1. Innovation Workout
Complementary Assets

2. Definition Two assets are complementary Classic example Urban myth:
if the consumer usually purchases them separately,
but must use them together to realize their full value
Classic example
safety razor
Gillette’s patented, high profit-margin stamped steel disposable blade
Urban myth:
the story is told that Gillette gave his razors away and made his millions by selling the blades
but this is a myth, as his razor retailed for a substantial $5
almost $134 in 2006 dollars – half the average workingman's weekly pay
Still, it sold by the millions, with tens of millions of blades to follow

3. Pricing
Two main types of pricing strategy exist for complementary good and its base good:
Pricing the base good at a relatively low price to the complementary good
this approach allows easy entry by consumers
e.g. consumer printer vs ink jet cartridge
Pricing the base good at a relatively high price to the complementary good
this approach creates a barrier to entry and exit
e.g. golf club membership vs green fees

4. Razors and Blades
Bundling (or tying) of the sales of complementary assets
present sellers with unique competitive strategies by which they can profit from those complementarities
Some kinds of bundling, especially by contract, have historically been regarded as anti-competitive (and thus illegal)
it is implied in this that one or more components of the package are sold individually by other businesses as their primary product, and thereby this bundling of goods would hurt their business
Bundling may also be a form of price discrimination:
people who use more blades
pay disproportionately more than those who just need a one-time shave
Bundling may be used with patents or copyrights to help protect entry into a market,

5. Types of Bundling of Complementary Assets
Mixed bundling occurs when consumers are offered a choice between the purchasing the entire bundle or one of the separate parts of the bundle
Pure bundling occurs when a consumer can only purchase the entire bundle or nothing
Pure bundling can be further divided into two cases:
Joint bundling: the two products are offered together for one bundled price
Leader bundling: a leader product is offered for discount if purchased with a non-leader product

6. Vendor lock-in
Vendor lock-in (a.k.a. proprietary lock-in, or customer lock-in)
makes a customer dependent on a vendor for products and services, and
usually prevents customers from using another vendor without substantial switching costs
Lock-in costs which create barriers to market entry are anti-competitive
One way to create artificial lock-in for items without it is to create loyalty schemes
frequent flyer miles
points systems associated with credit card offers
loss or cost when switching to a competitor (telephone)

7. Durable and Non-Durable Parts
King Gillette’s razor and blades business model involves products which regularly consume some material, part, or supply
A reusable (or durable product) is sold inexpensively, and
the company draws its profits from the sale of consumable parts that the product uses
To ensure the original company alone receives the profits from the sales of consumable, they use a proprietary approach to exclude other companies
Inkjet computer printers are a common example of this model.

8. The Workout Pick a specific consumer product and think through:
It’s function
The process of using it
The objective it is supposed to achieve
Make a list of its your Products Attributes
Now make a list of Complementary assets, skills or other attributes
that are not controlled by you,
but are required to make your product salable
‘Invent’ a new consumer product
By reassembling your complementary attributes into a new product