Flexible Products for Dynamic Preferences
Smeal College of Business, Pennsylvania State University
Georgia Institute of Technology
April 3, 2012
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 preferencesworking papers series
Date posted: April 12, 2012
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