Managing market risk caused by customer preference uncertainty in product family design with launch flexibility: Product option strategy

Abstract

The uncertainty of customer preference is one of major sources of product family design risk. Since the prediction of customer preference entails forecasting and estimation error, the uncertainty is inevitable. The present study proposes the novel method for module-based product family design, product option strategy. Product option strategy provides the launch flexibility to companies. The firm has the right to release a maximum-utility product alternative among the product option set, corresponding to actual customer preference. Launch flexibility saves commercialization cost resulting from ineffective product launch and enhances market share by possessing diverse product alternatives. The strategy is implemented by the two-stage decision model with heuristic algorithm. The structure of decision model accommodates the request of consumer electronic industry on logical decision mechanism to persuade internal stakeholders. The decision model strikes the balance between development goals of main internal stakeholders, market effectiveness and operational efficiency. The proposed strategy is applied to product family design of LCD TV. In the case study, the proposed method achieves higher market share with the same or less operational complexity (cost) but the advantage might be limited under complex product architecture. In the future, operational cost model will be elaborated for the equivalent comparison between market share and operational cost.