Effects of the 2Is on Product

1. Effects of the 2Is on Product Individualization Interactivity • Users can redevelop aspects of the product to meet individual needs and preferences • Firms can provide more targeted, personalized products • Increases “stickiness” as customers invest time and effort to personalize • Enables responsive service interaction to provide augmented value to the product • Allows companies to quickly gather valuable customer data such as preferences • Customers can be directly involved in the product development process Product

2. What is Product • Core Benefit • most fundamental value offered by the product • Examples: core benefit for an SUV (Sports Utility Vehicle) is transportation • For eDiets.com, it’s dieting information • Basic Product • minimum product offering needed to deliver the core benefit • Examples: for an SUV, it’s the baseline model • For eDiets.com, it’s accurate information, advice and motivational support in order to lose weight • Augmented Product • features that go beyond a customer’s minimum expectations • Examples: for an SUV, it could be extended warranty, trade-ins and financing • Look at eDiets.com • What are some product augmentations? • How does eDiets.com make money?

3. Product Augmentation • Pre-Sales Support • Comparison shopping • Product selection guides • Product demonstrations • Bestseller Lists • eMail notifications of new products • Look at Landsend.com; try the Personal Shopper and Virtual Model • Fulfillment Options • Place orders through a number of channels: mail, email, 1-800, on-line, dealership • Download or receive on CD/DVD • Post-Sales Support • Send reminders for product maintenance • Electronically schedule appointments • On-line warranty filing and information • Tips and trouble-shooting • Community support • Customer Care

4. Product Assortment • Bundling • Personal computer with extra memory, scanner, printer… • Season tickets to sports events • Series subscriptions for theatre • Discounts for on-line subscription to Print subscribers of a newspaper or magasine • Complementary Products • Often add basic or advanced functionality, tools or enhancements to a product • created by the same company or third-party companies from a modular design or open-source software • Look at Quicken.com • What complementary products are available to the basic software? • Look at Apple’s webs site. • What complementary products are available for the iPod?

5. Product Levers Four Key Stages of Customer Relationships Awareness Exploration/ Expansion Commitment Dissolution • Core benefit • Presentation and packaging • Presentation and packaging • Attributes and features • Presales support • Fulfillment • Availability of complementary products • Customer-specific attributes and features • Upgrades • Customer-specific attributes and features • Post-sales support • Tiered service • Personalization • Customer care • Migration to different product in the portfolio • Customer care

6. Conclusion • Products come in two basic types: physical products and services. For all products there are three components to the overall value proposition: the core benefit, the basic product and the augmented product. • There are certain product development levers available to managers • The levers may be applied to both physical and service products • The product development levers can be organized by product type • Basic product development levers • Augmented product development levers • The 2Is allow firms to learn about their customers, personalize a product to meet customer preferences and offer customer relationship management tools to provide more value for customers and cut costs for product sellers

7. The Effects of the 2Is on Pricing Individualization Interactivity • Easy to convey prices to individuals • Allows more targeted price promotions • Different websites cater to different segments • Allows a larger buying and selling community • Allows prices to be changed easily • Allows consumers to easily check prices • Easier to understand and measure consumers’ reactions to price promotions • Easier to receive customer feedback on price, understand customers’ willingness to pay, and implement price-discrimination strategies Pricing

8. Pricing Strategies • Hi-Lo • Cyclical strategy • Usually prices are high • Regularly offer deep discount promotions (lower than EDLP below) • Get shopper’s attention and bring them to the store • Attracts price-sensitive consumers and stimulates demand • EDLP (Every Day Low Pricing) • Relatively low product prices • Fewer sales than Hi-Lo • SafeWay, WalMart, Amazon and Saturn are examples • Good to associate EDLP with Brand • Brand Pricing • Often a type of prestige pricing • Product is priced high • Value is associated with the perceived value of the brand • Often attached to a logo • Promotions • May offer lower pricing for an introductory “trial” period • However, difficult to change price later without frustrating consumers

9. Pricing Strategies • Dynamic Pricing • Prices are not set, but fluid • Internet makes it much easier to change prices without the traditional “menu (physical) costs” of doing so • Interactivity allows buyers and sellers to negotiate prices • Auctions are a popular dynamic pricing model on the internet • eBay is the most famous of these • The seller sets the minimum bid (price) onproducts • Bids are offered by potential buyers • Eventually the highest bidder wins out • Priceline has a different type of auction model • Buyers submit a price for airline tickets • Priceline checks with airlines to see if the bid is acceptable • If it is, the buyers credit card is debited and an itinerary sent to them

10. Pricing Strategies • Volume Discounts • Price decrease as more items are purchased • Examples include “buy two, get one free” • Two-Part Pricing • Often includes a subscription fee and then highly discounted items • Example might include a Music Club with a subscription and very cheap CD pricing • Frenzy Pricing • Consumers go into a frenzy to purchase the product • Often price is set low • May be a limited number of items available or a limited-time offer • Often generates a lot of media buzz • Often done prior to a busy buying time like Christmas • Can you think of some examples of Frenzy Pricing?

11. Four Key Stages of Customer Relationships Awareness Exploration/ Expansion Commitment Dissolution • Click-through promotions • Web-referral promotions • Bricks-and-clicks promotions • Web price discounts • Bundle • Frenzy pricing • Prestige • Price as a sign of quality • Hi-Lo • Dynamic pricing • EDLP • Targeted Promotions • Loyalty programs • Tiered loyalty programs • Wide variety ofpricing plans • Become affiliates • Volume-discount promotions • Targeted promotion • Two-part pricing • EDLP • Discontinue pricing promotions • Reconfigure loyalty programs • Decrease profit programs