Article ID: | iaor20123197 |
Volume: | 220 |
Issue: | 2 |
Start Page Number: | 338 |
End Page Number: | 348 |
Publication Date: | Jul 2012 |
Journal: | European Journal of Operational Research |
Authors: | Lacourbe Paul |
Keywords: | design, management, simulation: applications |
Cannibalization is a major concern for a firm when designing a product line. In addition, external options from outside the firm’s product line may also play a significant role. In this paper, we investigate the impact of external options, represented by reservation utility, on product line design and introduction sequence. We find that: (a) heterogeneous reservation utility defines the relative attractiveness of segments and corresponding product line; (b) reservation utility makes it more favorable to introduce products sequentially rather than simultaneously; (c) aggregating segments is an effective way to mitigate cannibalization when it becomes too difficult to manage with different values of reservation utility across multiple segments; and (d) introducing products in a non‐monotone order of quality can improve profit from simultaneous introduction when the value of reservation utility of a middle segment is particularly high.