The business value of a product is a flexible concept; it is formed from the analysis of the market by consumers and their comparison of competitive offers. The value also depends on the benefits for the end user and the costs associated with its creation, promotion to the market, and sales.
Thus, the more benefits or lower the costs, the greater the value of a product to its owner. At the same time, the greater the value of a product to its end user, the higher price can be charged. However, sometimes it happens that an existing business model and product are not profitable as wished by their owner. So how can this problem be solved? Below we will go into detail on how to maximize this value.
A Bit of Theory: What Forms a Business Value of a Product?
The business value of a product is the understanding by a specific user of the usefulness of this product, which arises in the process of choosing it among the solutions existing on the market. When potential users evaluate whether to buy a product, their mind shows them the scales with its price and value. When these scales reach equilibrium, users make a choice in favor of this product.
It is important to understand that the concept of product value has two aspects: the goal that the user wants to achieve through it and the presence of competitive solutions. The first aspect forms the absolute value, while the second is relative. Both types of value are important to your project, but you will need to use different tools and approaches to deliver them.
In particular, if we talk about providing absolute value, there are some nuances here. Since in practice this type of value is driven primarily by product features, you might mistakenly assume that more features are better. However, it is also important to understand here that each next feature should have a positive impact on the user experience and not vice versa - worsen it.
Thus, the “utopian” approach to ensuring the absolute value of the product is to provide it only with such features that contribute to the achievement of a certain goal (goals) of the end user. However, in reality, this approach is rarely implemented, and often the main reason for this is the need for monetization. Therefore, let's dwell on a simple rule that "the number of features useful to the end user should exceed the number of features that are useful only to the owner of the product."
Additionally, you should consider that adding new features to a product affects its value in a non-linear manner (that is, a few new features can increase the value of the product only slightly or even reduce it). This is due to the likely increase in onboarding complexity or large time costs for applying these features. This means that here it is better to go from the opposite and not add a new feature if it does not increase the value of the final product. To be fair, we note that this negative impact can be mitigated by personalizing the UI, gamification, and offering several levels of functionality (for beginners and for advanced users).
As for ensuring relative value, you will need to conduct thorough marketing research before you start designing and listing specifications. That is, your product must be objectively better than existing competitive solutions in terms of some set of parameters available to you for implementation.
What other factors affect the overall value of a product?
Once you have a basic understanding of business value, you will also need to take into account two additional factors that can positively or negatively affect it.
The first factor is the perception of your product by its target audience. Even if your product is equipped with mega-useful features, by default this does not guarantee that end users will use it to the fullest. The reason for this is incorrect or insufficient marketing, as well as non-detailed manuals and demonstrations of use. For this reason, many product owners run free trials during testing of which users are onboarded.
On the other hand, you have to understand that too loud statements about how cool your product is can turn against you because if the expectations of the target audience exceed the real value of your product, they will end up disappointed.
The second factor of influence is habit. As the duration of your product experience increases, its business value may also grow, while the value of other, competitive solutions may decrease. Therefore, your entire product development policy should be focused on getting your target audience to interact with the product as often as possible to develop a habit.
How to Understand How Valuable Your Product Is?
To understand how valuable your product is, be clear about the problem it solves: maybe you're going to create a more budget-friendly alternative to Adobe Photoshop that's perfect for beginners.
After that, determine how your product provides a solution to users' problems (in our case, those users who are disillusioned with Photoshop and similar editors) and why this solution is better than hundreds of other analogs. In the Photoshop example, this could be a much more user-friendly interface and low cost of the product.
Now you will need to think about how you can prove to your target audience that if they pay for your editor, they will get a professional tool that even beginners can use.
At the same time, you need to be extremely honest with your target audience and respect their choice. Build your relationships on trust, and then you can earn loyalty and retain users with minimal effort.
Now it is time to move from abstract theoretical recommendations to practical advice.
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Tips for Making a Product More Valuable to Your Business
You have to understand that people are buying solutions to their problems, not just a set of features and functions. Understanding what is valuable to customers helps companies create products that provide the highest value with the smallest set of features. This saves the company's resources, in addition, such products are easier to promote and sell. So, let's find out how in practice you can increase the business value of your product.
Make a product roadmap
A roadmap is a tool for visualizing the product development strategy, as well as the stages of its launch and promotion. This is a document or graphic file that describes the main steps necessary to achieve the goals (unlike a marketing plan, a roadmap usually deals with long-term goals - from six months to several years).
The roadmap is used to coordinate work between departments, show investors the stages and deadlines for completing tasks, and help team members better understand the process of achieving goals. It is also used by team leaders and CEOs, sales teams, and customer support teams. If we talk about the product roadmap in the context of increasing its value, its achievement at the required level can also be included in the roadmap as one of the goals.
At the same time, note that the business value of a product and business goals are not equivalent concepts. Goals are temporary. Once one goal is achieved, another is set. As for value, it is a constant, stable concept. Over time, the value can decrease, just like the priorities in social change. But such a process occurs smoothly, not abruptly. In this case, one value is gradually replaced by another.
Get to know your target audience better
The preferences of your target audience should be the starting point for the implementation of your business idea. It is important to find out not only the geographical features of end users, their gender, age, and other anthropological characteristics, but also their interests. To do this, you can use special tools that help to create accurate portraits of customers and simulate their interaction with the product (this subsequently increases the level of usability and, accordingly, increases the value of the product). Among other things, you will have to take into account global market trends.
When it comes to creating new products, there are two types of products: those that are easy or even impossible to surprise potential users (for example, today it will be difficult to launch a calculator application that would be radically different from those already available), and those that are significantly ahead of their time (we are talking about products whose installation requirements are too high for the majority of existing user devices— this is exactly what providers of the first wave of virtual reality applications for mass use faced). Thus, you need to create a solution that meets current trends and user needs.
Analyze your competitors and their products
A thorough analysis of the market and existing competitive solutions plays a special role in the formation of a high business value of the product. This will allow you to determine what value strategies your competitors have chosen and see if they have succeeded to the fullest (some startups, due to their unprofitability, go out of business after a few years from the date of their release). That is why it is so important to analyze not only successful examples of competitors but also projects that turned out to be failures.
Note that in addition to a general analysis of competitors, you will have to consider their pricing policy. You may be able to achieve a competitive advantage by pricing your product lower than your competitors. And vice versa, if your application has functionality identical to competitive solutions, it will not be possible to sell it at a higher price.
Generally speaking, for mobile applications, the optimal price ranges from $0.99 to $6.99. Highly specialized desktop applications can cost tens or even thousands of times more (usually this is typical for corporate applications).
Come up with the best feature list
This recommendation is one of the fundamental ones on our list - we have already talked about this above. Obviously, it's hard to get a user to pay for something that has no value to them.
Thus, the pain points of your future users collected during the marketing analysis stage will help you present your product in such a way that it will be able to eliminate them. Moreover, if you manage to create an "aura of uniqueness" for your product, your target audience will be willing to pay any money just to get this Holy Grail.
Note that these pain points should be specific to your target audience, and not to someone from your team members. The fact is that often the optimal list of features is compiled based on the personal preferences of your team members. This is the wrong approach, so - never forget to test your hypotheses on real members of the target audience.
Now let's turn to the second part of the relationship that determines business value, namely, the ability to reduce product development costs and the time to market. All the best practices for lean development work here, from choosing an agile methodology and hiring an outsourcing team to building prototypes. We want to pay special attention to the latter, as it is very important for startups.
Indeed, when you create a product that your competitors have implemented many times, you can go off the beaten track and pay little attention to prototyping. And it’s a completely different matter when it comes to an innovative product, which has no analogs in the public domain yet. In this case, you will be able to present your prototype to a small focus group, whose members are representatives of the target audience of your product. In this case, under your guidance, you will be able to track how effectively they interact with your product and optimize these processes before your development team begins to implement the project in full.
Design and improve
Let's assume that at this stage you already have a roadmap for your project. This means that at some point, you probably already planned the transition from a small product (maybe it will be an MVP) to a high-load project that will be used by people from all over the world. That is, after active promotion, your project may be so popular with your target audience that its load will be extremely high.
In this case, again, you need to focus on reducing costs. In particular, in order to avoid unnecessary time and financial costs required for its modernization (sometimes product owners, who did not foresee this factor from the very beginning, transfer it to a new platform, and thus developers have to rewrite almost all program code from scratch), you will have to prepare its architecture for growing loads, unusual for the first months after its launch. In particular, you may need to consider hosting your software solution in the cloud so that the cost of optimizing its performance does not become too high for you.
Use the Kano model
In the last century, the famous Japanese researcher Noriaki Kano developed a tool that can be used to understand how users perceive the features of a particular product.
The method is to divide all product characteristics into four categories:
- must be. These are the characteristics without which your product could not exist;
- performance. These are characteristics that are important for a particular target audience segment. With this feature category, you can easily segment your customers;
- attractive. Unique features that make your product stand out from others. Please note that when additional properties gain popularity among the target audience, they move to the "Performance" category, and then to "Must-be";
- indifferent. These are the characteristics that do not affect the choice of the user.
To analyze consumer attitudes towards your product, you can take the Kano Model Questionnaire. To do this, you need to make a list of hypotheses about your product and present them to your focus group in a simple and understandable way. For each such hypothesis, you must ask three questions:
- a useful or functional question, such as "How do you feel about having the opportunity to use this feature?";
- a dysfunctional question, with which you will find out how ready the users are to put up with the fact that they do not have the opportunity to use a specific feature;
- importance question that helps to find out how important a feature of your product is for a particular person.
To understand the result of the survey, it is necessary to compile a matrix for analyzing the answers, which looks like this:
In this table:
- red features are mandatory, and if they are missing, your product will lose its value;
- blue features are desirable characteristics that need to be implemented after the implementation of the mandatory ones;
- green features are characteristics that, with proper marketing, will provide a competitive advantage for your product;
- gray features are characteristics, the need for implementation of which is doubtful.
Conduct A/B testing
Another effective way to check how a particular feature affects the business value of your product is to implement them for different user groups, conduct A/B experiments, and check their impact on KPIs. So, after you get comprehensive analytics on the Kano model, you can decide whether to develop a specific feature and further optimize it, or completely refuse to implement it.
Collect customer feedback and reviews
In addition to generally accepted questionnaires like the one described in the previous tip, you can get a more informal reaction from end users by talking to them personally (perhaps someone you know falls under the description of the target audience of your product and will use it regularly) and by setting a more extended a list of questions about your product. If your product is already launched, you can analyze the reviews and ratings of real users left on your website and/or in the app store.
Use price comparison to your advantage
Regardless of whether you have competitors, or so far your product is the only one in its niche, its potential users will compare its cost with the cost of other products.
As a general rule, the more options there are in the market, the lower the potential consumer's willingness to pay since too much variety reduces the desire to make a purchase. However, you can use this thesis as your competitive advantage by building your unique selling proposition (USP) on it. For example, if the purchase of your product is accompanied by 24/7 customer support, you could present it like this: "While you are waiting 24 hours for our competitors to solve your problem, we are already doing it for those who have installed our product."
For this, you will have to turn again to the results of the marketing analysis that you conducted earlier. At the same time, it is important not to differentiate your product in its positioning so that it becomes incomparable in the eyes of its target audience in relation to competitive solutions.
Segment your users by solvency
The market regularly receives products designed for a target audience with one level of income and quickly switched to another. You can foresee this from the very beginning by offering several pricing plans for your product and thus reaching several segments of the target audience at once.
Add product value through the urgency of your offer
It doesn't matter if you promote luxury goods or software – if your target audience has the feeling that the purchase needs to be made urgently, you will win.
In the context of software, you can make holiday discounts, which, however, should not be provided too often. Some companies completely abandon this policy, positioning themselves as the undisputed leaders in their niche. So, before this step, indicate which consumer segment you are going to sell your product to. If it's a top one, this recommendation will not work in your favor and reduce the value of your product in the eyes of its target audience.
Make the price of your product your winning feature
And finally, the most obvious recommendation that will help you increase the business value of your product. This is a high price (in relation to alternative solutions on the market). Behind the scenes, a high price is a sign of high quality, even if it really isn't. By default, people believe that if the price for a particular product is higher than for similar products of competitors, then the quality of this product is also higher.
However, it is important to remember that your potential users must clearly understand what exactly they will have to pay for, and why your price policy is higher than that in competitive solutions. To do this, you will probably have to think about developing a free trial version of the product or a Freemium version.
- A Step-By-Step Guide to Creating a Killer Product in 2022
- How much does it cost to develop an MVP in 2022
- Pros and Cons of a Lean Startup
Business Value and Pricing
Above we have outlined the main recommendations for increasing the business value of your product, and now you may need to rethink your pricing policy. Let's take a quick look at some of the popular pricing models.
- Free. Obviously, the price of $0.00 will be the most attractive for your target audience. Also, to be fair, this is the most viable pricing policy for mobile apps, as in the vast majority of app stores, the most requested section is with the free ones. When it comes to revenue, the easiest way to get it is to run ads on your product.
- Free with in-app purchases. According to this model, the user can download your software for free and get access to advanced functionality by paying for it. This model has no obvious drawbacks since the onboarding process occurs at the stage of free use of the product.
- Free trial. Offer your users a free trial for your product. When it expires, users will have to pay to continue using the software. Note that this pricing model may require additional resources from developers to regularly create updates and improvements.
- Subscription. To implement this model, users must be regularly charged a fixed amount to be able to use your product further. In this way, even if the number of new users does not grow, you will regularly receive income from existing ones (of course, if you constantly release updates and offer the users new features).
- One-time payment. This is the simplest pricing model that implies a one-time fee for downloading the product and its free use.
We hope that we have helped you understand how to maximize the business value of your product and now you have a powerful weapon in your hands to achieve your financial business goals. If you are looking for a team that will implement your business idea and at the same time use all of the above best practices to ensure its high business value, please, contact us.
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Why do you need to provide value in your products and services?
Companies that add value to their products or services are more likely to attract customers and boost profits. Value-added is effectively the difference between a product's cost of production and its price to consumers.
What factors determine the value of a product?
The value of a product depends on two factors: the importance of a goal that a customer is trying to achieve, and the availability of other solutions in the market.
What is the value of a product to the customer?
Product value is determined by its cost of production, how useful it is to customers and the value of the individual components. Perceived value is a more abstract measurement that represents how much customers feel the product is worth.
Why is it important to provide value to your customers?
By adding value to a product or service, companies can increase the amount of revenue they generate and the profits they produce. Value-added is effectively the difference between a product's price to consumers and the cost of producing it.
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