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Key Notions of Versioning Key Notions of Versioning and the Information Goodand the Information Good

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What is Information?

Information is anything that can be digitizede.g. text, images, video, music, data

The value of information for the consumer is in itself rather than how it is stored, but how it is stored and distributed can have profound implications for how much consumers pay for information.

Information has special production cost characteristics

Information also has special demand characteristics

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Production Cost Characteristics

Information is expensive to produce initially, but cheap to reproduce.

There is no significant capacity constraints for production

There is possibility of economies of scale:Declining average total cost curve.

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Consumption Characteristics

• Information goods are usually experience goodsInformation goods are usually experience goods

• consumers often cannot evaluate such consumers often cannot evaluate such products products without consuming themwithout consuming them

• Network externalities Network externalities possiblepossible

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Marketing Information GoodsMarketing Information Goods

► If you are selling an information good, If you are selling an information good, you have to differentiate your product you have to differentiate your product and/or seek cost leadershipand/or seek cost leadership

►customize your productcustomize your product►sell multiple versions tailored to different sell multiple versions tailored to different

customerscustomers►seek first-mover advantagesseek first-mover advantages

For more on this topic,see C. Shapiro and H. Varian,“Information Rules”

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Why Differentiate Your Why Differentiate Your Product?Product?

►Market segments exist Market segments exist ►people’s value for information differspeople’s value for information differs

►Product differentiation is a source of Product differentiation is a source of market powermarket power

►marketing, branding, developing loyal marketing, branding, developing loyal customer basecustomer base

►Product differentiation is an aid to Product differentiation is an aid to price discriminationprice discrimination

►charging different prices for similar productscharging different prices for similar products

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Strategies to maintain customers and positive economic profit:

Differential Pricing

-Personalize the product to the customerKnow the customer: collect demographics, track behaviore.g. Amazon’s book recommendations

-Version the productOffer a product line and let customer choosee.g. Airline pricing

-Group pricingPrice based on group membership/identitye.g. New York Times rates

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Some Dimensions along which to version information goods:

- Time (Fed Ex)

- User Interface (NY Times on web versus paper)

- Speed of operation (Mathematica)

- Format (Lexis/Nexis, Victoria’s Secret)

- Features (Tech support for software, printer capability)-Etc.

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Versioning of an Information Good: Key Questions

1) Is the product “versionable” without significant extra cost?2) Can you find original ways for versioning?3) Can you version physical goods? How?