Provision of Optional Versus Standard Product Features in Competition

Subramanian Balachander, Esther Gal-Or, Tansev Geylani and Alex Jiyoung Kim
Article Snapshot
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Key Takeaways

What? When choosing among competing brands of a product such as automobiles, customers consider inherent quality of the brands as well as available product features.

So What? High-quality firms offer many features as standard where low quality firms offer the same features as optional.

Now What? Brands known for high quality products should not stripped-down versions of its product unless the cost of added features is especially high. These companies should offer fully loaded options to appeal to high-end customers. Brands perceived to be of a lower quality than those of its competitors should offer a stripped-down version of its product to appeal to price-sensitive users and should only offer "fully loaded" options if the variable cost of the added features is low.

Full Article

Article Snapshot: Executive Summaries from the Journal of Marketing

We analyze the relationship between a brand's quality image and its propensity to offer a wider product line, starting from a relatively stripped-down base model to a more feature-rich model, and show that higher quality brands tend to offer narrower product lines loaded with standard features.


Should a firm offer additional product features as an optional component or as a standard component in its base product and how would this decision depend on the firm’s quality positioning?
These results point to an asymmetry in the propensity of high- and low-quality firms to offer stripped-down versions (i.e. the base product without the added feature) of the product, in that a low-quality firm generally prefers to offer a stripped-down product in its product line.


Research Question

In the US auto market, high-quality firms tend to offer product features as standard while low quality firms  offer them as optional. There is limited research on how consumer value for, and cost of added features, affect competitors’ product line width through optional or standard features.

Methods

The authors used an analytical game-theoretic model to show that because of competitive and customer segmentation reasons, a low-quality firm would offer product features as optional while a competing high-quality firm would offer product features as standard components. They explored this asymmetry in the propensity of high- and low-quality firms to offer optional and standard features with their product using data from the US passenger car market and find empirical support for our model.

Findings

A low-quality firm would offer an additional product feature as an optional component, i.e. offer a feature added product as well as a base product, if it chooses to add the feature to its product. On the other hand, a high-quality firm would offer the feature as a standard component unless the cost of the feature is high.

Implications

Consumers may wonder why their favorite high-end brand does not offer an affordable stripped-down product version. Our findings explain that high-end brands do not do so in order not to aggravate price competition and reduce profits. When deciding  on whether to offer a product feature as standard or optional, managers should consider their brand's quality positioning and the strategic effect of this decision on price competition and the benefits of market segmentation.

Questions for the Classroom

  • Should a firm offer additional product features as an optional component or as a standard component in its base product and how would this decision depend on the firm's quality positioning? Why? 

  • How would the cost of the feature affect the firm's decision on offering optional or standard features and how would this effect change with the firm's quality positioning? Why? 

  • Study  the product offerings of competing firms in a number of markets. Do higher- or lower-quality firms offer standardized product features in their product line? Why do you think this is the case? 


Article Citation: Subramanian Balachander, Esther Gal-Or, Tansev Geylani, and Alex Jiyoung Kim (2017) Provision of Optional Versus Standard Product Features in Competition. Journal of Marketing: May 2017, Vol. 81, No. 3, pp. 80-95.

doi: http://dx.doi.org/10.1509/jm.15.0208



Author Bio:

 
Subramanian Balachander, Esther Gal-Or, Tansev Geylani and Alex Jiyoung Kim
Subramanian Balachander is Professor of Marketing and Albert O. Steffey Chair, School of Business Administration, University of California, Riverside (e-mail: balachan@ucr.edu). Esther Gal-Or is Professor of Business Administration and Glenn Stinson Chair in Competitiveness, Katz Graduate School of Business, University of Pittsburgh (e-mail: esther@katz.pitt.edu). Tansev Geylani is Associate Professor of Business Administration, Katz Graduate School of Business, University of Pittsburgh (e-mail: tgeylani@katz.pitt.edu). Alex Jiyoung Kim (corresponding author) is Assistant Professor, Graduate School of International Studies, Ewha Womans University (e-mail: alex.kim@ewha.ac.kr).
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