Designing the Right Product Offerings

Designing the Right Product Offerings
David S. Evans and Karen L. Webster.
MIT Sloan Management Review, Fall 2007

Businesses are constantly making decisions about which products and services will attract customers.  In an era driven by the mantra of “give customers what they want,” some businesses feel compelled to offer many different versions of their products.

This development is relatively new.  For years, blue jeans traditionally came in only one shade of blue and in only one style, but now they are available in a dizzying array of styles and colors.

But of all the potential products and product lines that companies can offer, how can they decide which ones to offer to maximize their profits?

In “Designing the Right Product Offerings,” in the Fall 2007 MIT Sloan Management Review, by David S. Evans and Karen L. Webster present a framework for balancing customer demands for more choices with the costs of providing those choices.  Evans is the founder of Market Platform Dynamics, a management consulting company, and Webster is the president of the company.

To illustrate what product architects face, consider a simple case where companies can create product versions from two distinct components.

The first component could represent the base product, such as a credit card, while the second component could be an upgrade option, such as concierge services for premium cardholders.

Or the two components might represent two products that could be sold separately — for example, a hotel room and access to high-speed Internet — but could also be combined into a package:  hotel guests getting free high-speed Internet connections in their rooms.

Using the two components, it is possible to offer five distinct products.  Each component could be sold separately, or they could be bundled together.

These five products are:

1.       The à la carte offering, using either the first or second component.

2.      The specialization offering, using either component.

3.      The all-in-one offering, using a bundle of both components.

4.      The basic/premium offering, giving consumers a choice of the first component or a bundle for a higher price.

5.      The have-it-your-way offering, giving consumers their pick of either component or the bundle.

Let’s take a closer look at these five product possibilities.

With à la carte, companies can treat ...