Product portfolio strategies: The case of multifunction products
Date of Original Version
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. © 2008 Production and Operations Management Society.
Production and Operations Management
Chen, Yuwen, Asoo J. Vakharia, and Aydin Alptekinoǧlu. "Product portfolio strategies: The case of multifunction products." Production and Operations Management 17, 6 (2008): 587-598. doi:10.3401/poms.1080.0064.