Companies mangle their own products and services to extend product lines

Consumers assume that the phone, car, camera or software with premium features costs more because it’s more expensive to produce.

Sometimes that’s true.

Sometimes the cheaper version is the same in every way, but the company has removed a part or inserted code to disable the premium features to create basic and deluxe editions at different prices.

It’s called “versioning” and it’s common pricing practice. But according to new research from the McCombs School of Business at the University of Texas at Austin, a growing number of consumers feel it’s unfair.

“Recently, consumer advocates, bloggers and journalists have been using less than flattering terms to describe the versioning production method, calling it ‘crippleware,’ ‘product sabotage,’ anti-features,’ ‘defective by design,’ and ‘damaged goods,’” according to the researchers.

A frequently cited example, according to the paper, appearing in the Journal of Consumer Research, is IBM’s slower version of its laser printer, produced by inserting a special chip in each unit whose sole purpose was to cut printing speed in half.

Other examples include the Sony PlayStation 3. When it was launched, both the 20-gigabyte (GB) and 60 GB consoles had all the components needed to play high-definition Blu-ray discs, except the connection needed to do it was disabled on the 20 GB model.

Apple has been criticized for disabling certain functions on the iPhone and iPod Touch. Federal Express has been accused of holding back second-day delivery packages that arrive early. Other products that have come under fire include Microsoft Windows Home Edition and Verizon phones, according to the researchers.

Although it may feel instinctively wrong to consumers, versioning benefits both buyers and sellers, says the paper’s lead researcher Andrew D. Gershoff, an associate professor of marketing at McCombs.

Charging some customers more allows a company to charge other customers less, in effect using the larger profit made from wealthier consumers to make up for the lower profit margin on the product sold at a lower price.

Offering the same product to everyone at the same price would mean setting a price somewhere in the middle, which some customers could not afford, and which would fail to capture the ability to pay of the customers with more money to spend.

“Sometimes the only way to be profitable is to have different products at different prices,” says Gershoff.

Everyone has come to understand that two seats on the same flight may have been sold for wildly different prices, Gershoff points out.

He says people would be more likely to accept the practice in electronics and other products if they didn’t perceive it as unfair. They are also more likely to accept the practice if the differences between the higher and lower priced items are obvious and numerous.

“I don’t expect that this reaction will go on forever. As consumers come to learn that versioning is a common practice, it will be perceived as less unfair,” says Gershoff.

Mark Zbaracki, an associate professor of general management, Richard Ivey School of Business, says companies now have the data to price products differently depending on the individual consumer.

“What electronic data capture allows you to do is capture each individual’s willingness to pay,” he says.

But while people do accept that two different passenger on an airline may have paid different prices for the same trip, they’re not likely to accept paying more for an apple at the supermarket than the person beside them, or more for a book on Amazon than someone else.