Complementarity, compatibility, and product change: Breaking with the past?

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Complementarity, Compatibility, Breaking with the Past? Anirudh

and Product

Change:

Dhebar

Product managers are caught between a rock and a cliche’ (or two). The market response to “new” Coke seems to support those who argue, “If it ain’t broke, don’t fix it.” On the other hand, rapidly shrinking product life-cycles lend credence to the notion that the only constant is change. Preserving the status quo places both the product and the company on a fast track to obsolescence. To remain competitive, companies need a structured approach to understanding and managing product change. Anirudh Dhebar offers such an approach by focusing on three interrelationships in which a product is involved. These interrelationships, or complementarities, are between a product and its users, other products with which the product is typically used, and databases that are created and repeatedly modtfied with the help of the product. These complementarities define the context in which the product is used. By understanding them, a company can better anticipate how a planned product change will afSect consumers. In planning product changes, it is important to remember that effective use of the product requires compatibility between the product and its complements. A change that somehow disrupts the product’s complementarities can be viewed as a break with the past. In other words, such a change creates a new version of the product which is incompatible with the old version. This type of change results in a switching cost for the consumer. That is, the consumer may have to invest time, money, and effort to reestablishing the complementarities that have been disrupted by the product change. For example, if a new software release includes signtficant changes to the user interface, consumers must weigh the potential benefits of any new features against the time and effort involved in relearning the interface. If these switching costs are too high, the new release will fail in the marketplace. When planning product changes, a company must recognize the extent of a product’s complementarities, and assess how a break in any of them will afleet consumers’ switching costs. It is important to recognize that the switching costs and the perceived benefits of the new product version may not be the same for all consum.ers. Finally, careful consideration must be given to the implementation of the product change. For example, the company must decide whether to ofSeersome sort of bridge that helps consumers make the break with the past. The company also needs to decide whether the change is implemented throughout the product line or only in selected models. Address correspondence to Anirudh Dhebar, Morgan Business School, Soldiers Field, Boston, MA 02163. J PROD INNOV MANAG 1995;12:13&152 0 1995 Elsevier Science Inc. 655 Avenue of the Americas, New York,

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Introduction r April 1985, the Coca-Cola Company replaced its flagship Coke beverage with “New” Coke; in I Lipril 1987, International Business Machines Corpora.ion (IBM) replaced its PC, XT, and AT personal computer products with a new family of PSI2 computers: fnd in December 1992, Sony Corporation added the VIiniDisc recorder/player to its personal audio prodacts line. Each change was accompanied by a “break with the past:” New Coke discontinuity-a tasted different, IBM PSI2s featured a new architecture and the MiniDisc could neither read nor write on exis ing compact discs or audiocassettes. HOW successful were the new products? Arguably, Coc+Cola’s experience was a classic example of the adal e “if it ain’t broke, don’t fix it:” irked consumers prot :sred the decision to discontinue the old Coke, and the Idecision was soon reversed.’ IBM’s experience was mixed: personal computer users (and IBM’s competi ors) adopted some features of the new computers, but were not enthused about some other features. Significantly, the new PSI2 architecture did little to arrest the <{rowing competition from clone makers, who continuzd to sell PC-, XT-, and AT-compatible machines; IB%l: reintroduced the AT architecture in two new moclels in the PSI2 family-the first, one year later, in 1983, and the second, four years later, in 1991. As for Sonry, a “format war ” is on between Sony’s MiniDisc and Philips Electronics’ Digital Compact Cassette, which can read-but not write on-existing audiocassettl:s.2 ’ :See [25] for an interesting account of the introduction of New Coke, the ensuing consumer reaction, and the re-introduction of the old Coke as “Classic” Coke. ’ The new battle-over-formats brings back memories of the VHSBeta nax duel over a videocassette standard-a duel that Sony, championin;! Betamax, lost to Matsushita. JVC, and others, who put their full

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Coca-Cola, IBM, and Sony are by no means unique in implementing discontinuous product changes (see Table 13 for several instances from the consumer electronics, personal computer, and office automation industries-industries that offer the most compelling contemporary examples of such changes). Formally, what is a “break with the past” in the context of product change and why is it worthy of managerial attention? What are the ways in which product change might result in a break with the past? How would a break impact the consumer’s product-purchase decision? Why might the supplier want to change the product such that there is a break? On balance, should the supplier make the break? How should a break be implemented in the context of a product line (significantly, Coca-Cola replaced (old) Coke with New Coke, IBM replaced the PC-XT-AT line with the PS/2 line, whereas Sony added the MiniDisc record/player to its personal-audio-products line)? We explore these questions in this article. What emerges is not so much a theory or a set of definitive results, but a structured approach that underscores the consideration of a product in a systems context and requires a balanced evaluation of the supplyside motivation for and the demandside consequences of product changes that make breaks with the past. There is no paucity of examples to illustrate the main points in the article, and we offer a fair sharesuggestively, throughout the discussion; and in detail (a multigeneration look at Nikon camera bodies and lenses), in the penultimate section.

Complementarity, with the Past-The It Matters

Compatibility, and Breaks Concept and Why

Coke, IBM personal computers, the Sony MiniDisc, and the examples in Table 1 have at least one thing in

SKETCH

!;.ni:-udh Dhebar teaches at the Graduate school of Business AdI ministration, Harvard University. His research focuses on the dyI attics of products and product lines, with particular reference to t le consumer electronics, computer, office automation, and inforI lation products industries-industries that offer some of the most compelling examples of rapid, even turbulent, product change Anirudh has published articles on dynamic pricing in the presence of network externalities in Marketing Science and Operations Research. the demandside consequences of the rapid improvement of durable products in Marketing Science, retail sales promotions in the Joztrnal of Retding, and the management of the quality of quantitative analysis in the Sloan Managemeni Review.

marketing weight behind VHS. A critical determinant of the outcome of such format wars is the availability of software for the respective formats, and, in this respect, there is an important difference between the VHSBetamax story and the MiniDisc-Digital Compact Cassette tussle: this time around, Sony, with access to Sony Records (the succeeding label to Columbia Records), has greater power in the software market and, therefore, is in a better position to influence the outcome. Philips. for its part, owns Philips Records, Polydor, Deutsche Grammophon. and other labels, and with Matsushita taking an early licensing interest in the Digital Compact Cassette format, the eventual outcome is far from certain. 3 The Nintendo example is drawn from [lo]; the Nikon, Lotus, IBM, and Rolm examples are detailed in [S]; and the other examples in the table are compiled from press announcements and product brochures.

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Table 1. Examples

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New Product

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Product

Change

Positioning With Respect to Existing Product Line

Major Change; Nature of Discontinuity

Philips Electronics N.V. Digital Compact Cassette (DCC) (1992)

Line extension

“Digital” cassette player/recorder; write on, existing audiocassettes.

Sony Corporation MiniDisc (MD) ( 1992)

Line extension

Portable compact disc player/recorder; neither reads nor writes on existing compact discs or audiocassettes.

Nintendo Co., Ltd. Game Boy (1989)

Line extension

Super NES (1990-1991)

Line extension

Portable electronic videogame hardware; does not play game cartridges intended for original &bit Nintendo Entertainment System (NES) hardware. l&bit hardware; does not play NES or Game Boy game cartridges.

Canon Inc. “EF” lenses (1987)

Line extension

Autofocus (AF); cannot be mounted on non-AF cameras.

Nikon Corporation “AF” lenses (1986)

Line extension

Autofocus (AF); can be mounted on non-AF cameras but do not include prong for aperture indexing (a prong can, however, be retrofitted).

IBM Corporation IBM PS/2 (1987)

Replaced IBM PC, XT, AT

New standards for display, floppy drive, and internal architecture.

Lotus Development Corporation Lotus l-2-3 Release 2.0 (1985)

Replaced Release 1A

Lotus l-2-3 Release 3.0 (1989)

Line extension

Lotus I-2-3 Release 2.2 (1989)

Replaced Release 2.01

Several improvements; required additional memory; keystroke and macro compatibility; different file formal--could read, but not directly write, 1A files Several improvements; keystroke and macro compatibility; required significantly more powerful hardware; read/wrote Release 2.x files. Required less hardware than Release 3.0: keystoke, macro, and file compatibility with Release 2.01.

Rolm Corporation IBM 9751 (1988)

Line extension

common: in each case, there are strong complementarities, or interrelationships, of (1) the product and the of Coke and the consumer); user (the “taste-and-fizz” (2) the product and other products with which it is typically used (camera lenses and their “fit” with camera bodies); and/or (3) the product and databases that are created and repeatedly modified with its help (the ability of an applications software program to “read” and “write” user-created files). The three complementarities-which we refer to as productuser, product-product, and product-database complementarities-share a common feature: they define the context in which a product is used, and effective use of

reads, but does not

New-generation PBX telephone-switching system; change to industry-standard sampling chip sets; incompatible with older Rolm switches.

the product requires compatibility between the product and its complements. 4 Now consider a product change that is discontinuous in that it disrupts one or more of the established ’ Our use of the word “complement” to describe the user and other objects with which the product has a complementarity broadens the meaning traditionally assigned to the word. Baumol [I], for example, gives the following intuitive definition of complements: “bread and butter are complements-for many consumers they are better together and hence an increase in the availability of one tends to stimulate the demand for the other.” In our terminology, this is equivalent to product-product complementarity. Strictly speaking, product-database complementarity is a special case of product-product complementarity; we treat it separately to draw the reader’s attention to the user’s investment in building the databases.

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complementarities in the user-product-other products-database system. When such a disruption occurs, we shall say that the new version of the product is incompatible with the old version, and refer to the change as one making a break with the past (see Figure 4). In their own way, New Coke, IBM PS/2 computers, and Sony’s MiniDisc broke with the past. Tk e question naturally arises, “Why does it matter that there is a break?” One reason it matters-and this is tht.: reason we shall focus on in this article-is that a break with the past can result in a switching cost for the consumer, and this cost is an important determinant Iof the success or otherwise of the product change. Tile switching cost alluded to here is not on account of tl!e consumer’s direct investment in the product itself-a minor consideration for a small-ticket consum;l.ble product but a major concern for a big-ticket dura )le product that has not exhausted its useful life whel 1 a new version is introduced-but because of the inve rtment the consumer must make in reestablishing the l::omplementarities that are disrupted. Thus, the consumer may have to expend time, money, effort, and emotional energy (1) unlearning how to use the old l;ersion of the product and learning how to use the new version; (2) adapting existing complementary prod Jets or acquiring new ones so that they are compatiHe with the new version of the product; (3) modifyir g , translating, or recreating databases, spreadsheells. documents, recordings, and so on; and (4) redel{eloping the interfaces between the new version of tl- e product and its various complements. When the complementarities are strong and breaks with the past major, the complementarities-related switching cost can lbe significant and can play a major role in determin:ng the market success or failure of a new version of a product. It is in such instances that our discussion is rr ost relevant. Figu-e 1. The product

e--w

Compatibility

and its complements.

necessary

for effective

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Ways in Which a Product Might Break with the Past Disruption

of Product-User

Complementarity

To see how a product might disrupt product-user complementarity, consider the multifaceted nature of the product-user interface.5 The first facet is the product’s “touch and feel:” the taste of a beverage, the smell of a perfume, the styling of a car, the handling of a camera, and so on. This facet is important, not because touch and feel are always vital to a product’s basic functioning but because they are often important defining traits of the product. As the furor over “New” Coke illustrates, users get accustomed to a product’s touch and feel, and react adversely to changes in the same. For a second example, consider the following description in [26] of some consumers’ reaction to Nikon Corporation’s new series of autofocus lenses: The autofocus lenses are a radical departure from . . [the lenses] of the previous thirty years. The first noticeable difference is the polycarbonate lens barrel . . [I]t has a totally different feel to it, smooth and tinny, which most photographers have resisted. The original autofocus lenses also [had] a narrow focus ring which . photographers really disliked. The feel of the focusing was even more disliked when the lenseswere used manually becausethe focusing

ring does not have the same drag (stiffness), giving the impression of inferior quality in construction. . The focusing ring itself is located at the very tip of the lens, which is a major departure from traditional designsand, combined with its narrow width, has made the lensesunpopular.

A second important facet of the product-user interface is the way in which the user is kept informed about the state and performance of the product. Many products contain gauges and other devices to keep the user informed of the product’s current state. The cockpit of a modern aircraft is a good example, so also are the display of metering information in a camera, the dial of a wristwatch, and the instrumentation panel in an oil refinery. As in the case of “touch and feel,” habitual users get familiar with the way they are informed about the state and performance of a product; 5 The discussion in this section touches on “design,” which is a discipline in and of itself. For a provocative discussion on placing the user center stage in product design, see. for example, Norman [23,24].

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this familiarity is not always easy to attain, nor is it easily forgotten, and it is this familiarity that is sometimes disrupted in the course of product change. Finally, a third facet of the product-user interface that we must concern ourselves with is the way in which the user interacts with and controls the operation of the product. Consider the placement of keys on a typewriter keyboard,6 the appearance of a menu of commands on a computer display, or the sequence of controls for flying an aircraft. Not only does the user makes a substantial investment in learning how to operate these interfaces, once operational skills are internalized they are difficult to unlearn. 7 The difficultyof-unlearning is noteworthy for at least two reasons. First, some unlearning may be necessary if the world is to move to more efficient, effective, and intuitive controls; a good example is the ongoing transition from text- or character-oriented controls to graphical, icon-based ones.8 Second, the unlearning may be so difficult as to adversely impact the experienced user’s ability to interact with the product-a factor to be borne in mind as more and more product functions are automated. One problem with changes in the product-user interface is that it is often difficult to predict ex ante whether or not a specific product change would significantly disrupt the established product-user complementarity. Not only is the product-user relationship subjective, its locus-the product-user interfaceoften does not lend itself to explicit description or definition; in such cases, breaks in product-user complementarity are sometimes discovered only after changes have been made in the product and the new version introduced in the market.

Disruption

of Product-Product

Complementarity

Many products are used along with other products as part of a multicomponent system. For the system to 6 The typewriter keyboard example has been studied extensively in the literature on how standards emerge. See, for example, [7]. ’ Arguably, it may be easier to start from scratch and learn how to use a new version of a product than to first unlearn how to use an older version and then learn how to use the new version. The “stickiness” of learning sets (human) users apart from other complements in a user-product-other products-database system. Whereas other complements can be designed to work with each others, humans learn to operate a product and, then, get accustomed ro its working. The learning and habituation, once intemalLed, are often difficult to undo (What would happen if someone were to change the typewriter or computer keyboard layout?). ’ See, for example, [9].

function as an integrated unit, the different system components must be compatible with each other. Intercomponent compatibility-the standardization of the method by which different components interface with each other-has received considerable attention in the industrial-organization economics literature. Matutes and Regibeau [20,21], for example, examine a firm’s incentives for making its products compatible with complementary products produced by a rival firm and Matutes and Regibeau [22] extend the analysis to cases where firms offer compatible components as well as “bundled” system. Unfortunately, the treatment is static in nature: the articles study the incentives for compatibility, not why, how, and whether compatibility, once established, might be disrupted in the course of product change. The dynamic aspects of compatibility are captured in the literature on technological standardization. Here, it is useful to follow Katz and Shapiro’s distinction between de facto standardization and technical compatibility [ 171: de facto standardization characterizes situations where one of several fundamentally incompatible technologies eventually emerges as the technology of choice; in contrast, technical compatibility describes a world where competing technologies continue to co-exist, but standardized interfaces allow products using incompatible technologies to work effectively with one another. Katz and Shapiro [16] examine de facto standardization in markets where firms behave strategically, while Katz and Shapiro [ 15,171 explore the private and social incentives for technical compatibility in oligopolistic environments with “network externalities” (the larger the set of product adopters, the greater the incentive for individual consumers to adopt the product). Farrell and Saloner [ 1 l] investigate de facto standardization in contexts where consumption benefits depend on the choice-but not the timing of-a compatible technology; the authors ask if it is possible to get trapped into inferior standards because of compatibility benefits. Later, in [ 121, Farrell and Saloner study the private and social incentives for the adoption of a new technology that is incompatible with the installed base, and in [ 131, the authors explore the transient effects arising from the introduction of incompatible technologies. Finally, Farrell and Saloner [ 141 investigate technology adoption in markets where converters help bridge incompatible technologies. The diffusion of complementary products has also received attention in the marketing and product inno-

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vatio:n management literature. Thus, Mahajan and Muller [ 191 examine the diffusion of “primary” and “contingent” products (the terminology suggests an ordermg of dependency between a product and its complements). Taking up the thread of this research, for ei;ample, Bayus [2] discusses a method for forecastir;g new contingent product sales and Bucklin and Sengupta [4] offer the results of an empirical investigation of the codiffusion of complementary innovations As extensive as the above literature is, it is not very useft 1 for the to-break-or-not-to-break-with-the-past decision: although it helps us understand why and how stancards are established, compatibility is attained, and ciffusion of complements occurs, the discontinuous #:hanges we are interested in may be instituted after standards already are in place. In this article, we begir with the assumption that standards already exist; a prc duct change that makes a break with the past may disrupt these standards. In this regard, perhaps the most disruptive break in prod .lct-product complementarity is one that results in the 1:~s of physical compatibility: if the product is supposed to be physically connected with its complemen ary products, and if the new version of the product ( annot make these connections, then the loss of comr)aribility will be complete. Wlysical compatibility is often not sufficient for a multlcomponent system to function as an entity. For effee tive system performance, the different component::, must also be functionally compatible with each othe: , and this compatibility can be full, partial, or not at al . Obviously, the disruptive effects resulting from prodllct change will be minimized if there is no loss of funcliclnal compatibility, but this may not always be possible or desirable in the course of product change; if so, there may be anywhere from a partial to a total loss of functional compatibility, with an accompanying tleterioration in system performance. In situations where information is exchanged between the product and its complementary products, a charge in the product can result in the disruption of the established communications standard, causing the distorti,)n or loss of the information that is exchanged. Depending on the product and the context in which it is used, the disruption can result in the degradationever complete loss-of functional compatibility between the product and its complementary products. Several examples in Table 1 illustrate breaks in prod.uct-product complementarity. Sony’s MiniDisc

players/recorders are physically incompatible with existing audiocassettes and compact discs. Similarly, none of Nintendo’s three hardware platforms can play software intended for the other platforms. As for Nikon, the new Nikon AF series of lenses are physically compatible with the lens mounts on older camera bodies, but there is some loss of functional capability.’ In the case of Canon, the new EF lenses cannot even be mounted on older camera bodies. IBM, for its part, introduced a number of incompatibilities in the new PS/2 family: a different physical size in the case of the floppy-disk drive, and the new machines could not accept older displays or expansion cards (the latter allow users to augment the capabilities of the personal computer). As for Lotus, each new release of the software required more hardware (more memory and, in the case of Release 3 .O, a more powerful microprocessor). Finally, the new Rolm telephone switching system adopted a different sampling rate (a communications standard) than the company’s older systems.

Disruption

of Product-Database

Complementarity

What if a software developer issues a new release of an applications program, and the new release cannot “read” files developed with the older release? Or, having read the files and having allowed the user to make changes, the new release cannot ‘“write” the files in a format compatible with the old release?” These questions are not unique to the computer industry Consider the audiocassette. Consumers can purchase recorded cassettes, or they can buy blank cassettes and tape music of their choice, in a sequence of their choice. The resulting “database” is not permanent: at some future date, the user may wish to erase an old recording or overwrite it with something else. Obviously, read/write compatibility is an issue between new generations of cassette recorders/players and the instaIIed base of recorded cassettes. The issue is not hypothetical: Philips Electronics and Sony Corporation are championing two formats, Digital Com9 The Nikon example is discussed in detail later in the article. ” Earlier, we noted that some product-product complementtity disruptions can be overcome by using converters to bridge incompatible technologies (Farrell and Saloner [ 141). A bridging opportunity exists as well in product-database complementarity. Indeed, enterprising businesses have sprung up to offer “translation” services to convert, for example, videotape formats, spreadsheets and word-processing files, and floppy-disc contents from obsolete to more current versions.

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pact Cassette and MiniDisc, respectively; the former can play-but not write on-existing cassettes, whereas the latter, being based on compact-disc technology, can do neither. The most common type of break in product-database complementarity is one resulting in the loss of forward compatibility: the user can take the new version of the product and read databases created with an old version, but he or she cannot make changes in the databases and write them in a format compatible with the old version. Philip’s Digital Compact Cassette player/recorder is an example of a backward compatible-and forward incompatible-system. The opposite of read, but not write, compatibility is write, but not read, compatibility: the user can write databases in a format compatible with the old version of the product, but not read databases created with the help of the old version. Such a break, although possible in theory, is not important in practice. Finally, as in the case of Sony’s MiniDisc, the user may be unable to either read old databases with the new version of the product or write them so they can be read by an older version. In that case, old databases that are still in use will have to be recreated from scratch.

Impact on the Consumer’s Product-Purchase Decision Suppose a product already exists and has been adopted by a number of consumers. What happens when the supplier introduces a new version? In general, consumers would prefer the new version if: (1) the new version is better than the old version; (2) the new version is available at a price less than or equal to that of the old version; (3) in the case of durable products, the consumer has not recently purchased the old version; and (4) in the presence of complementatities, the new version does not represent a break with the past. Now consider the case where the product change is such that there is a break with the past. The change will affect different consumers in different ways. Users of an older version of the product will be faced with a switching cost if and when they buy the new version. The switching cost consists of two components: (1) the difference between the price the user will have to pay for the new version of the product and any proceeds he or she might realize from the disposal of the old version, and (2) the additional investment nec-

A. DHEBAR

essary to reestablish the complementarities disrupted by the break. Users of a competitor-supplied product, on the other hand, will be concerned about the cost of switching from the product they are using to the new version the firm is introducing. This cost also consists of two components: (1) the difference between the price the consumer will have to pay for the new version of the product and any proceeds he or she may realize from the disposal of the competitor-supplied product, and (2) the additional investment necessary to reestablish any complementarity that might be disrupted by the switch. Finally, non-adopters will be concerned about the cost of switching from not having adopted any version of the product (the firm’s or a competitor’s) to having adopted the new version of the product. Of course, it is not only switching costs that consumers will see; hopefully, the new version of the product will also provide additional benefits. How do the additional benefits compare with the switching costs? The answer to this question will determine whether or not any given consumer will purchase the new version of the product. To the extent that the switching costs for all three consumer types depend on the investments that will have to be made to establish the necessary complementarities with the new version of the product, whether or not there is a break and what is the nature of the break will play a crucial role in the product purchase decision. The previous discussion is incomplete for several reasons: 1. It assumes that the supplier will discontinue the old version of the product-something that is not necessarily true. 2. It does not reflect the consumer’s full set of choices. Thus, for example, users of the existing version of the product may have five choices (see Figure 2): stay with what they have (if the product is a durable product), repurchase the old version, switch to the new version, switch to the existing version of a competitor-supplied product, or switch to a new version of a competitor-supplied product (which is bound to come out sooner or later). Similarly, users of a competitor-supplied product may also have five choices: stay with what they have, repurchase the competitor-supplied product, switch to a new version of a competitor-supplied product, switch to the old version of the

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Figurrl 2. Available

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stpplier’s product, or switch to the new version of the supplier’s product. Finally, non-adopters m.ay have five choices as well: continue being non-adopters, switch to the old version of the stpplier’s product, switch to the new version of the supplier’s product, switch to the existing version of a competitor-supplied product, and Ctch to a new version of a competitor-supplied PI oduct . 3. TTle discussion assumes that consumers are homogtsneous with respect to their valuation of product bcsnefits and their investment in the necessary complementarities; this is usually not the case. 4. T ie implicit assumption is that there is only one cc’mpetitor, or if there are several competitors, they hilve identical product offerings. This need not be SCI.

5. Tre discussion neglects diffusion processes: consumers do not simultaneously adopt a product; sclme consumers are innovators, some imitators, ai:d the product adoption process is dynamic. 6. Some products exhibit network externalities, wlnich may be direct (when buying a computer, users will prefer a 3.5” disk drive if most other computers or people with whom the user might exchange disks also have 3.5” drives) or indirect (the demand for personal computers depends on the

availability of software, which, in turn, depends on the expected size of the installed base of hardware). In either case, the externalities can be an important determinant of the dynamics of the adoption of a product and the establishment of standards.

Why Change a Product Such That There Is a Break with the Past? If a break with the past is going to result in switching costs for the consumer and impact his or her productpurchase decision, why make the break in the first place?

The Product a Break

Cannot Be Improved

Without Making

Many product changes are motivated by the need to offer consumers an improved version of the product. The improvements can take several forms: the new version may be better configured, it may be designed to have greater aesthetic appeal, it may be easier to use, it may be of superior quality, it may offer a higher level of performance, it may include new features, and so on. Unfortunately, there are limits to which im-

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provements can be incorporated into a product without breaking with the past. The break may occur for several reasons: 1. Even if the improvements are “continuous” in nature (and, therefore, less likely to cause a break), a stage may be reached when further improvement will have a discontinuous impact on the userproduct-other products-database system: if a camcorder is made too small, it may become inconvenient to hold and operate (disruption of productuser complementarity); if an airconditioner’s cooling power is increased beyond a point, it may be necessary to rewire the electric supply (disruption of product-product complementarity); and if a floppy-disk drive is designed to read high-capacity disks, it may be unable to read and/or write on older low-capacity disks (disruption of productdatabase complementarity). 2. When making product improvements, the product designer may run into one or more technological constraints and be forced to reexamine the product’s relationships with other components of the user-product-other products-database system. Take the case of the autofocus camera. Many camera manufacturers were unable to offer autofocus capabilities without redesigning the lens mount; the result was that consumers had to buy new camera bodies and new lenses. 3. Many product improvements are achieved through the use of new materials and technologies-a change that may or may not be transparent to the user-product-other products-database system. Consider the increasing use of composite materials in products. As long as these materials are used inside the product, they may affect product performance or cost, but not necessarily the relationship between the product and the user; when the materials are used on the product’s exterior, however, they may have a direct effect on the user’s perception of the product. A Break Is Necessary if the Supplier IS to Respond to Changing Consumer Needs and Preferences Consumer needs and preferences often change with respect to product features and performance requirements. Thus, as energy prices increase, consumers may demand more fuel-efficient cars; as children get proficient in first-generation video games, they may demand faster and more complicated secondgeneration games; as the use of wordprocessing soft-

A. DHEBAR

ware expands, users may demand more formatting features and typesetting capabilities; as audiophiles become accustomed to the clarity of digital sound, they may demand digital recording/playback technology for audiocassettes; and so on. As suppliers supplying cars, video games, wordprocessing software, and cassette players/recorders change their products to accommodate changes in demand, they may be left with no choice but to break with the past. Another type of change in consumer needs is important to our analysis: one resulting from discontinuous product changes made by suppliers supplying products with which the product under consideration is typically used. Thus, along with the PS/2 family of personal computers, IBM also introduced a new 3.5” standard for floppy-disk drives. This, in turn, required manufacturers of floppy disks to start producing 3.5” disks. Similarly, the PS/2s introduced a new standard for display monitors, and manufacturers of monitors had to respond by changing their product to accommodate the new standard. Finally, consider changes in “style:” colors go in and out of fashion, hem lines go up and down, the popular view of what constitutes desirable product contours changes over time, and so on. In such cases, the supplier has a choice: it can change the product to match swings in public sentiments, or it can hold steady, perhaps at the risk of being labeled “conservative. ’ ’ The first option will almost certainly end up disrupting established product-user complementarities.

Planned

Product

Obsolescence

Swan [27] defines planned product obsolescence as “the production of goods which are less durable than would arise out of production.” Bulow [5] finds Swan’s focus on product durability too restrictive: “planned obsolescence is much more than a matter of durability; it is also and perhaps primarily about how often a firm introduces a new product, and how compatible the new product will be with the older versions . ’ ’ In other words, a firm may make a product obsolete by (deliberately) coming out with a new version that is incompatible with older versions-in our terminology, by breaking with the past. ” ” Obsoleting a product is not the only way to accelerate the productreplacement cycle. Bayus [3], for example, examines the use of marketingmix variables such as price, advertising, new features. and styling to achieve the same objective.

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To examine the motive for doing so, consider a firm that supplies both the product in question and the other (com?lementary) products with which the product is used n a systems context. Nintendo, Nikon, and Sony are a i good examples: Nintendo supplies videogame hardv,iare and software cartridges; Nikon markets camera bodies and lenses; and Sony sells audio systems, blank cassettes, and recorded music. In each case, if there is a break with the past in the case of the product, a break with the past may also be necessary for the comF,lements, and vice versa. This link between the product and the complementary products can be critical 1:1 planned product obsolescence: consumers will, for e ,;ample, have to purchase new hardware if newer softa’are is designed such that it cannot run on old hard1 Tare.

A Brszak Will Result in Lower Product

Costs

Somt:times, a supplier may break with the past becausr: the new version of the product is cheaper to rnak<, and the cost advantages outweigh any negative impact on demand. There are several reasons why the new version may be cheaper. First, it may use less expensive materials. Second, it may allow the supplier to svitch to the same materials that are used by the rest of tlie industry (and are, therefore, cheaper). And third) the new version may be such that there are greti er manufacturing synergies between the product and he rest of the supplier’s product line.

A BI eak Will Bring the Product into Greater Alig,lment with the Rest of the Product Line Products that conform to common architectural standard’s are often not only easier to design, develop, and produce, consumers also find them easier and cheaper to ue and maintain. T;-rke the case of computer software. To the extent that a consumer might use, for example, a wordprocessng and a spreadsheet software, it is advantageous if tke two products have a common user interface. Eve:,1 within the same application, say word processing, the software provider might provide several versions of the program to run with different operating systems, and, once again, it might be advantageous to offer a common user interface. An example is Microsoft Corporation’s Word program for word processing. The company offers at least three different versions of Word: Word for MS-DOS systems (for

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IBM PC-compatible computers running on the MSDOS operating system), Word for Apple Inc. ‘s Macintosh computers, and Word for Windows (for IBM PC-compatible computers using Microsoft’s Windows graphical interface). The first version, being older, had a different user interface than the user interfaces of the second and third versions, and Microsoft was faced with a decision about changing MS-DOS Word’s interface to bring into greater alignment with the user interfaces of the rest of the Word line.12

The Product Exhibits Network Externalities, Break Will Accelerate Network Growth

and a

Suppose a new version of a product exhibits network externalities. In that case, it may be in the supplier’s interest to accelerate the adoption of the new version. One way to achieve this is to make it incompatible with the old version-to break with the past. The incentives for doing so are even greater if the same supplier supplies both the product and the complementary products that are used with it. Take the case of hlintendo. Because each new Nintendo system was incompatible with the older system(s) when it came to videogame software, consumers had a strong incentive to purchase the new hardware in order to play the newer games; this, in turn, encouraged software development for the new hardware.

A Break Will Improve Competitive Position

the Supplier’s

A break with the past can improve a supplier’s competitive position in one of two ways: (1) if the supplier’s product is similar-in terms of complementarities-to the competitors’ products, a break may help distance the supplier’s product from the competitors’ products (if the new version is successful, the supplier will be able to differentiate itself from the competition); and (2) if the supplier’s product is different from the competitors’ products, a break may help close the competitive gap. The discontinuities introduced by IBM’s PS/2 family were at least partially motivated by the first reason, whereas Rolm’s new telephone switching system broke with the past for the second reason.

I3 For a detailed

discussion

of Microsoft’s

decision.

see [9]

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A Break Will Help the Supplier Strategic Goals

A. DHEBAR

Achieve

Another reason why a supplier might break with the past is because the product change is necessary to attain certain strategic goals. In this context, the supplier may know that the break will prove unpopular with consumers but still may go ahead with the change if, for example, the change better prepares consumers for a future version of the product (which, the supplier is convinced, is in the consumers’ long-term interest); or, in the course of instituting the change, the supplier (and its suppliers) gain expertise in the use of new materials and technologies; or the change results in new standards necessary for the development of the industry.

New industry, Regulatory, and Governmental Mandates and Standards Necessitate a Break Sometimes, a product change might result in a break with the past, not because the supplier chooses to make such a change, but because the supplier is required to make such a change. Two cases are important in this regard: (1) changes resulting from industry, regulatory, and governmental mandates; and (2) changes caused by the imposition of new standards. Regulatory and governmental agencies often impose restrictions on, for example, raw materials that can be used in a product, pollutants it can emit, and noise levels it can create. At other times, regulations are issued requiring minimum performance levels for products (for example, minimum fuel mileage for cars). These regulations are motivated by considerations of health, public safety, environmental protection, national security, and change over time. As the restrictions and regulations change, suppliers, in turn, must change their products and, sometimes the product changes are such that the new version marks a break with the past. The following examples illustrate such changes: regulations requiring apparel manufacturers to use flame-retardant materials for children’s clothing (affect product-user complementarity), clean air standards requiring automobile and gasoline producers to reduce emission of pollutants (productproduct complementarity), and legislation requiring digital audiocassette recorders to be designed so that users cannot produce copies-of-copies (product-database complementarity). A break with the past may also be necessitated by changes in standards. Thus, the Federal Communica-

tions Commission’s decision in 1945 to change the frequency allocation for FM radio broadcasting made the installed base of nearly half a million FM receivers and transmission equipment in over fifty FM broadcasting stations obsolete and sent radio manufacturers and broadcasters scrambling to meet the new standard

1181. Obviously, if the supplier is required to change the product such that there is a break, then there is no to-break-or-not-to-break decision as such; the only reason for including this case in the list of motivations for a break is to emphasize the major role that industry agreements, regulations, and standards play in influencing the nature (and speed) of product change.

To Break or Not to Break?-Managerial

Implications

We have seen how individual consumers would evaluate a break, and we have considered the supplier’s motivations for instituting a product change that is accompanied by a break. Should the supplier go ahead with the product change? That depends to a large extent on how users of the old version of the firm’s product, users of a competitor-supplied product, and non-adopters will react to the new version of the product (see earlier discussion on “impact on the consumer’s product-purchase decision”). Also relevant are considerations such as whether the product and its complements are consumable or durable, whether there are network externalities or not, whether the product is the major part of the system from which value is derived or a secondary complement. and whether the product and its complements have similar or different life times. Unfortunately, there are no simple decision rules. Some broad implications do, however, emerge from the thrust of the overall discussion and merit explication: 1. A product’s complementarities with the user, other products, and databases may be extensive, or they may be limited. It is important to appreciate the full extent of the complementarities and the implications that a break in any of them will have on a consumer’s switching costs. Ideally, the supplier should develop a hierarchy of the different ways in which the product interacts with all the elements of an integrated user-product-other products-database system. This hierarchy should have a rank ordering, with the rank determined by the investment the con-

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sumer may have to make to establish each complenentarity. The ordering will be useful in deciding which complementarities can be disrupted with little ,&verse impact; which can be disrupted, but with ;ignificant impact on the consumer; and which ,!,hould only be disrupted as a last resort (if at all). 2. because of differences among consumers, the hi(:rarchy of complementarities, the implied investnent needs, the switching costs, and the benefits of 1 *‘new-and-improved” product may not be the m!ame for all consumers. The supplier must under:,tand the nature of consumer heterogeneity. 3. 1 break may be justified if the cost savings out‘veigh the possible loss in revenues because of a I irop in demand. 4. ‘IYhe to-break-or-not-to-break decision is intricately inked with the size of the adopter base, the sup],lier’s competitive position and any differences, in lerms of complementarities, that exist between the rsld and new versions of the supplier’s product and lhe competitors’ products. We can draw at least 1hree conclusions. (2) A monopolist can be more aggressive about instituting a break than a supplier operating a competitive environment. Take the example of Nintendo. Some observers have argued that it is Nintendo’s monopoly position in the marketplace that has allowed the supplier to “get away ’ ’ with a strategy of making each of its three hardware platforms incompatible with software for the other two platforms. It would be interesting to see what Nintendo will do if and when it introduces yet another hardware platform-now that it has a serious challenger in the form of Sega Enterprises’ 16-bit Genesis game. (t) A supplier with a dominant position in a mature market with established competition may have much to lose (alarmed by the switching costs, its installed base of product users may turn instead to the competition) and not much to gain (there may not be many non-adopters to attract) from a break. Arguably, IBM’s PS/2 introduction fits into this category: many industry-watchers believe IBM paid a price when it discontinued the IBM AT personal computer at the time of the PS/2 introduction. (c) A supplier with a relatively weak market position may find it advantageous to make a break (and run the risk of antagonizing the installed base) if the break will make the product

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more attractive to users of competitor-supplied products and/or non-adopters. This consideration would justify the break Rolm made when it introduced its new telephone switching system: with a 15%1870 market share in 1986, the supplier was paying a price for having a system that used a nonstandard sampling rate.

Implementing IProduct-Line

the Break in a Context

Can (Should} the Supplier Provide the (Dis)affected Consumers?

a “Bridge”

to

Consumers who will be affected by the break will appreciate any help the supplier can provide to minimize the switching costs. One way to help the consumers is to offer them a bridge across the gulf resulting from the break. Lotus provided a bridge when it introduced Release 2.0 of its l-2-3 spreadsheet software. Similarly, Nikon and Canon provided bridges when they introduced autofocus lenses: the lenses had a focus ring for manual focusing; in the case of Nikon, the new lenses could also be mounted on old-generation camera bodies, albeit with some loss of metering capability. What is the best bridge that can be provided without unduly compromising the design or positioning of the new version of the product? k’ntroduce Changes in All “Models,” Models in the Product Line?

or in Selective

Because consumers are typically heterogeneous in their valuation of product benefits and their investment in establishing the necessary complementarities, suppliers offer, not a single model of a product, but complete product lines. In such cases, when a break is made with the past, the change does not have to be implemented across the whole product line; instead, it can be implemented in selected models. By limiting product changes and the ensuing incompatibilities and switching costs to selected models, the supplier may be able to ensure that only those consumers who benefit most from the product changes are left bearing the switching costs. Discontinue the Old Version of the Product, Offer Both the New and the Old Versions?

or

When a supplier introduces a new version of a product, the old version does not have to be discontinued.

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A. DHEBAR

A discontinuation of the old version may result in the speedy adoption of the new version, but it may also force a high switching cost on the existing user. By continuing to offer the old version, the supplier can give the installed base a choice: existing users who find that the additional benefits of the new version outweigh the switching cost can purchase the new version; others can continue with the old version. Even if a decision is made to discontinue the old version, the supplier must choose whether or not to continue servicing the old version.

Allow Modular Upgrades, or Require the New Product in its Entirety?

Purchase

of

If the new version of a product marks a significant improvement over the old version, then users of the old version may wish to avail themselves of these enhancements. Will these consumers be required to purchase the new version in its entirety, or will they be offered modular upgrades-even if the latter option implies some compromise in the design and performance of the new version?

Example: Nikon Camera Bodies and Lenses-Zooming in on Nonobsolescence (and Selective Obsolescence) Nikon Corporation, Japan, a leading supplier of photographic and optical equipment, introduced its first single-lens reflex (SLR) camera body, the Nikon F, in 1959. The camera came with a standardized lens mount designed to accept any of the new SLR lenses that the company introduced at the same time. Several camera-body and lens generations later, Nikon continues to use the same basic mount design, thus providing a remarkable amount of compatibility between camera bodies of one generation and lenses of another. But there are variations around the basic design, and these variations deserve careful examination in the context of our discussion. The examination begins with Table 2, each cell (a row-column intersection) of which indicates the extent of compatibility between a particular camera-body series (a row) and a particular lens series (a column). We consider three dimensions of compatibility, one physical (“Can a given lens be mounted on a given camera body?“), and two functional (“What is the impact on metering?’ ’ and “Are there special limitations on available exposure modes?“).

Table 2 has three types of cells: blank, shaded, and ones with qualifying entries. Blank cells represent mounting, metering, and exposure-mode compatibility between the camera body and lens series, with the features of the complete system being determined by the limitations of the camera body and/or the lens; shaded cells represent physically incompatible camera-body-lens combinations where the lens cannot be mounted on the camera body; and cells with qualifying entries represent physically compatible camera-bodylens combinations with (some to total) loss of metering and/or exposure-mode compatibility. From the user’s point of view, the ideal case is one where all the cells are blank. Then, any camera body, no matter how new or how old, would accept any lens (also no matter how new or how old) without loss of mounting, metering, or exposure-mode compatibility. In other words, no breaks with the past. Clearly, Nikon does not offer the ideal. Our goal is to understand the possible reasoning behind the configuration of blank and non-blank cells in Table 2. We begin with the “diagonal” cells. At the very least, these should be blank: professional manual-focus camera bodies should be compatible with professional manual-focus lenses, entry-level manual-focus camera bodies should be compatible with entry-level manual-focus lenses, and autofocus camera bodies should be compatible with autofocus lenses. Nikon meets this minimum requirement. Next, the “off-diagonal” cells. A few comments on camera technology (focusing, metering, and exposure modes) and the generic structure of product and product-line evolution will facilitate the reader’s understanding of the distribution of blank and non-blank off-diagonal cells: 1. The relevant distinction in focusing is between ‘ ‘manual focus” and “autofocus. ’ ’ Nikon introduced autofocus technology in lenses and in camera bodies beginning 1986.13 2. The nuances of metering are more complicated. First, there is the matter of aperture indexing: different lenses have different apertures and the camera body’s metering system must be indexed for the correct maximum aperture for proper metering; inl3 The statement is not strictly true. (1) Autofocus technology was first introduced in 1983 for the F3AF camera body and lens series, but the concept never entered into the mainstream of Nikon’s product line. The autofocus technology of 1986 was very different from that of 1983; Nikon also introduced it in a broad range of lenses and camera bodies. (2) The first N series camera, the Nikon N2000. introduced in 1985, was not an autofocus camera; nor was its successor, the N6000.

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Table 2. Nikon SLR Camera Bodies and Lenses: Zooming in on Nonobsolescence +

_____ -- __.-.-.-______

----Manual-focus

lenses

c---------Professional/amateur---------2 Al, Al-S series Non-Al series 1959-1977 1977-1982, 1982.now Mar~ual-focus Pofessional F series FY, series

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(and Selective Obsolescence)

~______~.~~~~~.~.___

-

Entry level E series (Al, Al-S) 1979-1986

Autofocus lenses Pro/amateur AF series 198tkow

camera bodies

F:’ series A Inateur N lkkormat series

1959-1972 1971-1977 1977-1980 198~now

No metering No metering

No metering No metering

1965-1977 1977-1979

No metering

No metering

F! l/I/FE series 0 iginal FM/FE 1977-1982 1982-now L;I ter models Eratry level 1979-1987 EX, FG series Autclfocus camera bodies PFof’essional 1988-now Fi series

A ,uateur h series

198~now

EI itry level N.-O04 series

1987-now

No matrix metering

‘:“:.:.:.:.:‘:.:~:~::::::::~:~:~~~~~~~ i i :i:i:i:i:i i :i:i:i:i i :l:i:::::~, ::::::::::::::.::l:l:i:j

..._............

iriiiriiiiiiiiiiiiiriiiiti:i:iiiiiiii’j ... ... . . .,.,.,.,., iiiiliiiiliiiiii:i:i:I:i:i:1:i:i::::.~.

::::

. .

:::y:y:::.i

. . . : : . . . . . :.:

No shutter priority or programmed auto exposure

No shutter priority ot programmed auto exposure

No matrix metering, no shutter priority or programmed auto exposure

No matrix metering, no shutter priority or programmed auto exposure

No metering, no program modes

No metering, no program modes

This able spans the 1959-1990 time frame and “now” means “still in production ” in 1990; camera bodies and lens series introduced after 1990 are not inclwled. The table excludes the first-generation F3AF autofocus camera body and lens series, the N2000iN6000 series of manual-focus camera bodies, and s ipecialized camera body and lens series. Sources: Nikon product brochures; Peterson, Moose B. Nikon System Handbook. New York: Image Press, 1991

c,.exing was non-automatic in “non-AI” lenses and pi-e:-1977 camera bodies, whereas all camera bodil:s and lenses manufactured after 1977 had automatic indexing (“AI”). A second aspect of meterii-q is whether the metering is “center-weighted” (:r ‘ ‘matrix;’ ’ the latter, which is more sophistiEated, was made possible in the late 1980s by the 2pplication of new microprocessor-based technolclgies. 3. 1’~ for exposure modes, the non-AI and AI series elf lenses only allowed “manual” or “aperturepriority auto, ” whereas the AI-S (“automatic incexing-shutter; ” introduced 1982) and the AF lens series also offered “shutter-priority auto” and ‘ ‘programmed auto. ’ ’ 4. Finally, the structure of product and product-line evolution. For both cameras and lenses, the autofocus series followed the manual-focus series, but

the evolution took the character of product-line extension and not product-line replacement. Within the manual-focus lens evolution path, there are three series of professional/amateur lenses (nonAI, 1959-1977; replaced by AI, 1977-82; replaced by AI-S, 1982-“now”) and one series of entrylevel lenses (the E series, 1979-86, which marked an extension of the AI/AI-S lens line); there is only one series of autofocus lenses (professional/ amateur AF, 198~now). As for camera bodies, there are professional, amateur, and entry-level models in both the manual-focus and autofocus range. We now analyze the off-diagonal cells in Table 2, beginning with the four shaded cells (representing physically incompatible camera-body-lens combinations, an extreme form of a break with the past). The

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reason for the shaded entries is simple enough: Nikon designed the aperture rings on all amateur-and entrylevel camera bodies introduced after the original FM and FE models such that a special AI prong that meter couples with all post-1977 lenses does not fold up and, therefore, all pre-1977 lenses cannot be mounted on the camera body. Nikon might have had good reason for making the break with the past (ease-of-design, the use of lighter materials, weight-and-size considerations, cost factors, and so on), but the break was a deliberate choice nevertheless. This is evidenced by the fact that the company designed the aperture rings for the FM and FE models, which were the first camera bodies introduced after the AI lens series replaced the non-AI series, and for the F4, which is a professional-level camera body primarily intended for the most recent autofocus lenses, such that the camera bodies do accept non-AI lenses. The two exceptions make sense: the FM and FE camera bodies were the first AI-compatible camera bodies, and “backward compatibility” with non-AI lenses reduced the photographer’s cost of switching from non-AI to AI; as for the F4, it is aimed at the professional, high-end photographer who, over time, may have made a significant investment in Nikon lenses. Next, we consider the cells with qualifying entries. These fall into four classes: 1. Metering is lost (“no metering”) when the entrylevel, manual-focus E series and the autofocus AF series of lenses are used with pre- 1977 camera bodies (which were designed for use with non-AI lenses). The loss in metering is due to the absence of a non-AI coupling prong-a prong that was included in two other post-1977 lens series, the AI and the AI-S. Indeed, even in the E and AF series, the lens owner can retrofit a prong at a nominal cost; only Nikon chose not to include it in the lens. The question arises: why did the company include the prong in the AI and AI-S lens series, but not the E and AF lens series? There are several possible reasons: (a) the AI series replaced the non-AI series and the AI-S series replaced the AI series, whereas both the E and the AF series represented productline extensions; (b) by excluding the non-AI prong, Nikon was able to make the new lenses simpler to use and lighter to hold, a plus for the market segments Nikon was trying to reach through the entrylevel E series and the autofocus AF series; (c) Nikon was keen on offering at least the E series lens

A. DHEBAR

to the entry-level market at an attractive price point, and a non-AI prong would have increased product cost; (d) competitive pressures for both lens series argued for a low price and hence low cost (and, therefore, no non-AI coupling prong); and (e) at least in the case of the E series of lenses, by excluding the non-AI prong, Nikon was able to support the desired market segmentation between professional/amateur photographers and the entrylevel market. 2. All metering and program modes are lost when the entry-level, autofocus N4004 camera body is used with the AI, AI-S, and E series of manual-focus lenses (the body does not even accept the older non-AI series). Indeed, of all the N series of camera bodies, the N4004 offers the least amount of lens compatibility, which is not surprising given Nikon’s desire to offer a competitively priced, small, light-weight single-lens reflex camera to the entry-level market segment, a segment that probably does not already own many manual-focus Nikon lenses. 3. The break with the past in the case of the amateurlevel N series of camera bodies is less severe (but still more than in the case of the professional F4 series). We have already seen that the N series of camera bodies do not accept non-AI lenses, but that is probably okay because the camera bodies were introduced nearly a decade after the non-AI lens series was discontinued. The amateur-level N camera-body series does accept the AI, AI-S, and E series of manual-focus lenses, but with loss of matrix metering and shutter-priority and programmed-auto exposure modes; center-weighted metering and manual and aperture-priority auto exposure are still available. Once again, the motives for loss of functional compatibility are probably several, but technology must play an important part (the autofocus camera bodies and lenses have sophisticated microprocessors and lots of information is electronically exchanged at the interface). 4. That leaves the professional F4 series. Here, as we have noted, Nikon chose to design the aperture ring such that the body would accept old non-AI lenses. Even metering is possible; but there is no matrix metering and exposure is limited by the capability of the non-AI lens. As for the AI, AI-S, and E series of lenses, shutter-priority and programmedauto exposure modes are lost, but matrix metering is available. The last point leads us to conclude that

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i: could not have been technology that forced Nikon to exclude matrix-metering compatibility in t’le case of N series of camera bodies. What emerges from the analysis is a rich tapestry of none, partial, and total breaks with the past, applied selertively in the product line and influenced by conside ,,ations of * cost economics (for example, the entries in Table 2 in cells corresponding to manual-focus camera bodies and entry-level and autofocus lenses), * technology (entries for autofocus camera bodies and non-AI series lenses), * product-line evolution (entries autofocus lenses), and l

for non-AI

and

market-segmentation strategy (entries for entrylevel lenses and camera bodies).

Tl.vo other points are worth noting. First, as compatible as the Nikon F4 is with the different manualfocu; lens series, the top-of-the-line camera makes a fundamental break with the past: it has no manual overrides in the event of battery failure. And second, cant .ast Nikon’s strategy with that of Canon, which madI:: a complete break with the past when it introduceld the EF series of autofocus lenses: these lenses did riot mount on manual-focus Canon camera bodies. Nikcmn, in contrast, only has loss of metering, that too only for pre-1977 (non-AI) camera bodies.

Conclusion The _ingle in an introductory television commercial for the Ijrolvo 960 characterized the car in the following term:;: “In many ways, it looks and feels like nothing we have ever built. In many ways, it looks and feels like r::verything we have ever built. ” The copy makes inter:sting reading: the first sentence offers the promise 01‘ a ‘ ‘new-and-improved’ ’ model that is radically different from any previous model-a promise which, it mt st be hoped, will galvanize demand. But what if the new model is too different? Here is where the second sentence comes in: it reassures the potential consumer-especially existing Volvo owners and those who have a favorable image of Volvo-that the new ‘car is not that different. Together, the sentences strike an intriguing balance between the future and the past.

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A balance between the promise of alluring discontinuities and the reassurance of comforting continuities is easier struck in the sensory world of commercials than in the real world of products. In the world of products, firms must make pragmatic choices about what is included in (and excluded from) the first “in many ways” and the second “in many ways;” sometimes, the only way to realize the former is by sacrificing at least some of the latter-by breaking with the past. This article considered product changes where there are breaks with the past. The article was motivated by three observations: (1) many products are used in contexts where there are interdependencies between the product, the user, other products that are used in association with the product, and databases; (2) the frequency with which suppliers introduce new-and-improved versions of these products is increasing; and (3) the changes in the products are often such that there is a break with the past, with possibly high switching costs for consumers. Our goal was to develop a structured approach to help the manager with the to-break-or-not-to-break decision. We focused primarily on the break’s impact on the consumers, but the supplier making the break may incur switching costs as well-in terms of resource use and in terms of organizational disruptions that will almost certainly accompany the decision to make a break. A complete analysis of the break-or-not-to-break decision must consider the impact on the supply side as well as the demand side. And it must consider the impact on competition and, to the extent that standards are often an issue, regulation and industry practice. We confined our discussion to changes in one component of a complete user-product-other productsdatabase system. In reality, decisions on product change must be made in a context where other system components are changing as well. The complex interdependencies of several changing components are best illustrated by Alice’s experience on the Queen’s croquet ground in Lewis Carroll’s Alice’s Adventures in Wonderland. There, Alice found herself playing a game where the croquet balls were live hedgehogs; the mallets, live flamingoes; and the arches, soldiers doubling themselves up and standing on their hands and feet. “The chief difficulty Alice found at first was in managing her flamingo . . . and, when she had got its head down, and was going to begin again, it was very provoking to find that the hedgehog had unrolled itself . . . and, as the doubled-up soldiers were always getting up and walking off to other parts of the ground,

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Alice soon came to the conclusion difficult game indeed.” [6]

that it was a very

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