Sample frameDay 227·Product · Packaging

Good morning. One product, one price, and a market full of people who'd happily have paid something else.

Product.

Versioning

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The question

Look at the cheapest thing you sell and the dearest one, then say what actually differs between them — not the price, the product itself: is that difference a dimension your best customers would genuinely pay to escape, or a handful of things somebody switched off on a Thursday so the tiers wouldn't look identical?

The idea

Carl Shapiro and Hal Varian were both economists at the University of California, Berkeley — Shapiro at the Haas School of Business, Varian the founding dean of the School of Information Management and Systems — when they published Information Rules in 1998. Their starting point is that an information good costs a fortune to make once and almost nothing to make again, so cost tells you nothing useful about price. Value does, and value differs person to person. Since you can't read willingness to pay off a buyer's forehead, you ship the same underlying thing in several editions and let people sort themselves. What Shapiro and Varian supply is the list of axes you can version along — delay, speed, resolution, capability, comprehensiveness, support and, memorably, annoyance — not one of which is the price. The harder half of the argument belongs to Raymond Deneckere and Preston McAfee, in the Journal of Economics and Management Strategy in 1996, under the title 'Damaged Goods'. They open with IBM's LaserPrinter E, which printed at half the speed of the LaserPrinter because IBM had added parts that held it back, and they note Intel's 486SX, a 486DX with the maths coprocessor switched off. The cheap edition cost more to build. Their finding is that the damage can leave both sides better off — the firm earns more, and buyers who would otherwise be priced out get served at all.

The framework

01
The axis you degrade is the whole decision.
Versioning only pays where your buyers genuinely disagree about something, and the list of candidates is longer than most teams use: delay, speed, resolution, capability, comprehensiveness, support, how much inconvenience you're willing to inflict. Note what is not on it — seats, gigabytes, transactions. That's the unit you meter by, a separate decision; this one is the thing you deliberately make worse. Choose the wrong axis and you've built three boxes nobody sorts themselves into. So work from the segments rather than from the shelf — name a real customer at each end, and write the sentence that separates them in terms of the work they do, never the budget they hold.
02
Design the degradation, because the market won't do it for you.
Deneckere and McAfee's point is that the cheap edition gets manufactured rather than merely reduced. IBM built a slower printer; Intel shipped a chip with a working part disabled; both spent money making something worse, and both were right to. Start from the complete product and decide what you will withhold, deliberately, with the reason written beside it. The tier list assembled in a meeting out of whatever happened to be easy to switch off is the other version of this exercise, and it is the common one.
03
Could your best customer live on the cheap edition?
That's the fence, and once the editions exist it's the only test that matters. If a buyer at the top of your value range can do their whole job on the entry version, you haven't versioned anything — you have published a discount and left people to find it. Walk the highest-value job you serve through the cheapest edition, step by step, and mark the point where it turns genuinely uncomfortable. No such point means the difference between your editions is decorative.
04
Packaging is Product's decision, and it ratchets one way.
Day 46 settles the number; what sits inside each box is yours, and the two get decided in different rooms by different people far more often than anyone admits. Treat the line-up as a standing decision with a review date, because in practice it moves in one direction only: capability added to the entry edition is very hard to retrieve, and every removal reads to existing customers as a price rise they didn't agree to. Put new work into the edition you want to grow, and revisit the whole set when your segments shift rather than when the price does.

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