Product Variety Decisions Research Articles

Product variety and design in the age of peer‐to‐peer sharing

AbstractThe rise of peer‐to‐peer (P2P) sharing, exemplified recently by increased car‐sharing and clothing‐sharing, has altered our consumption style. One can consume goods without owning them. In fact, the ownership of goods can be monetized through P2P rental markets. These changes are regarded as influencing various strategies of manufacturers of goods being shared. Specifically, this paper examines aspects of product variety and design. A stylized model is examined in which a manufacturing firm makes a product variety decision of whether to launch a niche product line in addition to an existing mass product line. Consumers are of two types, including average consumers, who value the niche product less than the mass product, and snob consumers, who evaluate the niche product highly. Results demonstrate that the existence of P2P sharing makes consumers' ownership decisions immaterial, which alleviates difficulties of cannibalization between mass and niche product lines and which therefore encourages firms to widen their product variety. Moreover, to address issues of product design, the model is extended to allow the firm to choose the degree of niche‐serving of the second product line endogenously. Results show that P2P sharing deters a firm from designing a niche for the second product line.

Store-brand product variety and price decisions under showrooming

We study a brick-and-mortar (BM) retailer competing with an online retailer in an experience goods market where a national-brand product is sold through both retailers. Consumers exhibit showrooming by visiting the BM retailer to experience the product and may switch to purchasing from the online retailer. We explore how the BM retailer counters showrooming by introducing a store brand and providing product variety through customization, in considerations of consumer heterogeneities in shopping inconvenience and product taste with asymmetric taste sensitivities towards product brands. We find that the BM retailer prefers to increase store-brand product variety when the national brand has less brand advantage, product customization is less costly, or its operational efficiency is higher. However, the BM retailer’s price decision may not be in sync with its store-brand product variety decision. Interestingly, only when the national brand has less brand advantage will the BM retailer’s store-brand strategy exhibit double-edged effects on showrooming: less (more) showrooming from consumers who have low taste-mismatch costs for store-brand (national-brand) products. Furthermore, although store-brand introduction inevitably cannibalizes national brand sales, this cannibalization effect does not necessarily curtail the BM retailer’s national brand sales due to its interplay with showrooming.

Trade‐offs between operational performance and sales in a retail environment: The simultaneous impact of product variety on inventory levels, product availability, and sales

AbstractLarger product assortments have been found to have both positive and negative impacts on firms that offer them. More product variety allows firms to increase sales by either selling to a larger customer base or by encouraging current customers to purchase more frequently and in greater quantities. However, more product variety is also associated with lower operational performance. In this research, we investigate the impact of product variety on firm performance in a retail setting. Using data gathered from a large retailer over a 32‐week period for 12 product categories, we develop a multiple stage regression model and find that the effects of product variety on inventory levels, stockout rates and sales differ across more hedonic and more utilitarian product categories. Furthermore, we find that the product variety decision itself is moderated by the hedonic or utilitarian nature of the product category. Implications of the findings for theory and retail management are discussed.

The impact of product variety on fill rate, inventory and sales performance in the consumer goods industry

PurposeThe impact of product variety decisions on fill rate, inventory and sales performance in a consumer goods company has been examined. From a marketing perspective, it is possible to leverage sales, reach new segments and consequently increase competitiveness when there is a greater product variety on the market. However, operations and logistics professionals indicate potential impacts on the supply chain, such as production, storage and distribution complexity. The nature of the product variety-cost-sales performance relationship is not clear, and empirical evidence about whether and how operations cost and sales performance increases with variety is inconclusive.Design/methodology/approachThe multiple linear regression and the Tobit regression techniques were applied over a seven-year horizon of data from a business intelligence platform of a consumer goods company.FindingsOur results show that sales performance is negatively associated with product variety. The total effect of product variety on sales performance has been examined, including both the direct effect and the indirect effect through inventory and fill rate. Therefore, the findings provide a comprehensive understanding of the impact of product variety on operations and sales performance.Originality/valueSeveral studies have researched the impact of product variety on fill rate, inventory and sales performance separately; however, the research of the impact and the relationship of these factors is scarce and limited.

Customization strategies between online and offline retailers

In this paper, we investigate the optimal customization strategies and product variety decisions for firms in different channels (online or offline). Based on an e-tailer’s and the retailers’ strategies of whether to adopt customization, we analyze four different scenarios and highlight the impact of customization on firms’ pricing decisions, profits, and consumer welfare. Furthermore, we relax the assumptions on firms’ product line design, production flexibility, as well as channel structure, and identify several managerial insights. First, with a uniform pricing scheme, the only factor that affects single-channel e-tailer/retailers’ variety decision is their cost efficiency, irrespective of other firms’ strategies. In equilibrium, the e-tailer and retailers will adopt customization and launch the customization scopes in the middle of the product line to capture as much demand as possible. Interestingly, because of the trade-off between profit margin and market share, greater variety may correspond to a lower price when the customization cost is relatively small. Moreover, we show that customization is not the only way for firms to achieve strategic excellence. Offering a limited variety of standard products, a firm still can stand out from its mass customization competitors by continuously lowering the marginal cost. Also, we claim that customization strategy may play a strategic role in directing consumer “traffic”. Therefore, adding an extra standard product line may result in e-tailer’s profit increase with customization cost when firms have symmetric cost. For similar reasons, an omni-channel e-tailer should optimally offer customized products in the online channel and standard products in offline stores.

In search of the negative relationship between product variety and inventory turnover

Inventory management literature suggests that product variety may negatively affect inventory turnover. However, little empirical evidence exists to support such a relationship. Inventory turnover is the ratio of sales to inventory, thus, the impact of product variety on both sales and inventory should be considered. Marketing literature indicates that increased product variety helps to increase sales, whereas operations management literature proposes that increased product variety leads to higher inventory levels due to a loss of risk pooling. Given that increased product variety leads to higher sales and higher inventory levels, the change in the ratio of sales to inventory (inventory turnover) in response to increased product variety is unclear theoretically and therefore more of an empirical question. In this study, we explore the impact of product variety on inventory turnover using a balanced panel data set. We find that, in general, product variety negatively affects inventory turnover, but this negative impact may disappear when demand variability is low. Our findings provide an explanation for the lack of conclusive empirical evidence supporting the negative influence of product variety on inventory turnover. Product variety may be found not to negatively affect inventory turnover as it may have a similar influence on sales and inventory levels when demand variability is low. The study also offers managerial suggestions on product variety decisions and inventory management.

The impact of product variety on LSQ in e-marketplaces

PurposeThe purpose of this paper is to reveal the impact of the e-tailers’ product variety decisions on their logistics service quality (LSQ) in B2C e-marketplaces. Furthermore, it investigates the mediation of transaction intensity and the moderation of the perceived technical quality in this relationship.Design/methodology/approachThe data were collected from one of Turkey’s biggest e-marketplace firms, N11.com. Consumer evaluations and the e-tailers’ product offers were used to operationalize research variables. Structural equation modeling was used to test the research hypotheses.FindingsProduct variety increases the sales of e-tailers but negatively affects their LSQ. This negative effect does not stem from the operational complexity resulting from increased sales; on the contrary, transaction intensity actually suppresses the negative effect of product variety on LSQ. This study additionally reveals that the perceived technical quality weakens the negative impact of product variety on LSQ.Originality/valueThe intense competition in e-marketplaces makes LSQ a key competitive factor, highlighting the importance of revealing its determinants. Although the negative effect of product variety on operational performance has been revealed in manufacturing and physical retailing environments, it has been under-investigated in online retailing. Drawing on a knowledge-based view, this study reveals how product variety decreases LSQ in the online context despite its unique features (i.e. temporal and spatial separation). Moreover, by demonstrating that the delivered product’s instrumental performance affects the perceived LSQ, it reveals that technical quality and functional quality are not disjoint components in online purchases.

Supply chain coordination with product line design and a revenue sharing scheme

AbstractMany manufacturers sell their products through retailers and share the revenue with those retailers. Given this phenomenon, we build a stylized model to investigate the role of revenue sharing schemes in supply chain coordination and product variety decisions. In our model, a monopolistic manufacturer serves two segments of consumers, which are distinguished by their willingness to pay for quality. In the scenario with exogenous revenue sharing ratios, when the potential gain from serving the low segment is substantial (e.g., the low‐segment consumers' willingness to pay is high enough or the low segment takes a large enough proportion of the market), the retailer is better off abandoning the revenue sharing scheme. Moreover, when the potential gain from serving the low (high) segment is substantial enough, the manufacturer finds it profitable to offer a single product. Furthermore, when revenue sharing ratios are endogenous, we divide our analysis into two cases, depending on the methods of cooperation. When revenue sharing ratios are negotiated at the very beginning, the decentralized supply chain causes further distortion. This suggests that the central premise of revenue sharing—the coordination of supply chains—may be undermined if supply chain parties meticulously bargain over it.

Supply Chain Coordination with Product Line Design and a Revenue Sharing Scheme

Many manufacturers sell their products through retailers and share the revenue with those retailers. Given this phenomenon, we build a stylized model to investigate the role of revenue sharing schemes in supply chain coordination and product variety decisions. In our model, a monopolistic manufacturer serves two segments of consumers, which are distinguished by their willingness to pay for quality. In the scenario with exogenous revenue sharing ratios, when the potential gain from serving the low segment is substantial (e.g., the low-segment consumers' willingness to pay is high enough or the low segment takes a large enough proportion of the market), the retailer is better off abandoning the revenue sharing scheme. Moreover, when the potential gain from serving the low (high) segment is substantial enough, the manufacturer finds it profitable to offer a single product. Furthermore, when revenue sharing ratios are endogenous, we divide our analysis into two cases, depending on the methods of cooperation. When revenue sharing ratios are negotiated at the very beginning, the decentralized supply chain causes further distortion. This suggests that the central premise of revenue sharing -- the coordination of supply chains -- may be undermined if supply chain parties meticulously bargain over it.

Product variety strategies for vertically differentiated products in a two-stage supply chain

In this paper, we study how the presence of coordination, competition and cost structures affect the product variety and pricing decisions in a two-stage supply chain. We consider vertically differentiated industries. Products reach the end customers via assembly companies positioned in the middle-tier between the producers and end customers. The assembly operations incur bill-of-materials (BOM) cost, which includes the cost of raw materials and components as well as the cost of producing, managing and synchronising supply, storage and distribution of these materials and components. We consider three coordination scenarios in the supply chain, and compare an uncoordinated supply chain with a horizontal and a vertical coordination scenario using the Nash equilibria of a multi-leader Stackelberg game between the producers and assembly companies. For exogenously given quality levels, we show that producers and assembly companies should either differentiate their product offering, or offer the high-end product only depending on the BOM cost. In addition, the uncoordinated scenario helps reduce the intensity of competition in the supply chain. For endogenous quality levels, partial product-differentiation equilibrium can emerge. Numerical experiments are performed to illustrate the impacts of BOM cost and quality levels on the equilibrium.

Product variety and distribution channel structure

We consider how a manufacturer’s product variety decision is affected by its distribution strategy. While offering product variety will generally lead to higher demand, it also has negative implications on production costs and demand uncertainty. We investigate how the manufacturer’s optimal product variety decision differs when selling directly to customers (centralised scenario) as compared to selling through a retailer (decentralised scenario). We find that the retailer’s power and the impact of product variety on demand significantly affect the attractiveness of product variety and determine under which distribution strategy the manufacturer should provide a higher level of variety.

Joint product variety, pricing and scheduling decisions in a flexible facility

This paper studies a manufacturer’s optimal product variety, pricing and scheduling decisions in a single flexible production facility when customers have private information in their marginal valuations for product qualities. In addition to determining the product variety and price of each product, the manufacturer needs to optimise a detailed schedule of production (batch sizes and production sequences) to fully utilise the flexibility of this facility. To achieve the second-degree discrimination, the manufacturer provides multiple products and follows a priority rule in the production schedule. To obtain economies of scale, the manufacturer may offer a composite product targeting the whole population, or choose a dedicated product to serve a proportion of customers. Comparing these three production choices, we observe that the optimal product variety strategy is threshold controlled by the relative ratio of customer arrival rates, the relative difference between customers’ marginal valuations and the production technology.

Closing the Loop: An Empirical Analysis of the Dynamic Decisions Affecting Product Variety

ABSTRACTProduct variety decisions have become a key issue in managing new product development and innovation. The marketing literature highlights how product variety influences consumer demand. The operations and supply chain management literature discusses the impact of product variety on production and operational costs. However, very little has been found about how these past performance outcomes may influence present variety decisions. We consider product variety and performance outcomes in a dynamic decision loop by testing the forward impacts of product variety on demand and cost, as well as the reverse influences of past performance on present product variety decisions. Using archival data from the distribution network of a U.S.‐based soft drink bottler, we develop a balanced panel dataset of 3,666 observations over three years containing product variety, cost, and demand data. Our results suggest that both past demand and past cost outcomes may influence present variety decisions, with the demand impact occurring more rapidly than the impact of cost. Moreover, we investigate curvilinear impacts of product variety on the performance measures and find that product variety influences both demand and cost performance at diminishing marginal rates. From a theoretical perspective, our study better models the interplay between product variety and performance outcomes, while from a professional perspective, we help supply chain managers to better plan for the outcomes of their product variety decisions.

Managing Product Variety in a Supply Chain

This paper investigates a vertically differentiated product (VDP) line design problem in both a centralized and decentralized supply chain setting with one manufacturer and one retailer. We study how the product variety decision making in the decentralized setting affects the number of VDPs developed and produced by the manufacturer, as well as the number of products that the retailer will accept from the manufacturer. We show the value of flexibility, timeliness of information, and product development lead time reduction in three market scenarios where the retailer will elect to carry a product only if the product meets a specified target profit. Our results reveal that if the manufacturer faces a long design lead time and designs only one product line, he may be better off not lowering wholesale prices to accommodate the retailer's profit restriction. If design lead time is short, negotiation between manufacturer and retailer along with a side payment could possibly lead to a profit improving solution for both parties. Optimization models and computational results are presented.

The Impact of Customized Variety on Configuration Complexity of Assembly Process

Mass customization provides products with high variety on demand, at a cost not significantly greater than mass production. Problem at this point is that these product variants lead to process/resource variants what has a negative impact on complexity of manufacturing complexity of such products. In this paper, we present a methodological framework for creating all possible product variants based on unlimited number of optional components while assuming with at least two constant initial components. Development of all possible product architectures is further applied for investigation the impact of product variety decisions on structural complexity of assembly processes. According to the assembly process variants created a specific complexity measure can then be assigned.

Too much of a good thing: The impact of product variety on operations and sales performance

We examine the impact of product variety decisions on an operational measure – unit fill rate – and on sales performance. Results are estimated using weekly data over three years from 108 distribution centers of a major soft drink bottler. Our results show that fill rates are negatively associated with product variety at a diminishing rate. In addition, we examine the total effect of product variety on sales including both the direct effect and the indirect effect through operations performance. The total impact of product variety on sales initially is positive, although at a diminishing rate. However, beyond a certain level, increased product variety actually results in lower sales; that is, “too much of a good thing”. Thus, the findings provide a comprehensive understanding of the impact of product variety on operations and sales performance.

Managing product variety decisions for sustainable profitability in B2B industries

The aim of this research is to increase the understanding of the decision process concerning the introduction of new product variants and its effects on sustained profitability. Although more variety improves the potential for generating increased revenues, there are potential adverse effects, resulting from increased complexity. This paper argues that product variant decisions need to consider not only internal, but also external drivers. The qualitative research is based on a series of semi-structured interviews with ten business units of leading German and Swiss companies in the manufacturing and engineering sector. The results indicate that drivers impacting variant decisions arise from three clusters: customer requirements, the major cluster driving variant proliferation; competitive situation, determined by competitors’ behaviour, market forces and opportunities; modularisation/standardisation, offering the potential to delivery variety while limiting cost impacts. One major conclusion is, while managers are aware of potential adverse variety effects they still expect positive overall benefits.

A joint optimization of product variety and ordering approach

The OPROVAR model is a non-linear optimization model that determines the optimal product line that would maximize profits while considering costs of ordering and carrying inventory, subject to given system constraints. The model has been formulated with the assumption that consumer preferences for products are known and are ordinally scaled for the subset of products in the product line. Further, products can be added and deleted according to the profitability criterion. The problem of jointly determining the product variety decision with the ordering decision for the different variations of a brand of a certain product that comprises a product line is considered. We determine optimal solutions to the OPROVAR model that not only considers the order quantity decision of a product but also makes stocking decision of a product line to maximize total profits.It has been generally recognized that the product variety or product line decision is one of critical importance to marketing and product managers. Product line composition is one of the most pervasive problems that includes analysis of product additions as well deletions and the degree of complementarity and substitutability among the different items within the product line. Equally important is the ordering decision which determines the order size and timing of the order for replenishing the stock of each of the products that constitute the given product line. We develop a model, OPROVAR (optimization of product variety and ordering strategy) that considers simultaneously the order quantity decision of a product and the stocking decision of a product line to maximize total profits.

Adaptive Strategies for Coping with Product Variety Decisions

Under acute global competitive pressure, many companies have viewed product diversification as a strategic weapon with which to win market shares. Nevertheless, product diversification increases costs and sometimes degrades product quality. Many businesses today confront the dilemma of whether to broaden product lines or to focus production. This article explores both theoretically and empirically the possible impacts of product diversification. The emerging technologies and adaptive manufacturing strategies, potentially meeting a variety of customer needs while enhancing other competitive advantages, are examined.