A model of product line design and introduction sequence with reservation utility

A model of product line design and introduction sequence with reservation utility

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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:
Keywords: design, management, simulation: applications
Abstract:

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.

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