Product Portfolio Strategies: The Case of Multifunction Products

Chen, Yu‐Wen; Vakharia, Asoo J.; Alptekinoğlu, Aydın

doi:10.3401/poms.1080.0064

Cited by 29 publications

(21 citation statements)

References 31 publications

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“…Thus, the market finding that certain technologically feasible FPs might not be offered by a firm is also validated through an analysis of the Lagrangean multiplier ν k . In addition, this type of analysis also resonates with some of the results in Chen et al (2008) where the substitution effects were assumed to be symmetric.…”

Section: Model Development and Analysismentioning

confidence: 67%

“…Note that, different from Chen et al (2008), the substitution between any two products in this model can be asymmetric (Allenby & Rossi, 1991; Sethuraman, Srinivasan, & Kim, 1999). Normally, a high‐end product has a stronger substitution effect to its low‐end substitute than vice‐versa.…”

Section: Model Development and Analysismentioning

confidence: 99%

“…To establish concavity, we need to show that the principal minors of H alternate in sign. Although this can be easily shown for the case of n = 2 functionalities with some additional restrictions on the substitution effects (Chen et al, 2008), it is analytically difficult to reach this conclusion when FPs can be designed with n ≥ 3 functionalities. Also note that, in some cases, concavity of the objective function does not guarantee that by simultaneously solving the first‐order condition (FOC), we can determine the optimal quantities because such an interior solution might violate the nonnegativity constraints on these decision variables.…”

Section: Model Development and Analysismentioning

confidence: 99%

“…However, after use, consumers find that there is a negative association between product usability and the number of features integrated in the product. Chen, Vakharia, and Alptekinoǧlu (2008) investigate the product portfolio decision for a firm that can offer two SPs and one multifunction (two-function) product to the market. Given this setting, they focus on identifying key parameters that drive the decision to either include or not include the multifunction product in a product portfolio.…”

Section: Relevant Literaturementioning

confidence: 99%

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Fusion Product Planning: A Market Offering Perspective*

Chen¹,

Carrillo²,

Vakharia³

et al. 2010

Decision Sciences

Self Cite

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Devices that integrate multiple functions together are popular in consumer electronic markets. Examples include the cellular phone that takes digital pictures and plays MP3's, the PDA with cell phone, and multi-function office machines. We describe these multi-function devices as fusion products since they fuse together products which traditionally stand alone in the marketplace. In this paper, we investigate the manufacturer's fusion product planning decision adopting a market offering perspective which allows us to address the design and product portfolio decisions simultaneously.The general approach adopted is to develop and analyze a profit maximizing model for a single firm which integrates product substitution effects in identifying an optimal market offering. In the general model, we demonstrate that the product design and portfolio decisions are analytically difficult to characterize since number of possible portfolios can be extremely large. To resolve this, we propose an algorithm which identifies the optimal solution and the corresponding product design.The managerial insight from a stylized all-in-one model and numerical analysis is that the manufacturer should in most cases select only a subset of fusion and singlefunction products to satisfy the market's multi-dimension needs. This may explain why the function compositions available in certain product markets are limited. In particular, one of the key factors driving the product portfolio decision is the margin associated with the fusion products. If a single all-in-one fusion product has relatively high margins, then this product likely dominates the product portfolio. Also, the congruency of the constituent single function products is an important factor. A portfolio of single function products is considered to be fairly congruent if it is easy to create a fusion product from them and that the newly fused product is serving a similar market as the original single-function products. When substitution effects are relatively high (i.e. the product set is more congruent), a portfolio containing a smaller number of 1 products is more likely to be optimal. Conversely, when substitution effects are relatively low (i.e. the product set is more incongruent), then the optimal product portfolio is generally larger in size and more sensitive to small changes in profit margins.

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Section: Model Development and Analysismentioning

confidence: 67%

Section: Model Development and Analysismentioning

confidence: 99%

Section: Model Development and Analysismentioning

confidence: 99%

Section: Relevant Literaturementioning

confidence: 99%

See 2 more Smart Citations

Fusion Product Planning: A Market Offering Perspective*

Chen¹,

Carrillo²,

Vakharia³

et al. 2010

Decision Sciences

Self Cite

View full text Add to dashboard Cite

show abstract

“…Fang and Whinston (2007) explore real options contracts as a price discrimination tool under demand uncertainty. Chen et al (2008) investigate product portfolio decisions of a single firm.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Limited Supply on a Firm's Bundling Strategy

Cao

Stecke

Zhang

2015

Production and Operations Management

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A firm's two-product bundling decision is examined when the supply of one product is limited and consumer valuations are normally distSteckeributed. The firm can choose to sell products separately and/or through a bundle. We find that the impact of limited supply on a firm's bundling decision depends on the correlation between the consumer valuations of the two products as well as the symmetry level of the two products in terms of their attractiveness (how much they are valued by consumers). When the valuation correlation is high and the symmetry level of the two products is low, limited supply can drive bundling. When the valuation correlation is low or the symmetry level is high, limited supply can drive no bundling. When the attractiveness of both products are low or the valuation correlation is very high, limited supply has no impact on a firm's bundling decision: The firm should not bundle for all supply levels.This study offers a new driver for product bundling: the limited supply of a product. The existing bundling literature suggests that a firm should bundle symmetric products that have a low consumer valuation correlation, when bundling is driven by consumer valuation heterogeneity reduction. In contrast, when bundling is driven by limited supply, a firm should bundle asymmetric products with a high consumer valuation correlation. The benefit of supply-driven bundling depends on the severity of supply limitation. When supply limitation is moderate, bundling creates value by expanding the market of the less attractive product. When supply limitation is severe, bundling enables a firm to extract a higher margin from the less attractive product.

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