Product Line Length Research Articles

Consumer Search and Product Line Length: The Role of the Consumer-Product Fit Distribution

We examine the impact of consumer search on firms’ product line strategy and show how it critically depends on consumer-product fit distribution.

Retailer Information Sharing With Upstream Product Line Flexibility

With the rise of the digital economy, many firms are enhancing product line flexibility (i.e., the ability to adjust product line length or depth) to better manage demand uncertainties brought about by disruptive technologies. Concurrently, the booming digital economy has widened the information gap in supply chains. Retailers/platforms can now gather more detailed data to predict demand, but such data remains unavailable to manufacturers. This article studies how a manufacturer’s product line flexibility influences a retailer’s incentive to voluntarily share private demand information. We show that upstream product line flexibility encourages a retailer to voluntarily share information when product substitutability is low and the product line extension fee is moderate. This insight challenges the conventional belief that retailers should keep demand information private to maintain an advantage over manufacturers. Our work is the first to suggest that upstream product line flexibility can significantly motivate retailer information sharing. Additionally, we show that, although a social planner might prefer to withhold demand information from the manufacturer in the absence of product line flexibility, sharing this information becomes preferable when the manufacturer can adjust the product line length. The retailer’s decision on information sharing can align with the social planner’s in such scenarios. Furthermore, we demonstrate that, given upstream product line flexibility, except when product substitutability is not sufficiently high and the product line extension fee is moderate, the retailer’s information sharing decision is unaffected by whether the manufacturer determines the product line design before or after demand is realized and shared accordingly.

Clinical and Economic Value of a Biosimilar Portfolio to Stakeholders: An Integrative Literature Review.

While the value of individual biosimilars is evident, little is known about the value of a biosimilar portfolio beyond the cost savings between biosimilars and originators. Stakeholders may consider the value of a manufacturer's biosimilar portfolio, especially when negotiating portfolio-based contracts or other rebate programs. However, little is known about what other types of value, in addition to financial benefits, decision-makers perceive regarding a manufacturer with a biosimilar portfolio compared to those without one. The objective of this integrative literature review was to describe a conceptual framework consisting of themes that may help define the value of a biosimilar portfolio. An integrative literature review was conducted using Excerpta Medica Database (Embase) and Medical Literature Analysis and Retrieval System Online (MEDLINE). Grey literature searches of search engines, journals not indexed in Embase or MEDLINE, healthcare payers, health technology assessment bodies, value frameworks, and non-pharmaceutical industry analogs were also conducted. Eligible studies reported on the value of a biosimilar portfolio in decision-making by stakeholders. Apart from the literature, insights were gained from clinical experience and observation. No studies investigating biosimilar portfolio value were identified; however, several themes were identified that may help define the value of a biosimilar portfolio: Manufacturing; procurement, inventory, and storage; administration; education; and transaction costs. Several non-pharmaceutical industry analogs were identified: Product line length and single-supplier versus multiple-supplier procurement. Several themes were identified through other sources: Science credibility and research. Based on these themes, we developed a conceptual framework for biosimilar portfolio value. To our knowledge, this is the first study to systematically assess and create a framework for biosimilar portfolio value. The conceptual framework described here could be tested to quantify the clinical and economic value associated with a biosimilar portfolio.

Quality, Greenness, and Product Line Choices for a Manufacturer With Environmental Responsibility Behaviors

Motivated by the rising environmental protection awareness and the importance of green product design, in this article we develop two models to investigate the quality and greenness decisions and product line choices of a green manufacturer as well as the corresponding impact of product line length on environmental performance. In our models, both the manufacturer and consumers show environmental responsibility behaviors. We find that the manufacturer extends the product line when the unit fit cost, the green cost, the quality cost, the market scale of low-segment consumers, and the environmental responsibility level (or unit environmental cost) are low. In the presence of two products with different market positioning, our analysis reveals that: first, owing to the consumer's self-selection behavior, product quality and greenness may be distorted from the efficient quality and greenness; second, product line extension may improve both the environmental performance and the manufacturer's utility, i.e., achieving a win–win outcome; and third, a higher unit environmental cost (environmental responsibility level or a longer product line) will improve the environmental performance if the unit environmental cost is high. In the continuous green valuation setting, interestingly, we find different results that the manufacturer with a high environmental responsibility level may extend its product line, and the environmental performance increases with the unit environmental cost in the single-product case.

Brand Equity in Good and Bad Times: What Distinguishes Winners from Losers in Consumer Packaged Goods Industries?

This article examines why some brands are able to ride the wave of macroeconomic expansions, whereas other brands are better able to successfully weather contractions. Using a utility-based framework, the authors develop hypotheses on how the impact of these shocks on brand equity is moderated by six strategic brand factors: price positioning, advertising spending, product line length, distribution breadth, brand architecture, and market position. The authors utilize monthly data on 325 national consumer packaged goods brands in 35 categories across 17 years from the United Kingdom to obtain quarterly sales-based brand equity estimates. The two preeminent brand factors are distribution and assortment. Distribution is by far the most important factor in contractions. It is also the most important factor in expansions. In short, in good times and bad times, extensively distributed brands win. A wide assortment is also a strong contributor to brand equity in expansions, while it does not destroy brand equity in contractions. The authors further find that advertising spending, premium price positioning, umbrella branding structure, and market leadership matter in expansions and/or contractions, and the magnitude of their effects on brand equity is relatively modest. The discussion concludes with managerial implications.

Impact of different platform promotions on online sales and conversion rate: The role of business model and product line length

Facing fierce competition, e-commerce platforms are implementing various promotional strategies to attract consumers. Based on real-world transaction data from the largest online retailer in China, JD.com, this study builds a three-level hierarchical promotion structure and evaluates the impact of different platform promotions on sales and conversion rate. We find that monetary promotions have a stronger impact on sales than gift promotions. Among monetary promotions, standard promotions are more influential than coupon promotions. And among standard promotions, direct and quantity promotions are more effective than bundle promotions. Moreover, we find that the platforms' business model (i.e., reseller or marketplace) and product line length have significant moderating effects on the impact of quantity promotions on both sales and the conversion rate, while the moderating effects on direct promotions are only observed on its impact on sales. Our findings offer guidelines for e-commerce platforms to implement efficient promotion strategies to improve their performance by generating online consumer purchase intention and behavior based on the business model and product line length.

How social communications affect product line design in the platform economy

The booming platform economy has made it very convenient for consumers to communicate with each other through social media whenever and wherever they want. As industry and academia have repeatedly confirmed, such social communications are now significantly changing firms' business and management practices. This paper studies how social communications affect an upstream firm's product line design in the platform economy when an online platform makes strategic contract choices. We show that for both wholesale and agency contracts, social communications increase the product line length while decreasing the product price and quality. We also identify the conditions under which social communications provide a firm with fewer incentives for product line extension under a wholesale contract than under an agency contract. On the platform side, we show that an agency contract can be preferred in the presence of social communications over a wholesale contract if and only if the commission rate is sufficiently high or both the commission rate and the product line extension fee are moderate.

The Dual Impact of Product Line Length on Consumer Choice

Although extant literature has argued for both positive and negative effects of product line length on choice, i.e. a “dual impact,” such a possibility has not been empirically investigated. This is the first study to address this issue, using a multiple discrete choice model for horizontally differentiated goods. The authors argue that the dual impact of product line length is due to competing effects of the two constituent dimensions of product line structure: a positive effect of product line width (total number of product configurations offered) and a negative effect of average line depth (average number of SKUs per product configuration). They also examine the moderating role of choice diversification propensity manifested in multiple discreteness. An empirical application in the potato chip market confirms the expectations regarding the competing effects of the two product line dimensions and hence the dual impact of product line length. Furthermore, the negative effect of average line depth is found to be more pronounced for households with higher choice diversification propensity. These findings are not only novel but also meaningful since simulations show that the corresponding effects influence product line management decisions and new product design.

Reprint of “The impact of development cost on product line design and its environmental performance”

To address environmental problems such as pollution and climate change, many firms have endeavoured to develop green products with higher environmental quality, which includes dimensions like energy efficiency and recyclability. However, environmental quality is oftentimes associated with significant development cost. In this paper, we build and analyse mathematical models to understand how development cost affects a firm’s product line design when there are two consumer segments with different willingness to pay for environmental quality. The firm can employ the mass marketing strategy and develop one standard product for all consumers, or employ the market segmentation strategy and develop two differentiated products for the two consumer segments separately. We show how various parameters, especially the development cost, affect the firm’s choice on the product line length, or equivalently, between the mass marketing and market segmentation strategies, and the consequent profit and environmental performance. Furthermore, we identify different scenarios where the objective of maximizing profit may or may not lead to better environmental performance.

Conflicting quality attributes, distribution channel structure and product line length in quality-based segmentation

Conflicting quality attributes, distribution channel structure and product line length in quality-based segmentation

The impacts of public sustainability concerns on length of product line

This paper studies how the public sustainability concerns affect a firm’s decisions of product line design under different channel structures. Both centralized distribution channel and decentralized distribution channel are taken into consideration. Our research shows that the public sustainability concerns can make the centralized firm shorten its product line when the coefficient of consumer mismatching disutility is moderate. In addition, when the centralized firm makes the decision of product line extension from the aspect of maximizing social welfare, a relative low level of the public sustainability concerns can incent it to extend the product line. The public sustainability concerns are shown to be able to weaken the positive impact of channel decentralization that has on product line extension when the coefficient of consumer mismatching disutility is moderate as well.

The impact of development cost on product line design and its environmental performance

To address environmental problems such as pollution and climate change, many firms have endeavoured to develop green products with higher environmental quality, which includes dimensions like energy efficiency and recyclability. However, environmental quality is oftentimes associated with significant development cost. In this paper, we build and analyse mathematical models to understand how development cost affects a firm’s product line design when there are two consumer segments with different willingness to pay for environmental quality. The firm can employ the mass marketing strategy and develop one standard product for all consumers, or employ the market segmentation strategy and develop two differentiated products for the two consumer segments separately. We show how various parameters, especially the development cost, affect the firm’s choice on the product line length, or equivalently, between the mass marketing and market segmentation strategies, and the consequent profit and environmental performance. Furthermore, we identify different scenarios where the objective of maximizing profit may or may not lead to better environmental performance.

Competition, product line length, and firm survival: evidence from the US printer industry

ABSTRACTAdjusting product line length is one major strategy that firms employ to sustain their market position in competitive environments. This study extends extant literature on product line length by adding empirical results on the relationship between competitive intensity and product line length, and by examining the performance of firms that follow the suggested product line strategies. The analysis of data on 1849 printer products introduced by 342 manufacturers from 1983 to 2002 shows an inverted U-shaped relationship between competitive intensity and product line length, and firms following this pattern have a significantly lower hazard ratio of exit. These results confirm those discussed in the previous literature and provide evidence of the positive impacts of following such product strategies on firm survival.

Retailer's Product Line Choice with Manufacturer's Multichannel Marketing

This paper studies how a retailer decides the length of product line in a vertically related industry. We study a market with two product varieties. Each retailer decides the number of varieties it procures from an upstream manufacturer. The manufacturer may open an online store and encroach on the resale market. In the case of a monopoly retailer, anticipating the online store’s encroachment, the retailer may be willing to shorten its product line, although it can choose a full-length one. In the case of duopoly retailers, on the other hand, retailers may make their product lines completely overlapped, partially overlapped, or non-overlapped. Moreover, the total surplus may decrease due to the efficiency loss in the online channel, although the competition in the resale market becomes more intense.

Selling a Product Line Through a Retailer When Demand Is Stochastic: Analysis of Price-Only Contracts

Problem description: In practice, many consumer products are produced and stocked in product lines rather than in single product variants. The issue is that manufacturers and retailers often do not agree on the product line length (i.e., the number of variants included in the product line). The focus of this study is to understand how product line length and stocking quantities depend on how demand risk is contractually allocated. Academic/practical relevance: Our model combines assortment and stocking decisions in the presence of stochastic demand; previous models could address either assortment or stocking issues, but not necessarily both. Methodology: We present a game-theoretic model of a bilateral supply chain in which a manufacturer (he) sells up to two differentiated products through a retailer (she). He decides which products to produce, their wholesale prices, and how to allocate demand risk. We theorize that he can either retain the risk (by adopting a pull contract) or that he can pass it onto the retailer (by adopting a push contract). She responds by choosing assortment, quantities, and retail prices. By solving the model, we develop a descriptive theory that clarifies his incentive to expand his product offering and to reallocate demand risk within the supply chain. Results: Depending on the level of product differentiation, we identify three regions. When product differentiation is either low (commodities) or high (specialized products), the contract choice affects order quantities but not assortment. In these regions, the manufacturer’s contract choice can be explained by looking at elasticity of wholesale demand. For products with some differentiation, the manufacturer’s contract choice affects both order quantities and assortment. In this region, the manufacturer’s contract choice can be explained by looking at the additive effect of demand elasticity and sales expansion from the extended product line net of cannibalization. Managerial implications: Our paper can be seen as a first step toward developing a link between optimal product line design and optimal risk allocation in a bilateral supply chain.

Selling a Product Line Through a Retailer When Demand Is Stochastic: Analysis of Price-Only Contracts

To expand sales, many manufacturers try to develop and sell product lines. Frequently, however, the operations of distributing a product line creates tension between manufacturers and retailers as they do not necessarily agree on which product versions included in the product line should be sold to consumers. To mitigate this tension, previous literature has shown that if a manufacturer (he) wants to sell his product line through a retailer (she) who faces deterministic demand, then he needs to adjust his product qualities according to her requirements; otherwise she will not carry the entire line. In contrast, this paper shows that if demand is stochastic, then a manufacturer can mitigate the same tension merely by re-allocating inventory risk in the supply chain. This strategy can be so effective that it is possible to find cases where the equilibrium product line is actually longer in a decentralized supply chain than in the direct-selling case. To understand the tradeoff, we consider a supply chain with a manufacturer capable of producing multiple product designs and a retailer who faces stochastic consumer demand. The manufacturer sells his output through the retailer using one of the following variations on the classical wholesale contract: push (PH), pull (PL), or instantaneous fulfillment (IF). With PH and PL (IF), wholesale prices and quantities are decided before (after) demand is revealed. Retail prices are always set after demand is revealed. With PH (PL) the retailer (manufacturer) carries retail inventory. Taking the manufacturer's point of view, we characterize the equilibrium product line length and equilibrium contracting strategy. Our answers are determined by three important drivers: demand variability, product substitutability, and the retailer's outside option. Low outside option and low (high) substitutability imply that the manufacturer maximizes his expected profit offering the retailer longer (shorter) product line using the IF contract. As outside option increases, the equilibrium contract will be either PH or PL. High demand variability and low substitutability imply that the manufacturer should be expected to sell a longer product line with a PH contract. Low demand variability and high substitutability imply that the manufacturer should be expected to sell a shorter product line with a PL contract.

Redesigning product lines in a period of economic crisis: a hybrid simulated annealing algorithm with crossover

The optimal product line design is an NP-hard optimization problem in marketing that involves a number of decisions, such as product line length and configuration. Simulated annealing constitutes the best performing approach so far, but with extremely large running times. In the current study simulated annealing is hybridized with an evolutionary algorithm to improve its search efficiency and alleviate its performance dependence on the selection of the parameters related to its cooling schedule. The presented approach outperforms genetic algorithms and classic simulated annealing, through the use of crossover as a neighborhood operator, along with the restricted tournament selection as the replacement strategy of the evolutionary algorithm’s population. Moreover, the paper describes the way that the proposed hybrid metaheuristic can be used for redesigning a firm’s product line. The issue of redesigning product lines becomes even more important in periods of economic crisis, as firms must adapt their offerings to new evolving patterns of consumer buying behavior and reduced levels of consumer’s purchasing power. The applicability of the proposed approach is illustrated through the case of the 2008 automotive industry crisis, by showing how the North American car manufacturers could have redesigned their lines on time, based on the configuration of the competitive products in the market as well as the new customer preferences emerged during the economic recession.

Product Offerings and Product Line Length Dynamics

This paper provides a model that uses preference heterogeneity to rationalize the crosssectional and intertemporal variation in a firm’s product proliferation strategies. Product-line dynamics arise from shocks to preference heterogeneity. For example, in the potato chip category I study, consumer concerns over fat levels in foods created two desirable alternatives (low fat and zero fat) for each flavor. On the supply side, firms learn about these changing tastes and adapt product lines accordingly. For tractability, the heterogeneity in preference is captured within the nesting parameter in an aggregate nested logit demand model. I find greater preference heterogeneity for smaller packages of chips and for markets with more demographic diversity. The dominant firm in the market bases its decisions primarily on past experience in the market, with the latest preference shocks representing only 30% of the influence in product-line decisions. Gross margins are increased by 5% if firms have perfect information about preference diversity. Costs for product line maintenance constitute about 2% of total revenue. Sunk costs incurred when expanding the product line are estimated to be four times the per-product fixed cost, thereby limiting the flexibility of product-line adjustment. The probability of line length adjustment grows from 70% to 90% under a smooth cost structure.

Pricing and product line strategy in a supply chain with risk-averse players

We study the pricing and product line strategy of a risk-averse manufacturer who sells her products through a risk-averse retailer. We identify the conditions under which the manufacturer extends her product line or replaces the old product with a new product, and find that (i) a higher retailer׳s risk aversion decreases the retail price but increases the unit wholesale price; (ii) the manufacturer extends the product line if the price caps for both products are sufficiently high, both her risk aversion and product substitutability are sufficiently low; (iii) the manufacturer discontinues the old product if the relative price cap of the new product to the old product is sufficiently high, her risk aversion is medium, and product substitutability are sufficiently high. Further, we find that (i) the decentralization of supply chain may increase product line length if the retailer׳s risk aversion, and product substitutability are sufficiently high, otherwise, it may decrease product line length; (ii) the endogenization of quality design increases the motivation to introduce a new product; and (iii) the manufacturer extends or replaces the product line if quality cost is not too high.

Detecting the relationship between competitive intensity and firm product line length: Evidence from the worldwide mobile phone industry

The way firms lengthen or shorten their product line with respect to rivals is regarded as one of the possible strategies firms can pursue to respond to competition. This article builds and tests hypotheses to study the effect of different levels of competitive intensity on product line length. The empirical analysis of data on 3,527 handset models introduced by 66 mobile phone vendors from 1994 to 2010 shows a consistent inverse U‐shaped relationship between competitive intensity and the firm's product line length. In this way, we pinpoint an interesting link between the product line extension literature and the competitive dynamics and competitive intensity perspectives. Copyright © 2013 John Wiley & Sons, Ltd