DEFINITION of 'Versioning'

Versioning is a business practice in which a company produces different models of the same product, and then charges different prices for each model. Versioning a product gives the consumer the option of purchasing a higher valued model for more money or a lower valued model for less money. In this way, the business is attempting to attract higher prices based on the value a customer perceives.

Also known as "quality discrimination.”

BREAKING DOWN 'Versioning'

This is usually done when a product has large fixed costs of production and small variable costs. For example, in software packages, features are added or taken away to give different versions and price points. Having different options will accommodate different utilities of the consumers. It is based on the willingness to pay of the customer; a higher willingness to pay will result in the purchase of the higher quality product, and a lower willingness to pay will result in the purchase of the lower quality product.

How Versioning is Applied

Versioning can be found in a variety of industries. In the consumer technology market, tablets and smartphones often are released in different versions that may be feature varied tiers of data storage capacity and other options. For instance, a higher-end version of a smartphone may include a higher resolution screen for playing back video as well as control features not found on the other phones in the product line.

Software suites frequently see versioning options, which allows customers to choose the features they want to pay to access. For example, Microsoft sells its Office suite of programs in different versions in home, personal, and student variations. The company also offers the software suite in different tiers for business users, each iteration including different software titles as well as services depending on the version purchased.

Subscription television providers, which can be cable or satellite, can also offer customers different versions of their services, typically offered as packages set at different prices. As more channels are added, the price increases, with premium channels often reserved for the more costly package offerings.

The auto industry applies versioning to its products as well. The base model of most any vehicle can be equipped with optional features, such as premium sound systems, connectivity with Internet and data services, and onboard roadside services. The vehicle may have engine options, allowing for faster models to exist. Seating options can also increase or decrease the passenger capacity across different models.