1. Versioning Information (2nd Degree Price Disc.)
Carl Shapiro
Hal R. Varian

2. Versioning - Introduction
You can get valuable data on customers without consumer-provided profile, expensive marketing data, consumers’ active involvement. How?
You can learn a lot about ur customers by offering them a menu of products and seeing which one they choose.
왜 특정 version을 사는지 원인을 파악해야 함. 그래야 메뉴를 잘 짤 수 있음 ex) 식당 메뉴, 컵밥

3. Versioning – Two Rules. Don’t need to price by identity
Offer product line, and watch choices
2 basic principles to design menu of different versions
Target different market segments (ex: Kimchi for restaurants and Kimchi for homes)
Price accordingly (self selection; each customer selects the version that best meets his or her needs.)
U don’t have to figure out what value the customer puts on ur info goods, b/c the customer reveals that value through the version that s/he selects.: Principle of Self-Selection.
Self-selection can be a headache to researchers.

4. Self-Selection (自己選擇)
Any situation in which individuals select themselves into a group, causing a biased sample. It is commonly used to describe situations where the characteristics of the people which cause them to select themselves in the group create abnormal or undesirable conditions in the group.
Self-selection is a major problem in research in sociology, psychology, economics and many other social sciences.
Self-selection makes it difficult to determine causation.
Self-selection causes problems for research about programs or products. In particular, self-selection makes it difficult to evaluate programs, to determine whether the program has some effect, and makes it difficult to do market research.

5. Self-Selection (cont’d)
Ex: One might note significantly higher test scores among those who participate in a test preparation course, and credit the course for the difference. However, due to self-selection, there are a number of differences between the people who chose to take the course and those who chose not to. Arguably, those who chose to take the course might have been more hard-working, studious, and dedicated than those who did not, and that difference in dedication may have affected the test scores between the two groups. If that was the case, then it is not meaningful to simply compare the two sets of scores.
Due to self-selection, there were other factors affecting the scores than merely the course itself. 자기선택으로 원인파악 어려워 주의 필요
자기선택의 예) 기숙형사립고(boarding school) 학생들의 수능성적이 좋은 것은 기숙형사립고에서 잘 가르쳤다기 보다는 기숙형사립고에 시험보고 들어가는 학생들의 공부에 대한 열정이 남다르기 때문이거나 공부 잘하는 학생들로만 걸러 졌을 수 있기 때문임  원인파악 주의

6. MS Office Example
Office 365 (subscription) vs Office 2016(one time purchase)
Office 365 = Office(up-to-date)+cloud storage
Home, student, business, vs. Professional
If only one version, u can sell less…
Office 365
Office 2016

7. Traditional Information Goods –Versioning by delay
Hardcover/paperback
Movie/video    

8. Dimensions to Use Delay (Fed Ex, PAWWS($8.95 vs. $50)
User Interface (DialogWeb for Pros (real time), DataStar for amateurs, daily data)
Image Resolution (PhotoDisk)
Speed of operation (성능,Mathematica)
Features & Capability (기능, Quicken, tech support, Kurzweil; voice recognition sftwrs)
Flexibility of Use (not duplicable MP3s, airline ticket with options to change itinerary)
Comprehensiveness (Completeness of Info. Ex: 기업정보)
Annoyance (nagware, PBS)

9. Making Self-Selection Work - Adjust price and quality
Windows 10
Home, Pro, Enterprise, Education
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.
In design, make sure you can turn features off!

10. Pitfalls
Make sure users can’t easily turn the low-end version into the high-end version.
Arbitrage
Windows NT workstation($260, 10 simultaneous sessions)/server($1,080, infinite sessions)
The kernel(the core component of the OS) is identical.

11. Online and Offline Versions
Understand whether the on-line version stimulates sales or steals them from the off-line version; substitute or complement?. Which is bigger now?
More ads on online newspapers? Online: ads by article
Dyson Dictum: think of content as free
Focus on adding value to online version (검색)
National Academy of Science Press
Format for browsing, not printing
Esther Dyson

12. How Many Versions? One is too few
Ten is (probably) too many; cost more to provide. Consumer confusion.
Two things to do
Analyze market
Analyze product

13. Analyze Your Market
Does it naturally subdivide into different categories? AND
Are their behaviors sufficiently different?
Example: Airlines
Tourists v. Business travelers

14. Analyze Your Product Dimensions to version
High and low end for each dimension
Top-down Strategy: Design for high end, reduce quality for low end
Two Advantages of Top-down strategy: 1) easy to meet competition 2) low end advertises for high end

15. (Hair) lock?
Goldilocks Pricing
In info industry, less is more; less (but focused) info can be more valuable by filtering and sorting.
Thus, if distinguishable, AMAP(as many as possible) versions strategy works.
Mass market software (word, spreadsheets), 1 or 2 versions. Why? 1) For network effects ex: Office ) to avoid user confusion ex: PhotoDeluxe vs. Photoshop
Default choice: 3 versions  standard, pro, gold
Rationale for 3: Extremeness aversion=Goldilocks
McDonalds’: Small/large v. small/large/jumbo(virtually no one want this but adding it induce more consumers for large more revenue)

16. Microwave Oven Example for Goldilocks Versioning
Bargain basement at $109, midrange at $179
Mid-range chosen 45% of time
High-end at $199 added
Mid-range chosen 45%  60% of time
Wines
The best selling wine is the second-lowest price wine
1) Obviously better quality, 2) set price of the next wine up to be only slightly higher, which make it seem like a really good deal big sale.
기계식 버튼 … 전자식 버튼

17. Goldilocks Pricing Strategy
Recognize what you want to sell is the middle product
The high end product is there only to push people toward the compromise choice (=middle product).
Then how do we version information? How do we make ‘small’, ‘medium’ and ‘large’ versions? USE Java! (next)

18. Customizing the Browser with Java to version ur info on the web
Java is used to collect behavior information (cookies)
Java also can be used to optimize viewing
B&W page images, 3D viewing optimization
Buffering; faster viewing (reading on page 17 while buffering for page 18)
Can turn it on and off
You can segment(or version) the mkt using Java

19. Bundling -Another pricing strategy to deal with diff. WTP
Tying
-same products
Bundling
- diff. products
Bundling -Another pricing strategy to deal with diff. WTP
Offer a package OR separate to reduce dispersion in WTP. cf. tying (offer only in package).
Microsoft Office 90% market share
Reason for success?
Guaranteed to work together (ex: cut&paste tables btwn Word and Excel)
Components share parts less disk space
Discount one of the products ($70+$70=$100?)
Option value (keep it, just in case)
Use bundling to introduce new products.
*nonadditive
非加算的

20. Reduce Dispersion (Variation in WTP): Price separate or together?
Name/WTP
(Marketing Dept.)
(Accounting Dept.)
Revenue or Sales: With Bundling: $440 Without: $400
Why? (next)

21. Bundling Reduces Consumer Dispersion – flat price case
Example: price separate or together?
Mark: $120 for WP, $100 for spreadsheet
Noah: $100 for WP, $120 for spreadsheet
Revenue
If $120 for WP only Mark buys. If $120 for Excel only Noah buys. Rev=$240 (1 WP to Mark, 1 Excel to Noah)
To sell to both Mark and Noah, it should be $100. Same for spreadsheet. Thus, without bundling: $400 ($100*4)
With bundling, set price for $220 for 1 package  Rev=$440 ($220*2) *Why pay $220? Total WTP=$220

22. Information Bundles
Magazines (bundles of articles) and newspapers; subscriptions are bundles of magazines.
Law of large numbers (You will hit something if you shoot many)
Customized bundles ex: 벅스뮤직
Nonlinear pricing to let consumers build their own bundles
In previous example sell first item for $120
Sell second item for $100
Example: 30곡 4900원, 65곡 6900원, 100곡 9900원.

23. Promotional Pricing to Segment Mkt (to sell to Low WTP consumers by Versioning)
Sales, coupons(할인권)/voucher(상품권), rebates  impose some inconvenience cost on the consumer
80~90% once used coupons but only 2% are redeemed people use coupon selectively.
Coupon is only worthwhile if segment market. If not (if everyone uses coupons), just cut the price.
Coupon is a credible signal of price sensitivity (of low WTP customers)
Problem with software agents (HotelsCombined, Trivago, Price Scan): promotional pricing doesn’t work any longer because of commoditization.

24. Lessons Version your product Delay, interface, resolution, speed, etc.
Add value to online information compared to offline version (ex: text or word search)
Use natural segments, otherwise use 3 (Goldilocks Pricing)
Control the browser to version ur info using Java.
Bundling may reduce dispersion (variation in WTP)
Nonlinear pricing can be used to let consumers build their own bundles
Promotional pricing makes sense if it helps you segment the mkt.

25. Goldilocks and Three Bears
Deep in the forest lived Daddy Bear, Mommy Bear and Baby Bear. "Our porridge is too hot," said Daddy Bear. "Let's go for a walk while it cools.“ Someone else was out for a walk- a little girl called Goldilocks. Goldilocks was very hungry-and very naughty! "i will eat this porridge!" she said. The first bowl of porridge was too hot. The second bowl was too cold. "But this porridge is JUST RIGHT!"said Goldilocks. "Now I want to sit down!" said Goldilocks. The first chair was too soft and squishy.
The second chair was too hard and smooth.
"But this chair feels JUST RIGHT!" said Goldilocks.
"I'm tired," yawned Goldilocks, "so i'll find a place to sleep.“
The first bed was too rough and scratchy.
The second bed was too frilly and flouncy.
"but this bed is JUST RIGHT!" said Goldilocks.
Soon the bears came home.
"someone's been eating my porridge," growled Daddy Bear.
"Someone's been sitting in my chair," grumbled Mommy Bear.
"Someone's been sleeping in my bed, and there she is!" squealed Baby Bear.
Goldilocks ran out of the door and they never saw her again.

26. Which one has more ads? Offline Newspaper Online Newspaper
More # of ads and more targeted (more valuable thus more expensive)
No printing house, No distribution channels