Product Architecture and Trade-ins for Managing Sequential Innovation

Abstract

Abstract. This paper studies the problem of whether the product design framework is modular or integrated when the durable goods are sequential innovation and manufacturers adopt the trade-in policy. It is assumed that consumer preferences for product quality are uniformly heterogeneous. Whether modular or integrated, the design architecture consists of the underlying module and the improvement module. The difference is that the modular architecture has a quality loss when upgrading the replacement module. In order to expand sales, the manufacturers used the trade-in policy to buy back the old products or modules. Through the study found that, when the second generation of products is rapidly improved, manufacturers should first stage sales of the first version product, the second stage the manufacturer to replace the first version product is the second generation of products, rather than the second version product sales. When the second version product is gradually improved, the new product launch time relatively early, manufacturers choose the integrated architecture; new product launch time is relatively late and the second version module quality performance improvement over the threshold, manufacturers choose to design modular architecture.