Versioning Information

1
CHAPTER 3

• Versioning Information
• (Product Differentiation)

2
Chapter Overview

• How to design a product line
• Capturing greatest profit
• Profits
• Depends on total value created and fraction
  extracted
• Two principles

3
Chapter Overview

• Principle One
• Offer versions tailored to the needs of different
  customers
• Principle Two
• Design these versions to accentuate the needs of
  different groups of customers
• Self-selection

4
Designing Your Product Line

• Identify dimensions that induce self-selection.
• Dimension(s) selected may be
• highly valued by some customers
• unimportant to others.
• Offer notably different versions designed to
  appeal selectively to each type of customer.

5
Dimensions Delay

• Strategy
• Control information/product release time
• Example
• Information
• Streaming stock quotes
• 20 minute delay
• Service
• Fed Ex next day by 10 a.m.
• Next day

6
Dimensions User Interface

• Strategy
• Build 2 access modes
• Diversify appeal across user classes
• Example Database search engine
• Power User professional researcher, advanced
  user
• Interface- multiple refinement options
• Casual User beginner, occasional user
• Interface- simple search textbox, how to
  links

7
Dimensions Convenience

• Strategy
• Restrict/enhance access to product
• Example Retailing
• Enhancement on-line shopping
• Restriction availability only at bricks and
  mortar location to stimulate foot traffic

8
Dimensions Quality of Product

• Strategy
• Variation in quality of product/service
• Example Booksellers
• Highest Quality newest release
• Good Quality selection of current titles
• Value Quality discounted/used books

9
Dimensions Speed of Operation

• Strategy
• Develop varying capabilities in product/service
• Example Internet Access Providers
• Broadband
• Enhanced Dial-up
• Dial-up Modem

10
Dimensions Format

• Strategy
• Limit accessibility, duplicate, or print
  information
• Example Professional Journals
• Abstracts of articles are available
• Require subscription
• Require purchase for full version

11
Dimensions Capability

• Strategy
• Create discernible differences to target market
  segments
• Example Voice Recognition Software
• 20,000 word vocabulary 79
• 50,000 word vocabulary 595
• Legal vocabulary 1,195
• Medical vocabulary 6,000
• Orthopedic medical vocabulary 8,000

12
Dimensions Features and Functions

• Strategy
• Add attractive features to basic product
• Example Intuit Quicken
• Basic version
• Electronic checkbook
• Deluxe version
• Investment Module
• Financial Calculators
• Asset Management

13
Dimensions Comprehensiveness

• Strategy
• Offer varying detail levels
• Example
• On-line Consulting Industry
• Fees are structured on level of detail/expertise

14
Dimensions Annoyance

• Strategy
• Distribute free limited version with special
  screens
• Encourage full version registration
• Example
• ZoneAlarm
• Spybot

15
Dimensions Support

• Strategy
• Offer technical support as pricing strategy
• Example Security Software Vendors
• Basic version offers known virus protection
• Additional subscription fee offers automatic
  updates and technical support

16
Pricing and Quality

• Adjusting Pricing Quality
• Avoid making low-end product too attractive
• Reduce price of high-end product
• Reduce quality of low-end product

17
Pricing and Quality

• Goldilock Pricing
• Use 3 versions of product
• Value
• Middle
• Deluxe
• Extremeness Aversion
• Middle version decision
• Importance of offering product at the level

18
Pricing and Quality

• Promotional Pricing
• Different forms
• Sales
• Coupons
• Rebates
• Some inconvenience for users
• Valuable only if it segments the market

19
Pitfalls

• Degrading products serves low-willingness-to-pay
• Cheaper products allow more customer choice
• Low-end product sales reveal value

20
On-line or Off-line

• On-line info available off-line
• Off-line info easier to read
• Sell off-line while on-line is free
• National Academy of Science Press

21
Bundling

• Definition
• A special form of versioning in which two or more
  distinct products are offered as a package at a
  single price.
• Example Microsoft Office
• Word Processor
• Spreadsheet
• Database
• Presentation Tool

22
Bundling

• Tying
• Individual products are offered only in the
  package
• Bundling
• Individual products are offered in package and
  individually
• Price of the bundle is less than the sum of the
  component prices
• Two components 70/each
• Bundle 100

23
Bundling

• Determine whether or not to offer a targeted
  discount
• On-line Wall Street Journal
• Offers a discount to subscribers of the paper
  version
• Dispersion in customer value
• Reduces dispersion in customers willingness to
  pay
• Significantly increase the value extracted from
  customers

24
Bundling
Willingness to Pay Willingness to Pay Willingness to Pay
Word Processor Spreadsheet
Mark 120 100
Noah 100 120
If price _at_ 120 each only buy one product
240 If price _at_ 100 each buy both products 400
25
Bundling

• Other reasons for bundling
• Option value
• Consumer may find Microsoft Office an attractive
  purchase
• Consumer may use other programs in future
• Use bundling to introduce new products to
  consumers

26
Bundling

• Information Bundles
• Magazines are bundles of articles
• Subscriptions are bundles of magazines
• Bundling will reduce the dispersion in
  willingness to pay, thereby reducing revenue.

27
Bundling

• Customized Bundles
• Pop music sold on CDs
• Create your own CD
• Personalized newspapers
• Customized textbooks
• Mass customization of information
• Quantity discounts can play same role as bundling

28
Bundling

• Lesson
• Bundling makes sense if it reduces variation in
  willingness to pay.
• Combining complimentary goods increases revenue
  if it decreases the variation across customers in
  their willingness to pay.

29
BASIC
PREMIER
DELUXE
30
Additional Software Offered
TurboTax for the Web 1040EZ
Its Deductible
STATE
31
Product Line Comparison
Feature Basic Deluxe Premier
Free Electronic Filing (after rebate)
Step-by-step guide checks for mistakes
Imports IRS Forms and data from Quicken, Microsoft money
Includes free download of 1 state product
Year to year deduction comparison
Expert Tax Advice and future planning
Help for sales of stocks, bonds, mutual funds and employee stock plans
Schedule C guidance (prepares W-2s and 1099-MISC forms)
Rental property depreciation and other deductions
32
On / Off Line Versions

• All versions offered online
• All versions offered offline except 1040EZ
• Its Deductible offered in CD ROM and book form

33
Pricing
Online CD ROM Promotions
Premier 69.95 69.95 39.95 online
Deluxe 39.95 39.95 19.95 online
Basic 24.95 29.95 N/A
State 29.95 29.95 9.95 online
1040 EZ 9.95 N/A N/A
Additional 9.95 to file state with purchase
of federal software
34
Promotional Pricing

• Download online and begin using product today
  20 off
• Rebates for ordering and completing online
• Free to try, charge when you decide to print or
  e-file

35
iPod iTunes
36
iPod Shuffle

• Two versions
• 512 MB
• 120 songs
• 99
• 1 GB
• 240 songs
• 149

37
iPod Mini

• Two versions
• 4 GB
• 1,000 songs
• 199
• 6 GB
• 1,500 songs
• 249
• available in four colors

38
iPod Versions

• iPod 299
• 20 GB
• 5,000 songs
• Special U2 Edition iPod 349
• Jet black with a red Apple Click Wheel
• U2 band autographs on the back
• Exclusive U2 poster

39
iPod Photo

• 30 GB
• 7,500 songs
• 349
• 60 GB
• 15,000 songs or 25,000 photos
• 449
• Art on Display iTunes 4.7 auto syncs the
  Album cover art for songs downloaded

40
iTunes Music Store

• Buy music individual tracks or albums
• 99 per song
• 9.99 per CD
• No subscription required - free download
• Different purchase methods
• iTunes account
• Gift certificates
• Allowance accounts
• AOL wallet/accounts

41
iTunes

• Mass customization of information
• Customize CDs and playlists
• Allows users to burn individual songs onto
  multiple CDs for personal use
• Listen to songs on an unlimited number of iPods
• Play songs on up to five Macintosh computers or
  Windows PCs

42
iTunes Features

• Open 24/7 on Macs and Windows PCs
• Legal way for consumers to discover, purchase,
  and download music online
• Over 1,000,000 songs from major music companies
• More than 100,000 new tracks from independent
  artists and record labels
• More than 150 exclusive to iTunes tracks from
  numerous artists
• Dozens of out-of-print Motown singles and jazz
  albums available digitally for the first-time

43
iTunes Features

• Free 30-second preview of every song
• Free Single of the Week download
• Artist Alerts notify you when Apple adds music
  from your favorite artists to the iTunes Music
  Store
• View movie trailers
• Watch music videos
• Share music with up to 5 Macs and PCs
• Find out whats playing on more than 1,000 radio
  stations
• Publish an iMix on the iTunes
• Over 9,000 audio books

44
Versions of iTunes

• iTunes 4.0 iTunes 4.7.1
• Each version offers improvements and additional
  features
• V 4.0 add and view album artwork, burn DVD
  archives of your music, and share music within
  the same household
• V 4.1 audiobooks now available, drag and drop
  links from iTunes into emails, Instant Messenger,
  or web pages, allowance accounts, and gift
  certificates
• V 4.2 - sign in and buy music using either an
  AOL or Apple Account

45
Versions of iTunes

• V 4.5 Post your iMix, print CD inserts, find
  out what is playing on over 1,000 radio stations
  around the U.S., download a free song, get music
  and audiobooks related to a movie, and watch a
  music video
• V 4.7 Support for copying photo in an iPod
  photo and the ability to show duplicate songs in
  your library
• V 4.7.1 Support for iPod shuffle

46
QUESTIONS??