Enhancing Marketing with Engineering: Optimal Product Line Design for Heterogeneous Markets

International Journal of Research in Marketing (IJRM), Vol. 28, No. 1, pp. 1-12, March 2011

35 Pages Posted: 8 Aug 2010 Last revised: 1 Jul 2014

See all articles by Jeremy J. Michalek

Jeremy J. Michalek

Carnegie Mellon University

Peter Ebbes

HEC Paris - Marketing

Feray Adiguzel

Erasmus University Rotterdam (EUR)

Fred M. Feinberg

University of Michigan at Ann Arbor - Marketing; University of Michigan, Stephen M. Ross School of Business

Panos Y. Papalambros

University of Michigan at Ann Arbor

Date Written: March 2011

Abstract

Successful product line design and development often requires balancing technical and market trade-offs. Quantitative methods for optimizing product attribute levels using preference elicitation (e.g., conjoint) data are useful for many product types. However, products with substantial engineering content involve critical trade-offs in the ability to achieve those desired attribute levels. Technical trade-offs in a product’s design must be made with an eye toward market consequences, particularly when heterogeneous market preferences make differentiation and strategic positioning critical to capturing a range of market segments and avoiding cannibalization.

We present a unified methodology for product line optimization that coordinates positioning and design models to achieve realizable firm-level optima. The approach overcomes several shortcomings of prior product line optimization models by incorporating a general Bayesian account of consumer preference heterogeneity, managing attributes over a continuous domain to alleviate issues of combinatorial complexity, and avoiding solutions that are impossible to realize. The method is demonstrated for a line of dial-readout scales, using physical models and conjoint-based consumer choice data. Results show that the optimal number of products in the line is not necessarily equal to the number of market segments; that an optimal single product for a heterogeneous market differs from that for a homogeneous one; and that the representational form for consumer heterogeneity has a substantial impact on the design and profitability of the resulting optimal product line – even for the design of a single product. The method is managerially valuable, as it yields product line solutions efficiently, accounting for marketing-based preference heterogeneity as well as engineering-based constraints on which product attributes can be realized.

Keywords: Product Line Design, Heterogeneity, Decomposition, Analytical Target Cascading, Hierarchical Bayes, Conjoint Analysis, Discrete Choice Analysis, Design Optimization

JEL Classification: C11, C61, C81, L10, L20, M11, M30,

Suggested Citation

Michalek, Jeremy J. and Ebbes, Peter and Adiguzel, Feray and Feinberg, Fred M. and Papalambros, Panos Y., Enhancing Marketing with Engineering: Optimal Product Line Design for Heterogeneous Markets (March 2011). International Journal of Research in Marketing (IJRM), Vol. 28, No. 1, pp. 1-12, March 2011, Available at SSRN: https://ssrn.com/abstract=1654516

Jeremy J. Michalek

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Peter Ebbes (Contact Author)

HEC Paris - Marketing ( email )

Paris
France

Feray Adiguzel

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Fred M. Feinberg

University of Michigan at Ann Arbor - Marketing ( email )

Ann Arbor, MI 48109
United States

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Panos Y. Papalambros

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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