Product portfolio strategies: The case of multifunction products

Yuwen Chen, Asoo J. Vakharia, Aydin Alptekinoǧlu

Research output: Contribution to journalArticle

19 Scopus citations

Abstract

Motivated by the proliferation of multifunction products, we investigate product portfolio decisions of a single firm by analyzing the impact of three major factors. First, because multifunction products provide complete or partial functionalities of single-function products, we incorporate substitution or cannibalization effects between the potential products. Second, we explicitly model the variable costs of manufacturing the single-function and multifunction products. Third, we examine the firm's pricing decisions because of their impact on the degree of cannibalization between the multifunction product and one or more single-function products. Using an economic model, we first characterize the firm's optimal product portfolio (through a quantity-based decision), which in turn determines the market equilibrium prices for each product in its portfolio. Some of the unique insights stemming from our analysis are: (a) the optimal product portfolio choice is driven primarily by maximum profit margins for the single-function products weighted by the demand substitution effects; and (b) from a product design perspective, the complete functionality of the base single-function product is always included in the optimal product offering, but this is not necessarily the case with the complete functionality of the nonbase single-function product.

Original languageEnglish (US)
Pages (from-to)587-598
Number of pages12
JournalProduction and Operations Management
Volume17
Issue number6
DOIs
StatePublished - Nov 1 2008

All Science Journal Classification (ASJC) codes

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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