September 8, 2016

I’ve been struggling for the past three weeks with upgrading my computer and changing from Windows 7 to Windows 10. Not a fun task. The learning curve hasn’t been easy. I constantly ask myself, why did Microsoft have to change a product I liked?

Then along comes Apple with their new iPhone 7 which now lacks a headphone jack. Now isn’t that super convenient for the billion people who currently own an iPhone! Don’t worry, Apple will sell you a blue tooth headset for an extra $150 to all those users that want a new phone. Or you can simply make a daily decision, “should I charge my phone or listen to music” since the same jack is used for both.

I agree with Megan McArdle, a columnist for Bloomberg View, that did an opinion piece for Ad Age: “Apple’s move represents a trivial gain for a large loss: the vital commodity that economists call option value.”

Option Value is why many businesses change a product. Basically, the idea is that a new option has value, even if you don’t want it or use it. That’s because it increases the range of possibility, and some of those possibilities may be better than your current ones. This is exactly what I find frustrating with Windows 10 and the new 2016 Office – dozens of more options (and commands) than I want or need.

As Megan McArdle points out, option value can make a big difference to businesses. Consider the disaster of New Coke. Coke developed a modern formula that did well in focus groups. So, in 1985 the company changed the formula and customers went crazy. Within months, the old formula was back as Coca-Cola Classic. And then a funny thing happened: The old formula did better than New Coke in beating Pepsi. Losing the option value of having the familiar beverage available reminded people why they had liked it — and they started using that old option more often.

McArdle believes that Apple may end up facing a similar dilemma. Even if the number of people who want to use their old wired headphones is small, there’s a risk that they are really, really attached – much more passionate about it than people who thinks it is cool to have a new, thinner, waterproof phone. If those people can’t get a headphone jack from Apple, they may decide to look for a phone that can provide it.

Marketing Bottom-line: Do not believe 100% in Option Value. You need to do research with your customers prior to making any major change to your product or service. Especially if you have brand loyalty like Coke and Apple. This goes for new websites too!

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