Abstract

http://ssrn.com/abstract=2037631
 


 



Flexible Products for Dynamic Preferences


Aydin Alptekinoglu


Smeal College of Business, Pennsylvania State University

Karthik Ramachandran


Georgia Institute of Technology

April 3, 2012


Abstract:     
Consumers often have needs that change in a dynamic fashion over time due to physiological, mental or environmental variations. We address a product design dilemma in satisfying such dynamic preferences: should a firm offer multiple standard products, each designed for a specific purpose, or a flexible product that can be reconfigured by consumers as their preferences change? We develop a model in which consumer preferences shift randomly over time and consumers face a misfit disutility if this occurs. We find that products that deliver a high utility to consumers are ideal candidates for flexible designs as they encourage reconfiguration. This offers an explanation as to why flexible products are typically sold at significant premiums over their ‘inflexible’ counterparts. We also find that the relationship between optimal product strategy and dynamic consumer preferences is not obvious. Intuition suggests that product flexibility would be more valuable when consumer preferences are more dynamic (and less predictable). On the contrary, we find that a flexible product may lead to more profits than a portfolio of standard products when consumer preferences are more stable. Finally, according to our analysis, the reduced durability that may accompany flexible products makes them even more attractive for the firm.

Number of Pages in PDF File: 35

Keywords: Product strategy, flexible products, product variety, new product design, dynamic consumer preferences

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Date posted: April 12, 2012  

Suggested Citation

Alptekinoglu, Aydin and Ramachandran, Karthik, Flexible Products for Dynamic Preferences (April 3, 2012). Available at SSRN: http://ssrn.com/abstract=2037631 or http://dx.doi.org/10.2139/ssrn.2037631

Contact Information

Aydin Alptekinoglu
Smeal College of Business, Pennsylvania State University ( email )
University Park, PA 16802
United States
Karthik Ramachandran (Contact Author)
Georgia Institute of Technology ( email )
Scheller College of Business
800 West Peachtree NW
Atlanta, GA 30308
United States
HOME PAGE: http://scheller.gatech.edu/directory/faculty/ramachandran/index.html
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