Packaging, Price, Value and ROI

A business usually has a core product. After experiencing some success with the product, the company may come under price pressure from customers. So it packages ancillary products with the core product in order to maintain the price. This is merely a symptom of the natural process of commoditization as competition increases.

Some companies fail to realize that, though they may have invested in product improvements, it is customers who ultimately determine the value of the product. Giddy with the past success of the core product, they assume that it is still as valuable as it ever was. Although the price charged for it may be the same as it ever was, value is shifting away from the core and toward the ancillary products. The reason this is a mistake is that the core attracts additional investment based on the large revenue attributed to it, but the returns on this investment are diminishing. The peripheral products are starved for investment because small revenues are attributed to them, but the returns on even small investments are superior.

Tags: Business, Economics

Updated at: 21 February 2008 12:02 AM