We all encounter economics in our everyday lives — be it how we make personal decisions or how the world economy functions. It would be only fair to point out that building a great product also requires acing the underlying economics. Here are a few principles and economic theories that product teams can greatly benefit from in their attempt to build a good product:
People Face Trade-offs and So Does Every Product Team
This is definitely something that product teams encounter on a daily basis. The decisions that we make by the end of the day would entail trading one goal for the other. An example of this would be retaining a product feature that does wonders for growth but may end up inviting some negative reviews by the users. Having a macroscopic view of the product will help teams immensely here.
Release Changes have Opportunity Costs Attached to Them
With most release cycles, product teams face the dilemma to move in pace with their release roadmap or make last minute changes to product features that may instantly improve the baseline numbers. The opportunity cost of making last-minute changes translates into extending the release deadline by days or even weeks, and thus, it becomes important to do a cost-benefit analysis of any additional product feature that the teammay want to introduce to the current release cycle.
Users Respond to Incentives
We have an array of mobile apps, from Amazon to Candy Crush, that incentivize their users to increase the time spent on the app through different options — loyalty points, freebies, unlocking new app features, goodies, and the likes. Creation-centric platforms, like Snapchat and Instagram, incentivize their users to create content by introducing new filters and providing instant gratification in the form of number of likes and views respectively. Gamification, in my opinion, should definitely be on the checklist of product teams in this case.
It is Important to have a Behavioral Approach to Product Design
Behavioral economics can be used as a tool to figure out the areas, with respect to the product, where your users struggle. For example, users may struggle with different icons within an app and eventually fail to comprehend their true meaning. One of the many solutions to this problem would be enriching the icons with text. It is important to test such product design iterations through controlled experiments. Steve Wendel, a behavioral social scientist, has emphasized on the same in an O’Reilly Webcast dated 2014.
Minimize Information Asymmetry to Drive Positive User Experience
A perfect example of this would be the firms selling their products/services over the Internet. Displaying the average product rating is one such feature that helps them reduce information asymmetry. This featurewould never be sufficient in itself, asthere could always be edge cases and biases which may influence the rating. However, appending a detailed customer review along with the rating may help in minimizing the information gap between the retailers and end consumers.
Improve Strategic Decision Making Through Game Theory
When there are multiple firms interacting in the industry, it becomes extremely important to assess situations where actions of a single firm can impact the payoffs of the other firms. Once the underlying assumptions of game theory holds true, it proves to be the most effective when product companies are aware of both the positive and negative payoffs of their actions. Game theory is a powerful tool that can help them formulate their optimal strategies to fight competition and escalate their market share.
Interplay and participation of all departments within a firm is crucial for the best results. Let’s team up and build great products!