Selling Information Products: Sale Channel Selection And Versioning Strategy

With the advancement of information technology and internet progress, informationproduct has nowadays become an indispensable part of our lives. It is different fromtraditional physical products in several aspects such as zero marginal production cost,reproduction and network externality. Due to these special characteristics, its salemode is different. The research focuses on sale channel selection and versiongstrategy. In the term of maximizing the supplier’s profit, the profit model isconstructed and solved by applying the first order condition or numericallyexperiment. Finally, the conclusions are as a guidance to sell information produces intheory and practice. The main research topics are presented as follows:(1) Two sale modes of copyright are compared. An information product supplychain model is constructed, which consists of information product content provider, asthe stackelberg leader, retailer and consumers. The copyright can be sold based on twopolicies: fixed-fee policy and per-copy policy. In order to determine the best policyfrom the perspective of the profit, product quality and demand, the model ofmaximizing the profit is developed, subjected to the assumption of heterogonousconsumers and that the valuation for the product is distributed with an increasinghazard function. The conclusion showed that the supplier prefers the fixed-fee policyto the per-copy; on the contrary, the retailer prefers the latter policy. However, thefixed-fee policy is more preferable from the whole supply chain’s profit.(2)The research topic of determining the best sale channel for the supplier isexplored. The information product manufacturer can distribute their products throughmany kinds of channels,e.g. online direct sale and traditional retail marketing. Whichchannel and sale mode is preferable for the manufacture? The product quality, theprice, and the customer acceptance for direct channel are the decisive factors. Throughanalyzing the decision behaviors of the manufacture, retailer and consumer, the modelof maximizing the manufacture’s proft is presented in the presence of both direct andretail channel. Based on the comparison among different channels, the paper showsthat when the valuation for the information goods has a uniform distribution, themanufacture prefers the Fixed-fee policy through the direct sale channel, whereas thePer-copy policy is preferable through dual-channel. The best sale channel strategy is to distribute the high-quality version through the direct sale channel and thelow-quality version through the retailing channel for the manufacturer.(3) Versioning strategy based on network externality is analyzed. Versioningstrategy is widely applied in the information product pricing, and is more preferable inthe presence of network externality. The paper explores the versioning strategy basedon the assumption of two dimensions of consumers’ heterogeneity in valuation for theproduct and network effect. Comparing three strategies of non-versioning, versioningstrategy with and without free low-end version, it is shown that versioning is superiorto one-version strategy, and versioning without free low-end version is moreprofitable than the counterpart with free version. In the context of versioning strategy,the profit increases with the great quality difference. The strategy of versioning withfree low-end version can be effective on the condition of quality difference betweenthe two versions of the product. The paper shows that the versioning strategy with nofree low-end version is more profitable than the strategy with free version in thepresence of positive and negative network externality, whereas the non-versioningstrategy is the first priority if the negative network effect dominates the market. Inaddition, given that the network-generated value is lower than network-independentvalue is presented, the non-version strategy is preferable to versioning.