How to define a product line rich enough to cover your market, but specific enough to be profitable and sustainable? Instead of introducing additional products to cover the needs of every customer group, a solution is to enrich the products by offering optional services that complete and enhance a core product. Some examples are the wide range of options on cars, additional insurances on financial products or extra services on a flight ticket.

By offering optional features companies have the choice to offer features standard (in the core product) or as an option. Determining the optimal portfolio requires companies to define which features they should offer optionally and at which price. But the challenge is how companies should decide that.

What can Optional Choice Modeling do for you?

A few years ago we developed a method called Optional Choice Modeling to test optional features and answer the questions above. This method has now been developed further which has led to the launch of Optional Choice Modeling v2.0. With this methodology SKIM offers an efficient research tool that helps you determine which products and services to offer as optional and how to price them. We explore the potential of various scenarios and price strategies in a competitive environment to find configurations that will make your offer unique and relevant.

With this methodology it is now also possible to quantify the added complexity of offering options. Offering services optionally could very well have an effect opposite to the one intended as it increases the complexity of the offer, which might result in driving away potential customers. Generally, the more services you offer, the more complex your proposition will be to evaluate for customers. With the enhanced methodology it is possible to quantify the added complexity each single optional feature adds and its effect in a competitive environment.

What is under the hood?

Optional Choice Modeling is based on choice-based conjoint analysis, which helps us replicate actual consumer choice behavior in a realistic way within a competitive environment. This means that you'll be able to study the reactions of the market to a change in your product configuration regarding the core product and the optional features. Also, you'll be able to simulate competitor's reactions to your offer.

Want to know more? Don't hesitate to give us a call or drop an email!

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Business case*

An international insurance company is reviewing its offering in the car insurance market. The current product portfolio is very fragmented and very complex. In the last months the company has been consistently losing market shares to competitors that have a more limited offer with very simple, stripped-down products.

The insurance company now wants to simplify its offer by reducing the number of insurance products. On top of that, the company wants to increase the uniqueness of their offer by enriching each offered product with optional services. The rationale is that some services may be valuable only for a limited number of customers that in turn would be willing to pay an extra price for them. Secondly, the cheap core product should address customers that would otherwise not be attracted by the insurance company.

For the insurance company it is also crucial to make sure offering options does not make their products (too) complex and therefore less appealing. They also need to find out which services can be detached from the core product and find the optimal price point for the core product and the detached services.

By using Optional Choice Modeling SKIM is able to answer these questions. In the research experiment, respondents are asked to make purchase decisions in realistic scenarios, where core product and optional features are varied (see below example).

Figure 1 Example of a choice task

This way, we are able to measure which features should be offered optionally, what the added value of optional features is and their ability to drive demand versus the increase in complexity. Moreover, we can determine the optimal price for the core product as well as for the optional features.

Based on this study we were, among others, able to determine whether legal assistance should always be offered as standard in the core offering or as an add-on and what the optimal pricing is for optional add-ons like courtesy car and 24/7 claims service. Furthermore we were able to determine the maximum number of optional services the insurance company should offer.

*This business case is based on a fictitious study and does not contain actual study results.