Never Lose Sight of the Value Exchange.
Create more value than you capture while capturing enough to sustain the product.
Product management is a balancing act. Sometimes your job is to champion the customer: what problem are we solving, and why is this better than the alternatives? Sometimes it’s to answer for the business: how does this grow, and how does it pay for itself? The discipline is to balance the value you create and the value you capture.
Studying economics, my eureka moment was realising that price and value are not the same thing. Consumer surplus is the gap between what a customer pays and the value they believe they receive. It’s why a product can feel like a bargain even when it’s expensive, and why something cheap can still feel like a waste.
Queuing for the £499 iPhone 4 in 2010, I thought Apple had underpriced it: surely this was worth £1,000? The other launch-day evangelists and I enjoyed a large consumer surplus; but we weren’t representative of the population at large. Apple did reach that price point with the 2017 iPhone X, but only after years of genuinely improving the product.
We call this balance the value exchange. A rough model: a product sold for £2 might cost £1 and deliver £4 of value. The customer gets more value than they pay for, and the business captures enough to reinvest. As a business, you give more than you take, but you take enough to keep improving the product.
Leaving surplus with the customer isn’t leaving money on the table; it’s often what makes a product sell itself. Google estimates advertisers earn roughly $8 from Ads and Search for every $1 spent with them. Strong businesses don’t win by extracting every last penny, but by leaving enough surplus that the exchange continues. Capture too much and you invite comparison, churn, and competition. The job isn’t to maximise extraction; it’s to create more value than you capture while capturing enough to sustain the product. Feed the customer, fund the business.
Product people have names for the two sides: desirability (do customers actually want this?) and viability (can the business sustain it?). Pressure-test both to avoid failure.
Desirability: does anyone want it?
Desirability risk is the risk that the market doesn’t want, understand, or value the product you’re selling. Teams reliably underestimate how hard it is to produce a product people want. Propositions get sketched because they make sense to the business on paper; we have the data, the brand, the distribution, we need the revenue… and then customers don’t expect it from you, don’t see why it’s better, or don’t care enough to change their behaviour. Many of the best product management frameworks are useful because they encourage us not to forget the customer.
They allow us to start with a business outcome, but encourage us to link it to the customer problem that must be solved before we debate solutions.
They keep us focused on the progress the customer is trying to make, rather than the features we would like to build.
They make us look at the alternatives customers already use, including doing nothing, because value only exists relative to what they would otherwise choose.
They help us articulate the distinct value we create, so customers have a clear reason to choose us over the next best alternative.
They encourage us to test what customers are willing to pay for before we build, because pricing is part of the proposition, not something to bolt on at the end.
They remind us that go-to-market is part of the product: the value has to be understood, trusted, bought, adopted, and felt.
They help us look for ways to reduce cost, friction, or complexity while increasing the value the customer receives.
They push us to measure whether customers actually reach and retain the value promised.
Viability: can the business sustain it?
Viability risk is that the business can’t sustain the product. Customer love isn’t enough: a product can win adoption and praise while running weak unit economics and diverting focus. There are plenty of tools and techniques that can help us with viability risk too.
We model customer acquisition cost against lifetime value before scaling.
We simplify, reprice, reposition, or sunset products when adoption is no longer matched by a healthy value exchange.
We tie pricing to customer value where possible, so the business captures value as the customer receives it.
We expose operational complexity, so adoption does not hide an unsustainable cost to serve.
We identify who uses, buys, pays, and renews, because a product is only viable when value is felt by the user and justified by the customer.
Partial success: the dangerous kind
The riskiest situation isn’t failure; it’s partial success. A failed product is easy to stop and a runaway success is easy to back. The dangerous products are the ones that sort of work. They bring in some revenue, but also add support, edge cases, reporting, operational drag, and customer confusion. They can increase gross profit while reducing margin, making the business bigger but less focused. Saying no is part of the job. Products should have to keep earning their place, not just survive because they already exist. Ask the zero-based question: would we choose to build and support this again, knowing what we know now? Judge it on total cost to serve, not just the incremental revenue line.
You don’t have to start with the customer every time. Many companies successfully match new capabilities or technologies to customer problems. The key is to validate both viability and desirability. What problem does this solve? Why should we be the ones to solve it? How does the business capture enough value to keep going?
Hidden exchanges: when value is captured elsewhere
Some products don’t follow the rule of thumb above, because the business is choosing to capture value somewhere else. Many great products are free to use but still allow the business to capture enough value to be sustainable. Free products can be subsidised by paid users, by valuable data, by the other side of a marketplace, or by the network effects they create. Free doesn’t mean you don’t need to worry about the value exchange; it makes it more important. The entire business model still balances on your ability to understand the value exchange. You need to know how much value you’re creating and capturing, even if that’s elsewhere or seems intangible (emotional, social, or symbolic) at first glance.
The value exchange is the product manager’s law of gravity. Ignore the customer and you’ll struggle with adoption; ignore the business and you’ll struggle to last. The best products aren’t generous to one side and extractive from the other. They hold the two in deliberate tension, creating value the customer can feel while capturing enough to keep the exchange worth continuing.