VERSIONING

Alternative approach to price segmentation from add-ons and other individual

unit price structures.

Like add-ons and unit pricing, versioning attempts to price-segment

customers.

Different variations of a similar product are sold simultaneously.

Versioning can be found in tangible goods markets at the retailer, manufacturer,

and industrial levels.
VERSIONING
Multiple reasons that versions are often preferred over pure individual item
structures, both by firms and customers:

Versioning may deliver cost savings for the firm.

The firm also may reduce challenges for customers.

Versioning also taps into psychological effects.

PRICE SEGMENTATION WITH VERSIONING
Strategies using versioning often rely on a good-better-best progression of
products. The good product is priced lowest and has the fewest features and
benefits; it is an entry-level product. The good product is feature-deprived,
providing the minimal functionality to satisfy customers. In an extreme form, it is
a stripped-down version of a higher-value product, with the bare-bones
features required to compete within the product category.

Good-better-best strategies can easily be understood with a price-to-benefits

map. As products progress from good to better to best, the price and benefits
provided increase. Some customers are willing to pay more than others, when
the willingness to pay and the benefits demanded follow a normal bell curve.
PRICE SEGMENTATION WITH VERSIONING

Example of Price Segmentation with Versioning:

An example of versioning is found in the Smartphone industry. Tech Companies

usually provide two or three versions of their products with different numbers of
benefits that you can get from the product.
PRICE SEGMENTATION WITH VERSIONING
The Iphone 5 by Apple
PRICE SEGMENTATION WITH VERSIONING

Implementing a good-better-best strategy requires an understanding of the

heterogeneity in benefits demanded. Marketers must determine which features
should be used to enhance a product and which can be omitted to deprive a
product of certain benefits but still remain within the category

Different versions must deliver meaningfully different benefits. The feature and
benefit differentiations between the products act as segmentation hedges
between the utility-sensitive customers and price-sensitive segments.
PRICE SEGMENTATION WITH VERSIONING

Features can be stripped out from the full product to serve those with a lower
willingness to pay. Stripping out these features may cause the firm to suffer
additional development costs in making the feature-deprived version.

In some markets, customer heterogeneity in benefits demanded will correlate

with willingness to pay. For instance, some customers are satisfied with a simple
charge card, while others desire greater customer service and are willing to pay
for enhanced benefits. In other markets, customer heterogeneity in benefits
demanded does not correlate with willingness to pay
INFLUENCES ON A VERSIONING STRATEGY
To understand the value of versioning, we must look at the
influences that give rise to a versioning strategy. These
include marginal cost issues. However, in all markets, there
are some interesting neuroeconomic and consumer
behavioral issues that inform a versioning strategy or enable it
to deliver higher profits than would be gained through an
additive per-unit pricing strategy.
MARGINAL COST
Versioning strategies have often been defended from a marginal cost standpoint. If the
sum marginal cost of producing independent products is greater than the marginal cost
of producing a product that delivers the same benefits.

Hard disk drive manufacturers find it less expensive to produce a single hard disk drive
with twice the storage capacity than to produce two individual hard disk drives.

Software manufacturers face near-zero reproduction costs, but non-zero marginal

packaging and selling costs, and therefore they would often reap higher profits through
versioning over ass-on price strategies.
PROSPECT THEORY

Everybody like gains, not pains.

Prospect theory indicates that customers generally prefer one large pain rather than
two smaller pains to the same total larger pain.

Therefore versioning dominates over itemized pricing (adding pains).

PROSPECT THEORY

Three common techniques highlight the gains and benefits.

Marketing communications often delineate the value points of the enhanced

version compared to the base product to highlight the added benefits.

Packaging often varies between the base product and the enhanced version
to highlight the value differential.

The product form factor can be differentiated between the base product and
the enhanced version to clarify the value differential between the product
visually.
EXTREME AVERSION

Extremeness aversion is the tendency of choice makers to avoid extreme

options and chose an intermediate option.

The idea of extreme aversion is simple.

VERSION RANGE, ORDER AND NUMBER EFFECTS

Short range order refers to the regular and predictable arrangement of the
atoms over a short distance.

Long ranges is the property of crystal structures.

A version number is unique number or set of numbers assigned to a specific

release of a software program.
VERSION RANGE, ORDER AND NUMBER EFFECTS
The RequireMavenVersion and
RequireJavaVersion rules use
the standard Maven version
range syntax with one minor
change for ease of use
DISCOUNTING AND CONSTANT, DIVERGENT OR
CONVERGENT PRICE DIFFERENTIALS
With constant price differentials after discounting, both the base and enhanced
versions receive the exact same monetary value of discounting and thus the
difference in the net price paid is the same as the list price differences.

With divergent price differentials after discounting, the base product will be
discounted more than the enhanced version, and thus the price differential
between the versions increases.

With convergent price differentials after discounting, the base product will be
discounted less than the enhanced version, and thus the price differential
between the versions decreases
DISCOUNTING AND CONSTANT, DIVERGENT OR
CONVERGENT PRICE DIFFERENTIALS
In a versioning strategy, the highest-priced version typically targets more utility-
sensitive customers, and the lowest-priced version targets more price-sensitive
customers.

Promotions in general are more likely to be noticed by a price-sensitive

customer than a utility-sensitive customer.

Selecting the optimal price discounting pattern between a constant, divergent,

or convergent price differential clearly requires careful analysis.
MIXED VERSIONING AND ADD-ON PRICE STRUCTURES

Feature-enhanced versions include many of the optional features available with

feature-deprived versions, while also granting access to a wider variety of
further enhancements.

Versioning can be used profi tably in conjunction with an add-on pricing

structure.
SUMMARY
In versioning, different variations of a similar product are sold simultaneously.
Some versions offer more features or benefits, while others offer fewer features
and benefits. As the product spectrum moves from feature-deprived to feature
enhanced, the price likewise increases.

Versioning strategies often follow a good-better-best progression. The good

product is priced lowest and has the fewest features and benefits. The best
product is priced the highest and has the most features and benefits. In
between lies the better product, which is priced in the middle and loaded with a
modicum of features and benefits.

Versioning strategies have often been defended from a marginal cost

standpoint. If the sum marginal cost of producing independent products is
greater than the marginal cost of producing a product that delivers the same
benefits, then the manufacturer will achieve greater profit with a versioning
strategy over an add-on strategy
SUMMARY
According to prospect theory, it is better to unbundle gains and bundle pains.
The many benefits delivered through the product are sources of gains. Each of
these gains can be highlighted and isolated during a purchase decision to
encourage customers to select a higher-value version. As to the dictate of
bundling pains, versioning bundles the pain of payment by asking customers to
pay a single price for the litany of benefits, rather than a separate price for each
benefit. In this way, versioning strategies encourage customers to purchase a
higher level of benefits than they would under itemized pricing; therefore, the fi
rm can earn higher profits from versioning.

Extreme a version has been used to explain the tendency of customers to select
the middle option within a versioning offering, and not necessarily because it
delivers them the best utility for the price paid, but because consumers are
simply averse to buying either the lowest-quality or highest-priced product.
SUMMARY
In managing a number of versions, executives must consider cost and
psychological limitations to the number and range of products that they will offer.
In general, fi rms should highlight the highest-priced version and present
products in descending order

The discounting policy in a version price structure should consider the effects
that discounting one version may have on the sales of all other versions. Cross-
product cannibalization, market-segment-dependent responses to discounts,
and the potential for sales tied to the version selected all influence the optimal
discounting policy in a versioning strategy