Delayed multiattribute product differentiation

Abstract

We develop a two-stage model for versioning products with respect to both vertical and horizontal attributes. At first, a firm positions its top-quality "flagship" product in a market with an imperfectly known distribution of tastes and reservation prices. In the second stage, the firm learns these consumer characteristics and has the option of extending its product line by versioning the flagship product using pure horizontal differentiation, quality degrading, or both. The firm's nonconvex versioning problem is solved analytically for the two-product case. We find that ex ante extending the product line through vertical differentiation is optimal for low marginal cost of quality (development cost); otherwise pure horizontal differentiation is superior. Given quasilinear consumer preferences and a uniform distribution of consumer characteristics, versioning with respect to both horizontal and vertical attributes is never optimal. Under delayed differentiation the optimal policy is contingent on the observed demand realization and may lead to horizontal cannibalization and price dispersion for equal-quality products. The firm tends to increase its investment in product quality unless it adopts a state-contingent policy of horizontal versioning for high and vertical versioning for low demand realizations. Following a state-contingent policy, the optimal upfront development effort may be significantly lower than under full ex-ante commitment. The option value of delayed differentiation is generally nonmonotonic in the firm's development cost.

Produktdifferenzierung für Software-as-a-Service-Anbieter

“…Unter vertikaler Differenzierung wird das Anbieten einer Hauptfunktionalität in mehreren Versionen unterschiedlichen Umfangs zu verschiedenen Preisen verstanden (Bhargava und Choudhary 2001). Unter horizontaler Differenzierung wird das Aufteilen und Anbieten von Funktionalität auf parallele kleinere Versionen verstanden, um Kunden, die nur einen gewissen Teil der Funktionalität benö-tigen, zu adressieren (Weber 2008). Da die Differenzierung von SaaS-Produkten Eigenschaften beider Dimensionen aufweist, wird eine integrierte Betrachtung beider Dimension gewählt und allgemein von Produktdifferenzierung gesprochen.…”

“…Daher würde Kunden, die nur einen Teil der Funktionalität nachfragen, die Möglichkeit eröffnet, nur diesen zu erwerben (Bhargava und Choudhary 2001 (Choudhary et al 2005). Da die ZB von diesem spezifischem Bedarf abhängt (Weber 2008), hat es (fast) keinen Einfluss auf das Budget der Kunden, wenn die nicht benötigte Funktionalität aus der zu erwerbenden Version ausgespart bleibt. Daher können Anbieter höhere Preise pro Teilfunktionalität erzielen, je mehr ihr Angebot dem spezifischen Bedarf entspricht.…”

Information Personalization in a Two Dimensional Product Differentiation Model: Impact of Market Structure and the Quality-Fit Ratio

“…[17] solve two dimensional model for equilibrium price and product differentiation (both horizontal & vertical) and concluded that it is optimal for a firm to differentiate fully only on one dimension i.e., follow a MaxMin strategy. [26] model the versioning policies of a monopolist when it can extend the product both horizontally and vertically. [10] uses a two dimensional model to analyze the adoption of remote access in the banking industry.…”

Special Section: Competitive Strategy, Economics, and Information Systems

“…a well-known issue in traditional and e-commerce retailing is the extent to which products should be personalized to the desires and needs of the firm's potential consumers, who search for them in different ways [6,10,22,27,29]. the third paper of this Special Section is related to this general theme.…”