As discussed in class, businesses use a combination of techniques in their quest to be profitable. These techniques are also employed, of course, within the wedding industry. These techniques include network effects, lock-in and switching costs, price discrimination, and versioning and bundling. This week, I will discuss two of the techniques – network effects and versioning and bundling
Network effects, or network externalities, are the effects that one user of a good or service has on the value of that product to other people. As the user base continues to grow, more and more users are likely to purchase the product or service. Within the wedding industry, trends change over time. Various wedding related products and services have gained popularity through network effects – bridal shows, bridal magazines, wedding planners, etc. Websites have also gained popularity. At some point in time, a bride and groom decided that it would be helpful to them and their guests to have all wedding information in one accessible place. Today, almost every bride and groom create a personalized wedding website, and this is evident in the stock market. On May 7th, eWedNews posted that “the The Knot, Inc ( NASDAQ:KNOT) stock price jumped on the news they had beaten expectations yesterday. The news led to an upgrade from neutral to buy and was cause for celebration at a time when the wedding business has little to cheer. Shares of the Knot were up nearly 7% in late day trading (8.30) on the positive earning news, despite a record 1000 point decline yesterday” (http://www.ewednews.com/post.cfm/the-knot-numbers-beat-expectations-but-fail-to-wow-advertisers).
Another clear example of network effects is with the growth in popularity of cell phone applications. Interestingly, according to eWedNews, the wedding industry has not yet taken advantage of cell phone apps! Since 2009, eWedNews has been tracking the information and progress of My Wedding Concierge in San Diego. Owner of the company, Phyllis Cheng has compiled some iPhone application stats: “the number of iPhone apps exceeds 190,000. The number of iPhone just surpassed 50 million. The number of apps downloaded is over 4 billion. The number of iPads sold: close to 1,000,000-- The number of wedding apps? Less than 50,” says Cheung.
“Simply put, this only means there is more room for growth and expansion in the very near future,” feels Cheung. According to Phyllis, her company is the only one producing custom iPhone/iPad apps for wedding vendors. Cheung reasons, “We've had vendors say there are too many apps. Every app will find a target audience. But people are still building websites aren't they? There are currently over 230 million websites already but the app market is just getting started” (http://www.ewednews.com/post.cfm/phone-apps-exploding-but-not-in-the-us-wedding-business).
I expect that as iPhones become even more popular, there will be an increase in the number of wedding apps… network externalities case in point!
Another important method for businesses to be profitable is versioning and bundling. Buyers often shop for more than one product – especially when planning a wedding! Companies use the method of versioning and bundling to:
• shield themselves from price pressure
• create a complete solution to meet the buyer’s needs
• reduce the number of entities that the buyer must interact with when doing business
• create strategic alliances
One of the first examples that comes to mind is the strategic alliance created by David’s Bridal and Men’s Warehouse. Brides and grooms can easily coordinate the attire of their wedding party members with their alliance. If the bride chooses the color she would like the bridesmaids to wear, she can match the exact color to the tuxedos of the groomsmen. David’s Bridal and Men’s Warehouse use the same color swatches. This alliance creates an easy option for brides and grooms when choosing the bridal party attire. The bride and groom will only need to interact with two vendors to coordinate clothing for the day, rather than worrying if the colors will match. This was a very smart business decision for both companies.
Men’s Warehouse offers tuxedo deals in the form of a bundle. The groom can choose from the following options: “Get your choice of a free tuxedo or suit to keep (up to a $400 retail value) of a free tuxedo rental (up to a $149.99 retail value) with five paid rental packages. Get an additional free tux rental with ten paid rental packages” (http://www.menswearhouse.com/). With these options to outfit the men in the bridal party, who would shop elsewhere?
Of course, it is necessary to market these alliances and bundles to be profitable. I have seen both of these techniques marketed in numerous forms: in each respective store, at bridal shows, on their respective websites and even in targeted emails. All in all, the techniques discussed above are essential to making businesses profitable.
