Versioning

Digital goods may have unusual production economies, but they are nevertheless subject to the same market and competitive forces that govern any other product. And their success, too, hinges on traditional product-management skills: gaining a clear understanding of customer needs, achieving genuine differentiation, and developing and executing an astute positioning and pricing strategy.

The following will elaborate on some practical ways to set different prices for the same digital product, without incurring high costs or offending customers. Within microeconomics, this principle is called “price discrimination,” (and is commonly used to price things like movie tickets and books) but it basically entails offering the digital product in different versions designed to appeal to different types of customers. The version the customer chooses reveals the value they place on the product and the price they’re willing to pay.

Convenience

Restricting the time or place at which a customer can access the product. If you’re playing a game, perhaps you need to wait until your building is complete before you can proceed to the next step. Making customers “pay to play,” forces people to reveal the value they place on the product.

Comprehensiveness

Some customers will pay a premium for information that offers much detail. For example, news sites like The New York Times give away the current editions content on the web, but they sell access to their archives. This way they can attract readers and advertisers, but also segment customers that value past articles (eg. writers and researchers) but have no practical source for them.

Manipulation

Providing the user with the ability to store, duplicate, or print information.

Community

Restricting access to chat rooms and bulletin boards can identify the segment of users who place value on community in addition to the product itself.

Annoyance

If you give a free version, providing the ability to turn off advertisements can be a profitable tactic.

Speed

A common strategy for companies is to sell versions of the product that operate at different speeds. A famous example is when IBM offered two versions of its laser printer. The two versions looked and functioned the same, except the premium version could print pages at 2x the speed. A consumer lab later found that the two models differed because an extra chip had been added to the low end model to slow down its operation.

Support

Different products can come with varying levels of product support.

How Many Versions Should you Offer?

The actual number of versions should be guided by two considerations. (1) the characteristics of the product that you’re selling and (2) the value that different customers place on it.

If the product can be used in multiple ways, it probably makes sense to offer a diverse array of versions. However, if you’re making software for something like financial management, then there probably isn’t a wide variety of applications and limiting the number of versions is a better strategy.