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Product Design Strategy with Commonality by Considering Customer-Choice Behavior in Supply Chain

Author

Listed:
  • Xuemei Zhang

    (School of Business, Anhui Provincial Key Laboratory of Regional Logistics Planning and Modern Logistics Engineering, Fuyang Teachers College, Fuyang, Anhui 236037, P. R. China)

  • Yao Wei

    (School of Business, Anhui Provincial Key Laboratory of Regional Logistics Planning and Modern Logistics Engineering, Fuyang Teachers College, Fuyang, Anhui 236037, P. R. China)

  • Jiqiong Liu

    (School of Business, Anhui Provincial Key Laboratory of Regional Logistics Planning and Modern Logistics Engineering, Fuyang Teachers College, Fuyang, Anhui 236037, P. R. China)

  • Gang Chen

    (School of Management, University of Science and Technology of China, Hefei, Anhui 230026, P. R. China)

Abstract

Product design decisions have significant impact on a firm's competitive edge. This paper investigates the condition under which component commonality is a profitable product design strategy for a firm by considering customer-choice behavior in the supply chain environment. The design configuration with commonality can lower manufacturing cost, but it also reduces product differentiation and revenue. While the customer-choice behavior with utility maximization will impact the retailer's product pricing, we analyze a stylized model of the manufacturer who designs a product family consisting of two products for two market segments with different valuations of quality. By explicitly considering the interrelationship between customer's utility and retail price, we find that commonality strategy is conditionally profitable. Theoretical research reveals that the optimal product design strategy depends on the marginal valuations of customer-choice behavior and the cost-coefficient of the common component determined by the supplier. An example is used to illustrate how some supply chain parameters impact the optimal product design strategy.

Suggested Citation

  • Xuemei Zhang & Yao Wei & Jiqiong Liu & Gang Chen, 2015. "Product Design Strategy with Commonality by Considering Customer-Choice Behavior in Supply Chain," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 32(05), pages 1-22.
    • Handle: RePEc:wsi:apjorx:v:32:y:2015:i:05:n:s0217595915500372
    DOI: 10.1142/S0217595915500372
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    Citations

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    Cited by:

    1. Xiaoxiao Luo & Minqiang Li & Nan Feng & Fuzan Chen, 2017. "Optimal Design on Customized Bundling Strategy of Information Goods for Customers with Two-Dimensional Heterogeneity," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(02), pages 1-32, April.
    2. Mohit Goswami, 2018. "Establishing predictive relationships between price and select product, market, and consumer related dimensions: an investigation within indian consumer electronics market," OPSEARCH, Springer;Operational Research Society of India, vol. 55(2), pages 361-380, June.
    3. Xiaoying Cheng & Lifeng Mu & Yanhong Sun & Yiwen Bian, 2018. "Optimal Pricing Decisions for the Online Video Platform Under Customer Choice," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 35(01), pages 1-21, February.

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