Say you manage the fries product line for a fast food chain. You read about a suggestion that says switching the regular salt you use for the fries with sea salt does not cost that much. Should you do it?
Even if we assert that sea salt costs twice as much as the competitor (dirt salt?), it’s easy to see that the impact on the cost of making each order of fries is tiny, since salt is probably 1% of the cost of the item.
That means that upgrading a high-leverage component of your product might not have any real impact on your costs.
Since salt is 1% cost and doubling may not affect cost structure, you are thinking why don’t I upgrade.
The question is not how much the sea salt costs but
- what is the customer segment your business chose to target – does the ingredient choice fit that segment?
- what job you want customers to hire your product for?
- how will this ingredient change fit within the two?
- what is the revenue upside from increasing the segment size or from higher prices customers would pay?
- what are the opportunity costs, what else you could be doing for the same costs?
You do not make a product decision based on what your components costs are but based on your customer and strategy. You do not pack value into a product because you can, you do it because it delivers the maximum value your customers are willing to pay for.
A Maximally Valued Product for a given customer segment is the product version that adds most value to the customers while enabling marketer to extract their share of the value as price premium.
A Maximally Valued Product is not one that is packed with upgrades because you can.
How do you deliver value to your customers?
On a related note, there is no double blind controlled test on whether sea salt tastes any better than regular salt. There is enough evidence (here, here and here) to state that such a test will find no difference.
Iterative Path 