of devices on which Netflix could be streamed, and fall short of their customers’ goals, in turn, decreasing their potential future revenue.
Instead, Netflix chose to stay in the licensing lane and spin off that streaming device business, now called Roku. Because of this decision, Netflix has the ability to set the price point of their product at a level that is not only desirable to their customers, but feasible and viable for their business. Below is a graphic of an ideal Value Exchange that provides clear visibility as to what product Netflix should be offering.
Though this Value Exchange has been successful for Netflix, many other companies cannot say the same. The main reason why Value Exchanges fail is because some organizations have had difficulty striking the balance between providing value for the customer and providing value for the company. An example of this can be seen with the company MoviePass.
MoviePass, a cinema subscription service, was offering customers the opportunity to watch one movie a day for $9.95 a month. The company quickly grew customers because it offered a clear and transparent value for moviegoers. Based on our understanding of MoviePass and its business model, we believe the company’s Value Exchange looked like this:
MoviePass’s Value Exchange had a few assumptions baked into it that were never proven. Yet, the company rolled out its product without defining the value the company would receive as a result of providing a movie theater subscription service to its customers. It assumed that other companies would want to access its customer data, which they later discovered was not the case. They also severely underestimated how movie-goer behavior would change; customers went to the movies so often that the company could not generate enough revenue to make the idea viable. If the company had proven out the many assumptions on which it was relying heavily, the company may still be in business today. It is always best practice to test the assumptions around your Value Exchange prior to going to market.
Final Thoughts
Understanding the relationship between customer value and the business value can make or break an idea, a product, or even an entire company. Include the Value Exchange in your next product development session and let us know your thoughts in the comments.
Isaac LaMothe Enterprise Product and Portfolio Manager at Johnson & Johnson
linkedin.com/in/isaaclamothe/
Juliet Yeomans Product Consultant
linkedin.com/in/juliet-yeomans/
The views expressed on this website are mine alone and do not necessarily reflect the views of my employer Johnson & Johnson
Johnson & Johnson’s technology organization created a centralized team that provides dedicated counsel and support related to digital strategies and products. Known internally as rapidValue Realization, this team conducts trainings, design sprints, workshops leveraging agile processes, and UX that assist the organization in managing and scaling digital investments. To learn more about our team check out the following MIT article https://sloanreview.mit.edu/article/making-it-easier-to-manage-and-scale-digital-projects/
