This is an MIT Sloan Management Review Article. Companies must make important decisions about which features to include in the goods and services they offer to customers. Understanding the return on investment for a feature is essential to increasing profitability. Although tadding features increases costs, it may also increase revenues, either by attracting new customers or retaining existing customers. Yet the features that retain customers, the authors argue, may be different from the features that initially attract them. The authors provide insights from their research on how to calculate the return on investment for features. Working with a global hotel company, the authors developed a model to assess how features produce financial returns by attracting new customers and/or by retaining existing customers. The model integrates three kinds of data: the revenue increase due to the effect the feature has on attracting new customers; the revenue increase due to the effect the feature has on retaining existing customers; and the costs associated with adding the feature. They tested the model using three features, or "amenities of interest," in the hotel industry: bottled water, free internet access, and a fitness center. Not surprisingly, the authors found that free wireless internet was much more likely to attract customers than free bottled water. However, the picture changed when the authors switched from looking at features that attracted guests to features that retained them. Offering free bottled water during a stay led to a bigger boost in customer retention than offering wireless internet access.

This is an MIT Sloan Management Review article. Although standard economic theory (and common sense) dictates that customers should be just as willing to purchase carpeting priced at $500 plus delivery priced at $100 as they are to purchase carpeting with free delivery priced at $600, recent research suggests that price partitioning, the manner in which a total price is divided into components, affects customers' price perceptions, their willingness to purchase and even their likelihood of repurchasing from the same vendor. The challenge is deciding when to charge separately for extras and when to combine extras into a single total price. Whether "nickel-and-diming" your customers or "keeping things simple"is more effective for a specific transaction depends on a variety of factors, such as whether customers comparison shop, whether they are more sensitive to the prices of some components (delivery) than to others (carpeting), whether the price of one component is small or large relative to the others, whether the company controls the costs and quality of a particular component, and which components are most central to the customer's goals. The authors provide managers with a decision framework to determine when to separate what they charge into a number of parts, and when to roll everything into one price.

Consider a coffeemaker that offers 12 drink options, a car with more than 700 features on the dashboard, and a mouse pad that's also a clock, calculator, and FM radio. All are examples of "feature bloat," or "featuritis," the result of an almost irresistible temptation to load products with lots of bells and whistles. The problem is that the more features a product boasts, the harder it is to use. Manufacturers that increase a product's capability--the number of useful functions it can perform--at the expense of its usability are exposing their customers to feature fatigue. The authors have conducted three studies to gain a better understanding of how consumers weigh a product's capability relative to its usability. They found that even though consumers know that products with more features are harder to use, they initially choose high-feature models. They also pile on more features when given the chance to customize a product for their needs. Once consumers have actually worked with a product, however, usability starts to matter more to them than capability. For managers in consumer products companies, these findings present a dilemma: Should they maximize initial sales by designing high-feature models, which consumers consistently choose, or should they limit the number of features to enhance the lifetime value of their customers? The authors' analytical model guides companies toward a happy middle ground: maximizing the net present value of the typical customer's profit stream. The authors also advise companies to build simpler products, help consumers learn which products suit their needs, develop products that do one thing very well, and design market research in which consumers use actual products or prototypes.