PRODUCT LINE DESIGN, EVOLUTION, AND PRICING
Editor: Christian Weber, Stephan Husung, Marco Cantamessa, Gaetano Cascini, Dorian Marjanovic, Srinivasan Venkataraman
Author: Wu, Shuli; Chen, Songlin
Institution: NTU, Singapore
Section: Design Theory and Research Methodology, Design Processes
Firms usually design their product lines with products phased in and phased out in response to market or technology changes. This adaption of a product line has complicated implications on market demand and fracturing cost due to the coexistence of both competitive and complimentary relationship among different product models. This paper proposes a computational model to facilitate decision making regarding attribute determination, product line evolution and pricing. A logit discrete choice model is developed to estimate the purchase probability of a product model via the preferences on consumer attributes. An activity-based costing model is developed to estimate the manufacturing costs of a product line by aggregating the volume of components using bill of materials, and considering volume discounts and common overhead activities. Product line design is then formulated as a mixed integer non-linear programming problem with the objective to maximize expected profit by determining new products attributes, the existence of old products and the price for each product model. The proposed model is illustrated with an example of a mobile phone product line adaptation.