Versioning Information Carl Shapiro and Hal R. Varian Modified from the original by Anushri Kumar & Karthik L.

Value-Based Pricing Why do we need versioning ? Sell as many number of the products you make Different consumers have different needs Design menu of different versions Target different market segments Price accordingly Self Selection - Emphasizing customer differences allows you to extract more value.

Quicken Example Revisited Quicken for Windows at $20 Quicken Deluxe at $60 1 million wtp $60, 2 million wtp $20?

Demand Curve Price (Dollars) Quantity (Millions) $20 $4 0 $60 123

Example : Apple i-Pod Apple sells the basic i-shuffle for $99 Sells ipod nano for $199 which has a display and more memory. The regular ipod is priced at $299 which plays video and has even more memory The music technology is essentially same in all the three. Apple Store

Traditional Information Goods Hardback/paperback Publishers initially releases more expensive hardback version of the latest book for impatient customers. Later releases the book in paperback for less enthusiastic readers. Eg : Harry Potter Harry Potter Hardcover Boxed Set $ v/s Harry Potter Paperback Boxed Set $28.66 Movie/video Initially released in theaters for enthusiastic viewers. Followed by the airline / hotel market Months later for the home video market and libraries. Eg : King Kong v/s Hitch

Dimensions to Use Delay (Fed Ex, CNN Stock Quotes) User Interface (Borland JBuilder)Borland JBuilder Image Resolution (World View Images )World View Images Speed of operation (IBM Laser Printer) Format (Mp3/CD/DVD/DiVX/MP4) Features (Netscape Navigator)(Netscape Navigator) Capability (Kurzweil) Comprehensiveness (IEEE Explore)IEEE Explore

Delay Examples FedEx Premium Class : delivery before 10am. Next Day Service : delivery anytime next day (but never before 10am). CNN Stock Quotes For only 14.95/month, you can access professional quality real-time streaming quotes and analysis from Comstock. Delayed quotes are free of cost. CNN is willing to incur the cost of storing delayed quotes.

Speed of Operation Examples Mathematica Student Version : Has floating point co-processor disabled slowing down mathematical calculations. Wolfram had to incur additional cost to implement this. IBM Laser Printer Series E Printers 5 pages/min [ put additional chip to insert wait states] Standard Printers 10 pages/min

Kurzweil’s Effective Versioning by Capability ProductPriceDescription Voicepad Pro$79Vocabulary of 20,000 words Personal$295Vocabulary of 30,000 words Professional$595Vocabulary of 50,000 words Office Talk$795General office staff Law Talk$1195Legal vocabulary Voice Med$6000Medical offices Voice Ortho$8000Special Medical Vocabulary

Making Self-Selection Work May need to cut price of high end May need to cut quality at low end Value-subtracted versions May cost more to produce the low-quality version. Unlike physical goods, with INFORMATION it costs generally the same to distribute the fancy version as the plain version In design, make sure you can turn features off!

Pitfalls We need to have the ability to make distinct versions in such a way that we discourage the high-willingness-to-pay consumers from going for the lower-end versions Make sure users cant easily turn the low-end version into high-end version Windows NT workstation ($260) / Server($ ) 10 simultaneous session v/s unlimited in server

Online and Offline Versions Quality differences (text/sound) Wall Street Journal (Subscription)(Subscription) Dyson Dictum: think of content as free Focus on adding value to online version National Academy of Science Press Books online for browsing not printing Printed copies is great for actual studying Understand whether the online version stimulates sales or steals them from the offline version.

How Many Versions (Discussion) One is too few Ten is (probably) too many Supply side – cost of maintaining several different products Demand side – risk of user confusion Two things to do Analyze market Analyze product

Analyze Your Market Does it naturally subdivide into different categories? E.g. (desktops/laptops) Are their behaviors sufficiently different? Example: Airline Industry Tourists v. Business travelers

Analyze Your Product Which dimension to use to version your product. High and low end for each dimension Design for high end, reduce quality for low end Low end advertises for high end Reposition in case of competition

Goldilocks Pricing What if you can’t figure out the “natural” user classes Default choice: 3 versions Extremeness aversion Consumers normally try to avoid extreme choices Small/large v/s small/large/jumbo

Microwave Oven Example Bargain basement at $109, midrange at $179 Midrange chosen 45% of time High-end at $199 added Mid-range chosen 60% of time Wines Second-lowest price

Customizing the Browser Collect behavior information Personalize the web browser based on the user's favorite contents Web Portals E.g. My Yahoo, My Msn, myODU

Bundling Bundling is a special form of versioning in which two or more distinct products are offered as a single package Microsoft Office 90% market share Packaged products guaranteed to work well together Microsoft Office Discount one of the products Option value: zero incremental price Microsoft's per-processor license

Reduce Dispersion: Price separate or together? Profits: With Bundling: $440Without: $400 Conclusion : Bundling increases revenues. Bundling reduces the dispersion in willingness to pay. Introduces new products to consumers MS Word Power point Mark$120$100 Noah$100$120

Information Bundles Magazines and newspapers Variation in how much users will be willing to pay for different articles. Customized bundles Select your own music and make a CD. Nonlinear pricing In previous example sell first item for $120 Sell second item for $100 Example: MusicMaker (first - $1.20, second - $1)

Promotional Pricing Sales, coupons, rebates (make it hard to redeem) Only worthwhile if segment market Credible signal of price sensitivity Problem with software agents Bargain Finder (searched online stores for best price on music CD’s ) Stores did not want to compete on price alone but also the value and service provided

Discussion Questions What is the right way to find out how the market divides? How do you make sure that making too many versions will not confuse the customers? US Automobile Industry FordFord GMChryslerGMChrysler Do you prefer to buy products in bundles?

Discussion Questions(cont..) In view of customizable bundles, where is the future of albums in the light of iTunes providing single for a dollar – your comments iTunes ArticleiTunes Article Versioning in the automotive industry which has led to the demise of a few companies – your comments

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