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Commonality Decisions when Designing for Multiple Markets

Sreelata Jonnalagedda and Haritha Saranga
Journal Name
European Journal of Operational Research
Journal Publication
others
Publication Year
2017
Journal Publications Functional Area
Marketing
Publication Date
Vol. 258, Issue 3, May 2017, Pg. 902–911
Abstract

It is well-established that a manufacturer’s commonality decisions between related products are driven by trade-offs between cost savings from standardization and demand effects of customization. Prior research has examined these trade-offs in the context of product line design for a single geography where cannibalization is a primary concern. However, the insights from a single market may not readily apply when serving related products for different geographies where cannibalization ceases to be a concern. The downside of commonality for geographically separated markets arises from a mismatch in customer preferences, which results in disutilities. In this paper we model the trade-off between the consumer-side disutilities and the cost-side scale economies in the presence of demand uncertainty, and derive the optimal extent of commonality between products for both the markets in the context of two product development strategies: (i) primary market centric design (PMD) and (ii) design for multiple markets (DFM). Our insights from analytical and numerical analysis show that when consumers are very picky and market uncertainty is low, the DFM strategy outperforms the PMD strategy. Counter to the practice of introducing primary market centric products into emerging markets our study demonstrates the need for more customization, especially in small, but uncertain markets. Our research has important implications for automakers in integrating the diversity in tastes while making commonality decisions for multiple markets.

Commonality Decisions when Designing for Multiple Markets

Author(s) Name: Sreelata Jonnalagedda and Haritha Saranga
Journal Name: European Journal of Operational Research
Volume: Vol. 258, Issue 3, May 2017, Pg. 902–911
Year of Publication: 2017
Abstract:

It is well-established that a manufacturer’s commonality decisions between related products are driven by trade-offs between cost savings from standardization and demand effects of customization. Prior research has examined these trade-offs in the context of product line design for a single geography where cannibalization is a primary concern. However, the insights from a single market may not readily apply when serving related products for different geographies where cannibalization ceases to be a concern. The downside of commonality for geographically separated markets arises from a mismatch in customer preferences, which results in disutilities. In this paper we model the trade-off between the consumer-side disutilities and the cost-side scale economies in the presence of demand uncertainty, and derive the optimal extent of commonality between products for both the markets in the context of two product development strategies: (i) primary market centric design (PMD) and (ii) design for multiple markets (DFM). Our insights from analytical and numerical analysis show that when consumers are very picky and market uncertainty is low, the DFM strategy outperforms the PMD strategy. Counter to the practice of introducing primary market centric products into emerging markets our study demonstrates the need for more customization, especially in small, but uncertain markets. Our research has important implications for automakers in integrating the diversity in tastes while making commonality decisions for multiple markets.