The 9x problem in Innovation — Product Innovation.1
I plan to write about some frameworks on how to think about new products and innovation.
This is first article in that series.
This post is about the 9x effect in product management and innovation. Prof Gourville has written about this effect:
Gourville, J. T. (2004). “Why consumers don’t buy: The psychology of new product adoption.”
Essentially, product innovation occurs as per one of the 3 scenarios:
The most common scenario is the third one, where the consumers loses some (hence, the increase in cost due to increase in price or loss of some features) and gains some (increased benefits due to new features).
Enter Prospect theory:
- Customers take reference points as given (status quo matters)
- Relative reference frame
- Losses loom larger than gains (~2.5x)
Which implies the “endowment effect”.
In addition, it is likely that the consumers will incur the costs now, but reap the benefits later (lack of salience of the benefits & hyperbolic discounting), further decreasing the consumers willingness to adopt the new product.
On the other side, the product manager/developer is biased towards the new product:
- Reference frame is the new product — different status quo than the consumers
- Emotional/unbiased opinion of the new product
This leads to the 9x effect — a mismatch between the consumers and the product developers/managers of about 9 times. Said another way, consumers only tend to adopt products that are at least 9 times superior to the existing products!
Tags: Behavioral, PM