The Cobra Effect - Its Impact on Product Management and how to Avoid Unintended Consequences

As a Faculty, teaching Design Thinking to the students of M.Tech. Product Design and Management, IIIT Hyderabad and other UG and PG students, a specialised PG programme to prepare Product Mangers for the IT and Software Industry, I always start my course sharing with them the story of Cobra Effect to explain why understanding the problem is very important before start to work on solution. Extending this beyond my classroom, I decided to write this article to see through the lens of Product Management. Through this article, I would like discuss about the Cobra Effect and how it Impacts the Product Management Function, Product Managers, Product Companies and The End Users. Lets start with understanding what is Cobra Effect first.

What is Cobra Effect

The Cobra Effect refers to a situation where a solution to a problem actually worsens the problem, often because of unintended consequences. The term originated from a historical incident during British rule in India when authorities, to reduce the number of cobras, offered a bounty for dead cobras. However, instead of reducing the population, enterprising individuals began breeding cobras to claim the bounty. When the government realised this, they announced the penalty and punishment to those who are breeding cobras in their arms to make money. Knowing this and out of fear the cobra breeders released their cobras out of their farms leading to increased number of cobras spread across the city leading to increased problems and risk for the people.

Cobra Effect in Product Management

The Cobra Effect has significant implications in Product Management, as it highlights the potential for well-intentioned product decisions to lead to negative and unforeseen consequences. The Cobra Effect can occur when a product strategy or feature, intended to solve a problem or create value, results in unintended consequences that worsen the situation. In product development and strategy, if incentives or design elements are not carefully considered, they can create behaviour that ultimately undermines the product’s success. These unintended consequences often arise from a lack of understanding of user behaviour, poor alignment with business goals, or a failure to anticipate market responses.

Implications of the Cobra Effect in Product Management

1. Misaligned Incentives/Freemium Model Abuse: If product managers introduce incentives that do not align with users' natural behaviour or are too easily gamed, users might exploit them in ways that harm the business. This could create artificial engagement, short-term growth, or even manipulation of the product’s core functionality, leading to unsustainable results.

Example: A referral program designed to drive user acquisition may offer substantial rewards to new users and referrers. However, if the reward structure is too generous or poorly thought out, people may abuse the system by creating fake accounts or referring themselves, generating minimal value for the company but increasing costs.

Implication: Instead of achieving genuine user growth, the company faces higher expenses with no meaningful increase in the user base or product engagement.

2. Unintended Negative User Behaviour: The Cobra Effect often manifests in users adopting behaviours that are not in line with the product’s original intent. When a product feature incentivises a specific action without understanding the deeper motivations of users, it can lead to counterproductive behaviour that damages the user experience or the product's reputation.

Example 1: In online games, developers sometimes create reward systems to encourage certain behaviours (e.g., playing longer, achieving higher scores). However, some users may find loopholes to exploit the system, like creating bots to farm rewards or artificially inflate rankings.

Implication: Instead of enhancing user engagement, it leads to poor gameplay experiences, frustration among regular users, and negative brand sentiment.

Example 2: Consider a mobile app that encourages users to share content by rewarding shares with virtual points. Users might begin spamming their networks with irrelevant content just to accumulate points, diminishing the value of the content shared and annoying their social circle.

Implication: Instead of driving organic engagement and growth, the product’s community or user base may shrink due to irritation and loss of credibility.

3. Erosion of Trust and User Experience: The Cobra Effect can deteriorate the user experience when systems are designed with unintended loopholes that users exploit. This can erode trust in the product’s fairness or effectiveness, pushing loyal users away.

Example 1: Ride-hailing apps like Uber introduced surge pricing to ensure availability during high-demand periods. However, in some cities, drivers would turn off their apps simultaneously, artificially creating demand spikes to trigger surge pricing. This results in user dissatisfaction and public backlash, as people feel they are being unfairly charged.

Example 2: A food delivery platform introduces surge pricing during peak hours to encourage more drivers on the road. However, drivers might artificially create surge conditions by temporarily going offline, driving up prices for users. As users recognize this manipulation, they feel exploited and may switch to competing platforms.

Implication: From the above two examples it is very clear that the Trust between the users and the platform erodes, leading to customer attrition and reduced market share.

4. Financial Losses Due to Poorly Designed Incentives: Product managers may set goals that prioritise short-term metrics, such as user acquisition or engagement, but overlook the broader financial implications. Offering rewards or incentives that are too attractive or easily exploited can drain resources without creating lasting value.

Example 1: An online retailer offers deep discounts to new users to boost first-time sales. Some users exploit the offer by creating multiple accounts to repeatedly access the discount. As a result, the retailer incurs significant losses without gaining loyal customers.

Example 2: E-commerce platforms often promote products based on customer reviews. Sellers, to gain more visibility, start manipulating reviews (either by incentivising positive reviews or posting fake reviews). Over time, the reliability of the review system degrades, and customers lose trust in the platform, harming the brand’s reputation.

Implication: The initial goal of increasing user acquisition may be achieved, but it comes at the cost of profitability, and the user base may not translate into long-term value.

Strategies to Mitigate the Cobra Effect:

• Understanding User Behaviour through Holistic User Research: Before introducing new features or incentives, product managers should conduct thorough research to understand user behaviour and predict potential outcomes. This includes identifying edge cases and possible exploitations.
• Clear Objectives: Ensure incentives align with long-term business goals rather than just short-term metrics.
• Pilot Testing and Experimentation: Run small experiments and gather feedback to ensure features or strategies work as intended before large-scale rollouts.
• Continuous Monitoring and Feedback Loops: Even after launching a feature, continuous monitoring of user behaviour is essential. Analysing data and collecting user feedback can help identify signs of exploitation or negative consequences.
• Focus on Long-Term Goals: Avoid short-term fixes or tactics that focus on vanity metrics. Align product decisions with long-term user satisfaction, sustainable growth, and profitability.

Conclusion

The Cobra Effect reminds product managers of the need for careful planning, a deep understanding of user behavior, and the importance of aligning incentives with long-term goals. By anticipating unintended outcomes and continuously adapting, product teams can avoid negative repercussions and build products that deliver true value.