Abstract

The customer “co-design” systemis referred to as a set of design resources provided by the firm to the customer, with the customer then making use of these resources in order to design his or her own product, ultimately resulting in a highly-customized product suited to the customer’s individual needs. The variety or scope of the system signifies all design possibilities and the degree of freedom to which customers can exercise their creativity during the design process. A system with a wide scope will encourage customers to actively create novel designs, whereas a narrowly-scoped system may only allow the customer to passively choose components from lists of options. Within the context of co-design businesses, heterogeneous customer engagement in the co-design process is one of the most important factors, in that some customers prefer a wide scope and some others do not, which is dependent on customers’ preferences and their different product expertise levels. In this paper, we build an analytical model which analyzes the impact of co-design system’s scope on a firm’s demand patterns and overall profit outcomes. Our model describes a situation in which potential customers attempt to use a co-design system, with some of them successfully purchasing their own products, and others abandoning the co-design tasks midway through, with these outcomes dependent on the system’s scope and the customers’expertise levels. As a result, our analysis suggests that the firm is better off providing as wide of a co-design scope as possible, which results in a maximization of profit. However, firms who were in the midst of widening their co-design scopes might experience decreases in profits during their transition. After enduring this difficult phase and subsequently making further efforts to widen the co-design scope, the profit begins to grow and then will continue to keep increasing.

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