Innovation
Workout
Complementary Assets
Definition
• Two assets are complementary
• if the consumer usually purchases them
separately,
• but must use them together to realize
their full value
• Classic example
• safety razor
• Gillette’s patented, high profit-margin
stamped steel disposable blade
• Urban myth:
• the story is told that Gillette gave his
razors away and made his millions by
selling the blades
• but this is a myth, as his razor retailed
for a substantial $5
• almost $134 in 2006 dollars – half the
average workingman's weekly pay
• Still, it sold by the millions, with tens of
millions of blades to follow
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017
Pricing
• Two main types of pricing strategy exist for
complementary good and its base good:
• Pricing the base good at a relatively low price to the
complementary good
• this approach allows easy entry by consumers
• e.g. consumer printer vs ink jet cartridge
• Pricing the base good at a relatively high price to the
complementary good
• this approach creates a barrier to entry and exit
• e.g. golf club membership vs green fees
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017
Razors and Blades
• Bundling (or tying) of the sales of complementary assets
• present sellers with unique competitive strategies by which they can profit from
those complementarities
• Some kinds of bundling, especially by contract, have historically been
regarded as anti-competitive (and thus illegal)
• it is implied in this that one or more components of the package are sold
individually by other businesses as their primary product, and thereby this
bundling of goods would hurt their business
• Bundling may also be a form of price discrimination:
• people who use more blades
• pay disproportionately more than those who just need a one-time shave
• Bundling may be used with patents or copyrights to help protect entry into a
market,
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017
Types of Bundling of Complementary Assets
• Mixed bundling occurs when consumers are offered a
choice between the purchasing the entire bundle or one
of the separate parts of the bundle
• Pure bundling occurs when a consumer can only purchase
the entire bundle or nothing
• Pure bundling can be further divided into two cases:
• Joint bundling: the two products are offered together for
one bundled price
• Leader bundling: a leader product is offered for discount if
purchased with a non-leader product
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017
Vendor lock-in
• Vendor lock-in (a.k.a. proprietary lock-in, or customer
lock-in)
• makes a customer dependent on a vendor for products and
services, and
• usually prevents customers from using another vendor without
substantial switching costs
• Lock-in costs which create barriers to market entry are
anti-competitive
• One way to create artificial lock-in for items without it is
to create loyalty schemes
• frequent flyer miles
• points systems associated with credit card offers
• loss or cost when switching to a competitor (telephone)
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017
Durable and Non-Durable Parts
• King Gillette’s razor and blades business model involves products
which regularly consume some material, part, or supply
• A reusable (or durable product) is sold inexpensively, and
• the company draws its profits from the sale of consumable parts that
the product uses
• To ensure the original company alone receives the profits from the
sales of consumable, they use a proprietary approach to exclude
other companies
• Inkjet computer printers are a common example of this model.
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017
The Workout
• Pick a specific consumer product and think
through:
It’s function
The process of using it
The objective it is supposed to achieve
• Make a list of its your Products Attributes
• Now make a list of Complementary assets, skills or
other attributes
• that are not controlled by you,
• but are required to make your product salable
• ‘Invent’ a new consumer product
• By reassembling your complementary attributes into a
new product
J. Christopher Westland, Global Innovation Management, 2nd Edition, Palgrave 2017