Based on research by Andrew Gershoff, Ran Kivetz, and Anat Keinan
It seems like the most counterintuitive thing a manufacturer can do: spend money to downgrade a product, make it less valuable in the eyes of consumers, and cut the price. And degrading a product while reducing its price — for example, by spending money to add a chip that slows down a printer — also violates a basic norm for consumers, who expect that a higher cost of production should result in a higher quality product and a higher price. “To consumers, it’s unfair,” Professor Ran Kivetz says. “Why doesn’t the firm just leave the product as is and sell it at a lower price?”
But Kivetz argues that the practice, known as versioning, benefits consumers by providing a lower-priced model than might otherwise be offered. Versioning is better for firms than it might at first seem, too: it can eliminate the need to build and design new products from the ground up, allowing a firm to serve the high and low ends of the market with a variety of price points.
Beneficial or not, consumers are understandably wary. Kivetz, with Andrew D. Gershoff of the University of Texas and Anat Keinan of Harvard, conducted a series of studies designed to learn more about the conditions under which consumers balk at versioning and whether that response can be strengthened or weakened.
They found that if versioned products were sufficiently differentiated, even somewhat superficially, consumers were more receptive to the versioned product and less likely to find the practice unfair. For example, when participants were presented with a 512MB MP3 player with a blue metallic case versus a versioned 256MB MP3 player with a silver metallic case, they were less likely to view the versioning process as unfair. Similarly, when the researchers explained that a chip to slow a printer was added at the beginning of the production process, participants viewed this as more fair than when the chip was added at the end of the production process. Participants were also more willing to embrace versioning as fair if the high- and low-end versions were sold through different stores or channels. “The more you differentiate the end products, the better consumers feel about it,” Kivetz says.
To Kivetz and his co-researchers, these results suggest that firms can counter the perception of versioning as unfair through distribution and consumer education, especially with careful communication about the process and its benefits. “Given the degree to which social media continues to gain traction across a wide variety of consumer segments, consumers are controlling, disseminating, receiving more and more product information from their peers, not just marketers,” Kivetz points out. “As consumer awareness of versioning increases, firms need to be prepared — and that means taking care in how they communicate about product lines made possible by versioning.”
Ran Kivetz is the Philip H. Geier, Jr. Professor of Marketing at Columbia Business School.
READ THE RESEARCH
ABOUT THE RESEARCHER
Ran Kivetz
Professor Ran Kivetz is a tenured professor at Columbia University Business School, where he holds the Philip H. Geier endowed chair. Professor Kivetz...