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)

Requirements1. 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 Flow Cost 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