Maximally Valued Product – How to find customer value perception?

The common definition of MVP is the Minimal Viable Product. The other MVP you should start thinking about – if you are serious about ringing the cash register – is Maximally Valued Product.  All that validated learning is useless if you cannot find whether customers are willing to pay for the value your product creates or if you cannot ring the cash register.

I introduced this new MVP in my last article.

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.

It is a very specific definition and it is customer centric. It does not leave the market wide open. It focuses on value created by filling a need (the need can be anywhere on this consumption spectrum). It closes with your share of the value created. After all charging for value created remains the simplest of all business models.

Here is a very easy way to remember MVP – Your $499 iPad that did not include ear-phones!

The next logical questions are

1. How can we find the different segments?
2. How can we find their different value perceptions?
3. How can we map that value to a price they are willing to pay?

You business may be new. The technology may be most innovative. Likely nothing like your product existed before. But the methods to answer these questions are old –

1. Find segmentation from cluster analysis
2. Find value distribution with conjoint analysis
3. Find price perception by adding price as component in conjoint analysis

See this brief introduction on how it is done in this Slideshare presentation –

A Simple Tutorial on Conjoint and Cluster Analysis from Iterative Path

But  but …

Who has access to these kinds of resources to do elaborate customer segmentation or complex analytics to find value and price perception. Especially startups.

Here is a teaser on a lean startup’s method for answering these questions. You will have to wait for the next article on how to analyze the results from this method.

Let me give you a very simple tool to answer two of these questions – segmentation and value perception. For finding pricing you can talk to me.

Think of your customer’s value perception as a resource allocation problem. Say you give your customers 100 coins. You present them an assortment of  benefits or a need fulfilled. Their job is to allocate those 100 coins such that they give more coins to the benefit they value more and vice versa.

Before you rush into this you need to know the following

1. What are the key benefits do you want to measure vs. a long list of features? You find that  from initial customer discovery.
2. Of those what can you deliver through your product and do it better than competition?
3. How do you account for non-interest? That is how do you weed out those that are simply not interested in any of these benefits but did the coin allocation simply because you asked them to.

When you collect data from reasonably large sample (100-300) of target customers you will end up with a distribution of value perception. The data have the segmentation dimensions and the value perception of benefits.

Let me tell you more on how to analyze this distribution to find segments and value perception in my next article.

Apple’s MVP – Maximally Valued Product

In the startup parlance MVP refers to Minimal Viable Product.

 “The minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.“

In this explanation there is no mention of  which customers and what is customer value.  It is inward focused definition. Since it does not talk about customers or value it does not talk about pricing. Some variations of the explanations have included pricing component to MVP.

However measuring customer value or charging for the value delivered is not the primary concern in defining or building a Minimum Viable Product.

I would like to take this concept and flip it on its head and show you what Apple builds.

When Apple builds its products it is packed with only those features that are valued by its customers and it can charge for it. It may look the opposite when you consider the fact that they were the first to introduce all inclusive iMac and MacBooks. But had they thought they would not have been able to extract a price premium for those included features they would not have included them, I will come to that in a minute.

Sure they could have built product versions that lacked some of those features and competed with other low-end products. As Steve Jobs would have said, “if we knew how to make it inexpensive without making the product crap, we would have done it”.  Apple chose to go after those higher willingness to pay customers and added product features that extracted more value in the form of higher prices than the cost to add those features.

See  below how they extracted value from flash drive capacity and 3G in iPad.

Why the price difference is not the same?

On the flip side see what they chose not to add.

Even when you pay $829 for iPad you will not get ear-phones with it while you get them with measly $49 iPod.

You can ask all you want for a Retina display MacBook Air but until they figure out a way to extract price premium for it you won’t see one.

What Apple is doing is starting with the customer segment they want to target (they don’t have to get the iMac in billions homes) understand what these customers value and willing to pay a premium for, and deliver them just that at a premium price.

As opposed to a Minimum Viable Product, Apple builds and delivers Maximally Valued Product. Here is my academic sounding definition for it

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.

Note the segment specificity, value creation and value capture aspects of the definition unlike the definition of Minimum Viable Product.

The Maximally Valued Product packs features for sure but these are the features customers value and willing to pay for. It also lacks many features, sure customers may value them but if that does not flow into better prices, why bother?

Which MVP do you build?