Versioning Information Carl Shapiro and Hal R Varian

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

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

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

Demand Curve Price (Dollars) $60 $40 $20 1 2 3 Quantity (Millions)

Example : Apple i-Pod n n n 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 n Hardback/paperback n n 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 Hardcover Boxed Set $127. 15 v/s Harry Potter Paperback Boxed Set $28. 66 Movie/video n n 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 n n n n Delay (Fed Ex, CNN Stock Quotes) User Interface (Borland JBuilder) Image Resolution (World View Images ) Speed of operation (IBM Laser Printer) Format (Mp 3/CD/DVD/Di. VX/MP 4) Features (Netscape Navigator) Capability (Kurzweil) Comprehensiveness (IEEE Explore)

Delay Examples n Fed. Ex n n n Premium Class : delivery before 10 am. Next Day Service : delivery anytime next day (but never before 10 am). CNN Stock Quotes http: //money. cnn. com/ n n 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 n Mathematica n n Student Version : Has floating point co-processor disabled slowing down mathematical calculations. Wolfram had to incur additional cost to implement this. IBM Laser Printer n n Series E Printers 5 pages/min [ put additional chip to insert wait states] Standard Printers 10 pages/min

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

Making Self-Selection Work n n n May need to cut price of high end May need to cut quality at low end Value-subtracted versions n n n 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 n n 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 n n Windows NT workstation ($260) / Server($7301080) 10 simultaneous session v/s unlimited in server

Online and Offline Versions n n n Quality differences (text/sound) Wall Street Journal (Subscription) Dyson Dictum: think of content as free n n National Academy of Science Press n n n Focus on adding value to online version 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) n n n 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 n n Analyze market Analyze product

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

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

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

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

Bundling n n Bundling is a special form of versioning in which two or more distinct products are offered as a single package Microsoft Office n n n 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? Mark Noah MS Word $120 $100 Power point $100 $120 Profits: With Bundling: $440 Without: $400 Conclusion : • Bundling increases revenues. • Bundling reduces the dispersion in willingness to pay. • Introduces new products to consumers

Information Bundles n Magazines and newspapers n n Customized bundles n n Variation in how much users will be willing to pay for different articles. Select your own music and make a CD. Nonlinear pricing n n n In previous example sell first item for $120 Sell second item for $100 Example: Music. Maker (first - $1. 20 , second - $1)

Promotional Pricing n n Sales, coupons, rebates (make it hard to redeem) Only worthwhile if segment market Credible signal of price sensitivity Problem with software agents n n 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 n n n 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 Ford GM Chrysler Do you prefer to buy products in bundles?

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

THANK YOU !