Why offer an extreme version - because of extreme aversion

There's an item on CNET today asking why on earth Microsoft plans to offer Windows 7 Ultimate?

Now, not having been involved directly in this decision, it may be because Microsoft genuinely believes that its the right product for a small target group of customers:

"There is a small set of customers who want everything Windows 7 has to offer," Ybarra said. "So, we will continue to have Windows 7 Ultimate edition to meet that specialized need.

"Windows 7 Ultimate edition is designed for PC enthusiasts who 'want it all' and customers who want the security features such as BitLocker found in Windows 7 Enterprise edition."

There's a better reason for an extreme version - extreme aversion. What? This extreme version will not just make a few über-geeks feel good, if they don't think they're being ripped off, but more importantly it will make those of us who don't buy it feel better.

The reality is that customers making choices do not behave in line with rational expectations. One of the important cognitive biases that we have when it comes to making choices about which products to buy is that we tend to avoid extremes, and prefer intermediate choices.

Although other factors may play a part, it seems that the most powerful motivation for this is so-called loss aversion. We value things we have to give up more highly than things we might obtain, typically by a factor of between 2x and 4x. An extreme choice involves a large loss relative to the other extreme; an intermediate choice involves less loss than either extreme. That's why there's sometimes also a barebones version that very few people buy, to provide an extreme at the other end of the range.

So, Windows 7 Ultimate will make all of us who don't buy it feel better.

The way in which customers really make choices amongst competing products has profound implications for product portfolio and pipeline management; these are explored more fully in a recent working paper: 'Less is More'.