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.
Example of • An example of versioning is found in the airline
industry. Airline companies usually provide two or
Price three levels of seats, such as economy class seats,
Segmentation business class seats, and first-class seats.
with
Versioning.
ECONOMY CLASS (Cheapest flight)
BUSINESS CLASS
FIRST CLASS (Most expensive flight)
• 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.
• 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
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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.