When comparing services or products, the magic number is 20%. Imagine we are comparing two cartons of orange juice.
- Juice A – $4.20
- Juice B – $4.70
Whilst Juice A is 11% cheaper, however this is not large make to be a deciding factor in choice. Consumers would most likely see them as roughly equivalent, and look for other reasons to choose; brand, packaging, ingredients, etc.
This holds true for more expensive products. Imagine two cars, $27,000 vs. $29,700. People will mentally note the 10% price difference, however again, it will most likely not be the deciding factor.
Now revisit our choices with a difference of 20%.
- Juice A – $4.20
- Juice B – $5.04
Suddenly Juice B looks considerably more expensive; enough that you might choose Juice A because of it.
The same would be observed for our cars:
- Car A – $27,000
- Car B – $32,400
This is not to say people won’t buy Juice B or Car B. However they will have to justify their value in other ways, in a non-linear relationship to the increase in price.
The same is true for ‘value’. This could be the perceived value of an item or service, or software feature. The value of a feature to a user cannot often be quantified and is subjective; however people have an internal alarm that seems to go off when the difference between two products is greater than 20%.
Users make these comparisons all the time, often subconsciously. Perhaps two different programs had a simple reporting function. Program A took 10 clicks to use. Program B took 11 clicks to use. This would not feel much different. However, if in comparison Program B took 12 or 13 clicks to do the same task, it would start to feel clunky and tedious.
The value of each feature cannot always be measured as inverse of clicks.
Our imaginary Product Manager – Sam – works for PetSmart, a veterinary CRM. They are doing some research on their biggest competitor – DogSpot. According to the DogSpot website, their top 5 features are as follows:
- Client Marketing – ability to send custom SMS & email reminders to customers
- Online Booking – customers can book online
- Appointment Book – manage upcoming appointments with full flexibility, custom colours, and more
- Prescriptions – prints out legally compliant prescriptions for animal medicines
- Tax Filing – sends tax records to Government
Sam’s sales team is struggling to compete with this competitor. They seem to have a strong offering – particularly their Appointment Book – which receptionists love. In fact, Sam’s MD has set the task to improve their own Appointment Book; they cannot keep losing deals over this!
Where should Sam spend the development effort? How much effort should be spent? Where do they suck, and where does it matter?
It can help to think about features in three categories; differentiators, neutralisers and table stakes.
- Client Marketing – table stakes
- Online Booking – differentiator
- Appointment Book – differentiator
- Prescriptions – table stakes
- Tax Filing – table stakes
The Appointment Book that Sam has currently is very bare bones. It clearly needs some work to compete with DogSpot’s highly developed Appointment Book. Working with the development team, they come up with 5 different options to improve the Appointment Book:
- Option A – to be 80% as good as DogSpot
- Option B – to be 90% as good as DogSpot
- Option C – to have feature parity with DogSpot
- Option D – to be 10% better than DogSpot
- Option E – to be 20%+ better than DogSpot
Sam also seeks development estimates on the above. Let us also recall the 80/20 rule. You can typically extract 80% of the value in 20% of the time; the remaining 20% of the value taking 80% of the time.
Sam draws up a table to evaluate the options:
|A||80%||20||DogSpot still has a UVP|
|B||90%||60||DogSpot’s UVP has been neutralised|
|C||100%||100||DogSpot’s UVP has been neutralised|
|D||110%||140||DogSpot’s UVP has been neutralised|
|E||120%||160||PetSmart now have a UVP, however given this was already meeting customer needs, this will most likely be overkill and not a compelling reason to buy.|
As you can see from above, simple value/effort does not tell the whole story. The 80/20 rule is not enough. In fact Option A is wasted effort, given customers will still select DogSpot.
Options B, C & D all act as neutralisers; they diminish DogSpot’s UVP. While Option B is not quite as good, it will be considered good enough by customers. It was almost the most efficient – having cost only 60 points of effort.
Whilst Sam has efficiently neutralised DogSpot’s UVP, they still do not have one of their own. Looking at the feature list, there is little value in over-designing Prescriptions, and it would take too much effort to invest in a clearly better Online Booking solution.
There is however untapped value in Client Marketing. DogSpot’s only does a stock standard job here (custom SMS & email reminders). These have long been considered industry standard, however how else could Sam’s team improve this? After all, unlike prescriptions and regulatory features, marketing has the ability to drive top-line revenue.
Mark Zuckerberg famously said you cannot just 80/20 everything. Some things you just need to be the clear best at. Creating differentiators where your competitors only have table stakes is one way to do this.
Sam and the PetSmart team create custom marketing campaigns, integrating with mail fulfilment services and ability to track ROI and record customer lifetime value.
They invested 100 points of effort, plus the 40 points saved during the Appointment Book initiative. However they now have a clear UVP against DogSpot; one that will be very expensive for DogSpot to match or neutralise.