Place and Product © 2001 Ann Schlosser, University of Washington Business School

Agenda Digital products –Versioning Customers as co-producers –Choiceboards Chasm crossing

Dangers of Digital Intermediaries/Shopbots

Threat to Incumbents

Characteristics of Digital Products High upfront production costs –Often sunk costs Low reproduction costs Variable costs are almost nil because they have no physical form Experience good Price based upon customer value

Reasons for Shareware/Freeware Marketing objectives that support offering free versions –To generate awareness –To stimulate trial –To sell follow-on products –To build a network –To attract eyeballs –To gain market power/competitive advantage Digital product needs to be unique

Dimensions to Use in Designing Your Digital Product Line Delay User Interface Image Resolution Speed of operation Format Capability Support Comprehensiveness Convenience

How Many Versions? One is too few Ten is (probably) too many What is just right? –Analyze market –Analyze product

Analyze Your Market Does it naturally subdivide into different categories? AND Are their behaviors sufficiently different? Example: Airlines –Tourists vs. business travelers

Analyze Your Product Dimensions to version –Have few versions if Subject to network effects Multiple versions creates user confusion High and low end for each dimension –Design for high end, reduce quality for low end –Low end advertises for high end

“Goldilocks Pricing” Pros of only two versions –Customer support is simple –Reduce risk of incompatibility between versions Risks of only two versions –Extremeness aversion –Example: 45% of people chose the $179 model when two versions were available ($109 and $179) 60% of people chose the $179 model when three versions were available ($109, $179 and $199)

Traditional vs. Real-Time/Online R&D

Real-time marketing Changing the focus from time-to-market to time-to-acceptance –Include customers in development and production cycle –Include information gathered from points of access with customers

Consumers as Co-Producers

Pioneer in Using Choiceboards: Dell

What is a Choiceboard Model?

Choiceboard Model is Not For Every Firm Could a choiceboard model help? Ask yourself: 1.How much do you have to guess about demand? 2.How much do you give away in discounts? 3.What is your match ratio (% of what you sell that exactly matches your customers’ needs) Requirements 1.Products made of modular units 2.Proper supply-chain systems in place 3.Knowledgeable customers

Choiceboard + Recommendation Engines

Simplest Choiceboard: Design Your Own Product

Example of a Service Choiceboard

Example of a B2B Choiceboard

Value Proposition

Example of an Intermediary’s Choiceboard

Marketing Strategy Control Customer Loyalty/“Lock-in” Two-Way Information FlowCost Advantages

Profit Models

Benefits of Choiceboards Empowers customers to design product/services to their own specifications –Impact of being a co-creator of a product: vested interest Creates opportunities for new approach to manufacturing and fulfillment that offers exceptions economics Eliminates finished goods inventories and markdowns Captures valuable real-time customer information

Chasm Crossing As a company’s products become more mainstream (i.e., the product moves from appealing only to early adopters to the mass audience as well), desirable brand attributes evolve.

Technology Adoption

Market Penetration Phase: Bowling Alley

Market Penetration Phase: Tornado