IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article

A Cross-Functional Approach to Evaluating Multiple Line Extensions for Assembled Products

  • Kamalini Ramdas

    ()

    (Darden Graduate School of Business, University of Virginia, Charlottesville, Virginia 22906)

  • Mohanbir S. Sawhney

    ()

    (Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)

Registered author(s):

    Assembled product manufacturers often introduce line extensions that share components with existing products, or among themselves, resulting in cost interactions among products because of shared costs, and revenue interactions because of cannibalization. We present a cross-functional approach to evaluating multiple line extensions that simultaneously considers revenue implications of component sharing at the product level and cost implications at the component level. We develop a source-of-volume model and a measurement procedure to decompose the life-cycle sales volume from a line extension into sales from cannibalization, competitive draw, and demand expansion. We develop an activity-based costing procedure for estimating the life-cycle costs of line extensions that share components. We develop an optimization model that uses these revenue and cost estimates to identify a subset of line extensions that maximizes incremental profits. We implement our approach at a quartz wristwatch manufacturer. Results suggest that our approach would have improved profits for the firm by over 5%, while actually launching fewer line extensions. We also find that the drivers of cannibalization are counterintuitive. In simulation studies, our approach outperforms three managerial heuristics. We demonstrate that this approach is most valuable when cannibalization dominates competitive draw as a source of volume, and discuss its relative merits under low and high parts-sharing.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://dx.doi.org/10.1287/mnsc.47.1.22.10667
    Download Restriction: no

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 47 (2001)
    Issue (Month): 1 (January)
    Pages: 22-36

    as
    in new window

    Handle: RePEc:inm:ormnsc:v:47:y:2001:i:1:p:22-36
    Contact details of provider: Postal:
    7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA

    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page: http://www.informs.org/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Karl T. Ulrich & David J. Ellison, 1999. "Holistic Customer Requirements and the Design-Select Decision," Management Science, INFORMS, vol. 45(5), pages 641-658, May.
    2. Kelvin Lancaster, 1990. "The Economics of Product Variety: A Survey," Marketing Science, INFORMS, vol. 9(3), pages 189-206.
    3. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
    4. Suresh K. Nair & Lakshman S. Thakur & Kuang-Wei Wen, 1995. "Near Optimal Solutions for Product Line Design and Selection: Beam Search Heuristics," Management Science, INFORMS, vol. 41(5), pages 767-785, May.
    5. Richard D. McBride & Fred S. Zufryden, 1988. "An Integer Programming Approach to the Optimal Product Line Selection Problem," Marketing Science, INFORMS, vol. 7(2), pages 126-140.
    6. Schmalensee, Richard. & Thisse, Jacques François., 1985. "Perceptual maps and the optimal location of new products," Working papers 1722-85., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Gregory Dobson & Shlomo Kalish, 1993. "Heuristics for Pricing and Positioning a Product-Line Using Conjoint and Cost Data," Management Science, INFORMS, vol. 39(2), pages 160-175, February.
    8. Paul E. Green & Abba M. Krieger, 1985. "Models and Heuristics for Product Line Selection," Marketing Science, INFORMS, vol. 4(1), pages 1-19.
    9. Ulrich, Karl, 1995. "The role of product architecture in the manufacturing firm," Research Policy, Elsevier, vol. 24(3), pages 419-440, May.
    10. Glen L. Urban & Philip L. Johnson & John R. Hauser, 1984. "Testing Competitive Market Structures," Marketing Science, INFORMS, vol. 3(2), pages 83-112.
    11. John Paul MacDuffie & Kannan Sethuraman & Marshall L. Fisher, 1996. "Product Variety and Manufacturing Performance: Evidence from the International Automotive Assembly Plant Study," Management Science, INFORMS, vol. 42(3), pages 350-369, March.
    12. Gregory Dobson & Shlomo Kalish, 1988. "Positioning and Pricing a Product Line," Marketing Science, INFORMS, vol. 7(2), pages 107-125.
    13. Marshall Fisher & Kamalini Ramdas & Karl Ulrich, 1999. "Component Sharing in the Management of Product Variety: A Study of Automotive Braking Systems," Management Science, INFORMS, vol. 45(3), pages 297-315, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:47:y:2001:i:1:p:22-36. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.