Effects of the 2Is on Product Users can redevelop aspects of the product to meet individual needs and preferences Firms can provide more targeted, personalized products Increases “stickiness” as customers invest time and effort to personalize Enables responsive service interaction to provide augmented value to the product Allows companies to quickly gather valuable customer data such as preferences Customers can be directly involved in the product development process Individualization Interactivity Product

What is Product Core Benefit most fundamental value offered by the product Examples: core benefit for an SUV (Sports Utility Vehicle) is transportation For eDiets.com, it’s dieting information Basic Product minimum product offering needed to deliver the core benefit Examples: for an SUV, it’s the baseline model For eDiets.com, it’s accurate information, advice and motivational support in order to lose weight Augmented Product features that go beyond a customer’s minimum expectations Examples: for an SUV, it could be extended warranty, trade-ins and financing Look at eDiets.com What are some product augmentations? How does eDiets.com make money?

Product Augmentation Pre-Sales Support Comparison shopping Product selection guides Product demonstrations Bestseller Lists notifications of new products Look at Landsend.com; try the Personal Shopper and Virtual Model Fulfillment Options Place orders through a number of channels: mail, , 1-800, on-line, dealership Download or receive on CD/DVD Post-Sales Support Send reminders for product maintenance Electronically schedule appointments On-line warranty filing and information Tips and trouble-shooting Community support Customer Care

Product Assortment Bundling Personal computer with extra memory, scanner, printer… Season tickets to sports events Series subscriptions for theatre Discounts for on-line subscription to Print subscribers of a newspaper or magasine Complementary Products Often add basic or advanced functionality, tools or enhancements to a product created by the same company or third-party companies from a modular design or open-source software Look at Quicken.com What complementary products are available to the basic software? Look at Apple’s webs site. What complementary products are available for the iPod?

Product Levers Awareness Exploration/ Expansion Exploration/ Expansion Commitment Dissolution Four Key Stages of Customer Relationships Core benefit Presentation and packaging Attributes and features Presales support Fulfillment Availability of complementary products Customer-specific attributes and features Upgrades Customer-specific attributes and features Post-sales support Tiered service Personalization Customer care Migration to different product in the portfolio Customer care

Conclusion Products come in two basic types: physical products and services. For all products there are three components to the overall value proposition: the core benefit, the basic product and the augmented product. There are certain product development levers available to managers –The levers may be applied to both physical and service products –The product development levers can be organized by product type  Basic product development levers  Augmented product development levers The 2Is allow firms to learn about their customers, personalize a product to meet customer preferences and offer customer relationship management tools to provide more value for customers and cut costs for product sellers

The Effects of the 2Is on Pricing Easy to convey prices to individuals Allows more targeted price promotions Different websites cater to different segments Allows a larger buying and selling community Allows prices to be changed easily Allows consumers to easily check prices Easier to understand and measure consumers’ reactions to price promotions Easier to receive customer feedback on price, understand customers’ willingness to pay, and implement price- discrimination strategies Individualization Interactivity Pricing

Pricing Strategies Hi-Lo Cyclical strategy Usually prices are high Regularly offer deep discount promotions (lower than EDLP below) Get shopper’s attention and bring them to the store Attracts price-sensitive consumers and stimulates demand EDLP (Every Day Low Pricing) Relatively low product prices Fewer sales than Hi-Lo SafeWay, WalMart, Amazon and Saturn are examples Good to associate EDLP with Brand Brand Pricing Often a type of prestige pricing Product is priced high Value is associated with the perceived value of the brand Often attached to a logo  Promotions May offer lower pricing for an introductory “trial” period However, difficult to change price later without frustrating consumers

Pricing Strategies Dynamic Pricing Prices are not set, but fluid Internet makes it much easier to change prices without the traditional “menu (physical) costs” of doing so Interactivity allows buyers and sellers to negotiate prices Auctions are a popular dynamic pricing model on the internet eBay is the most famous of these The seller sets the minimum bid (price) onproducts Bids are offered by potential buyers Eventually the highest bidder wins out Priceline has a different type of auction model Buyers submit a price for airline tickets Priceline checks with airlines to see if the bid is acceptable If it is, the buyers credit card is debited and an itinerary sent to them

Pricing Strategies Volume Discounts Price decrease as more items are purchased Examples include “buy two, get one free” Two-Part Pricing Often includes a subscription fee and then highly discounted items Example might include a Music Club with a subscription and very cheap CD pricing Frenzy Pricing Consumers go into a frenzy to purchase the product Often price is set low May be a limited number of items available or a limited-time offer Often generates a lot of media buzz Often done prior to a busy buying time like Christmas Can you think of some examples of Frenzy Pricing?

Four Key Stages of Customer Relationships Click-through promotions Web-referral promotions Bricks-and-clicks promotions Web price discounts Bundle Frenzy pricing Prestige Price as a sign of quality Hi-Lo Dynamic pricing EDLP Targeted Promotions Loyalty programs Tiered loyalty programs Wide variety of pricing plans Become affiliates Volume-discount promotions Targeted promotion Two-part pricing EDLP Discontinue pricing promotions Reconfigure loyalty programs Decrease profit programs Awareness Exploration/ Expansion Exploration/ Expansion Commitment Dissolution