Product Line Design with Deliberation Costs: A Two-Stage Process

Xiong, Hui; Chen, Ying‐Ju

doi:10.1287/deca.2013.0273

Cited by 14 publications

(9 citation statements)

References 19 publications

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“…Followed by Guo and Zhang (2012), Guo and Wu (2016) further consider two layers of uncertainty, regarding quality that can be eliminated through firm signaling and regarding product valuation that can be resolved through deliberation, and demonstrate that there exists a unique separating equilibrium with endogenous deliberation. Xiong and Chen (2013) further investigate a two-stage product line design problem with consumer deliberation where consumers need to pay upfront fee before obtaining the products. Li et al (2019) examine the effect of consumer deliberation cost on decentralized supply chain management.…”

Section: Literature Reviewmentioning

confidence: 99%

Balancing product differentiation and cost saving in the presence of consumer deliberation

Zhou

2019

Int Trans Operational Res

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This paper investigates the manufacturer's optimal product line design under different production strategies when customers with different preference structures (dominating or nondominating) need to incur the deliberation cost to uncover customers' valuations of product quality. We characterize the optimal price, quality, and profit under different production strategies and preference structures. Our results demonstrate that the optimal product line under both production strategies is threshold-controlled, and there exists a deliberation cost threshold, below which the manufacturer provides efficient quality for high-valuation customers and distorts the quality of low-end products, while above such a threshold, the manufacturer increases the quality dispersion between high-end and low-end products. We also find that the adoption of commonality will increase the manufacturer's profit only if the cost-saving effect is relatively significant. Contrary to the existing literature, we finally reveal that commonality can reduce cannibalization in the nondominating preference structure scenario if the deliberation cost is low and the cost-saving effect is strong or if the deliberation cost is sufficiently high.

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Section: Literature Reviewmentioning

confidence: 99%

Balancing product differentiation and cost saving in the presence of consumer deliberation

Zhou

2019

Int Trans Operational Res

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“…In general, this specific literature explores the importance of testing activities that are carried out to evaluate novel design concepts and features in new product development (NPD). The information gathered from testing can reduce uncertainty for the involved parties; for the parties on the supply side in the form of technical production problems, and for the parties on the demand‐side by revealing mismatches between product solution and customer needs (see Dahan and Mendelson 2001, Erat and Kavadias 2008, Guo and Iyer 2010, Thomke and Bell 2001, Xiong and Chen 2013,2014). Upon finding such problems, either on supply or demand side, various corrective actions (such as changes in the design of both product and production process) can be implemented.…”

Section: Related Literaturementioning

confidence: 99%

“…Among the demand‐side information acquisition papers (Guo and Iyer 2010, Xiong and Chen 2013,2014), new information is acquired by the principal in Guo and Iyer (2010), whereas it is acquired by the agent in our model. Also, Guo and Iyer (2010) assume that if the principal decides to voluntarily share the information, she would do it truthfully.…”

Section: Related Literaturementioning

confidence: 99%

“… 7 This approach constitutes the basis for any dynamic interaction between two uninformed parties, one of which may receive new but non‐verifiable information over time ‐ see Xiong and Chen (2013,2014) that follow similar mechanism design approaches to address the incentive‐compatibility problem through contracting in the case of endogenous information asymmetry. …”

Section: Notesmentioning

confidence: 99%

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Supply Diagnostic Incentives under Endogenous Information Asymmetry

Nikoofal

Gümüş

2019

Production and Operations Management

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This paper develops a dyadic supply chain model with one buyer who contracts the manufacturing of a new product to a supplier. Due to the lack of experience in manufacturing, the extent of supply risk is unknown to both the buyer and supplier before the time of contract. However, after the contract is accepted, the supplier may invest in a diagnostic test to acquire information about his true reliability, and use this information when deciding on a process improvement effort. Using this setting, we identify both operational and strategic benefits and costs of the diagnostic test. Operationally, it helps the supplier to take the first‐best level of improvement effort, which would increase efficiency of the total supply chain. Strategically, it enables the buyer to reduce the agency costs associated with implementing process improvement on the supplier. Besides these benefits, diagnostic test increases the degree of information asymmetry along the supply chain. This in turn provides the supplier with proprietary information, whose rent would be demanded from the buyer in equilibrium. Benefit‐cost analysis reveals two key factors in determining the value of diagnostic test: (i) degree of endogenous information asymmetry between supply chain firms, and (ii) the relative cost of a diagnostic test with respect to process improvement cost. Our results indicate that when both are high, the mere presence of a diagnostic test can result in less reliable supply chain. This implies that when incentives are not properly aligned, information asymmetry amplified due to diagnostic test neutralizes all its benefits.

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“…This is called to be customer choice behavior [8], [28], [42], [45], [50]. Besides, along with the diversification of customer demand, service enterprises have offered different products to form a product line for customers to choose [4], [11], [15], [23], [44], [47]. Therefore, when pricing the service product line, service firms should consider the customer choice behavior as well as the competitive relationship among different products in the same product line.…”

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confidence: 99%

Service product pricing strategies based on time-sensitive customer choice behavior

Zhang¹,

Song²,

Liu³

2017

Journal of Industrial &Amp; Management Optimization

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Product pricing strategy has a significant impact on a service company's competitive edge. Considering the heterogeneous and time-sensitive customer choice behavior, monopoly service companies price their service products depending on cost parameters as well as time-sensitive customer choice behavior. According to the different time sensitivity, customers are classed into two groups (i.e., two market segments). By considering the impact of customer choice behavior, this paper investigates how a monopoly service firm decides its service product's response time and price under two product design strategies, i.e., offering two service products respectively to two market segments, or offering one standard service product to two market segments. Results indicate that, under the two strategies, the service firm adopts a segmented pricing strategy based on the customer perceived values and time-sensitive degrees. Besides, the service firm's profit under the strategy of offering two products is always higher than that under the other strategy. This indicates that, along with the individuation of customer demand, firms should firstly segment the market, and then, design targeted products for different customers. As a result, the degree of customer satisfaction can be increased, and firms can obtain higher profits.

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Product Line Design with Deliberation Costs: A Two-Stage Process

Cited by 14 publications

References 19 publications

Balancing product differentiation and cost saving in the presence of consumer deliberation

Balancing product differentiation and cost saving in the presence of consumer deliberation

Supply Diagnostic Incentives under Endogenous Information Asymmetry

Service product pricing strategies based on time-sensitive customer choice behavior

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