Product differentiation design under sequential consumer choice process

Xiao-Feng Shao

International Journal of Production Research, 2015, vol. 53, issue 8, 2342-2364

Abstract: We consider a product variety design problem with respect to both vertical and horizontal differentiation dimensions under a sequential consumer choice process. Consumers have heterogeneous valuations for product quality as well as different preferences for product type. We consider two sequential consumer choice processes: a quality-based choice model where consumers consider product quality first and then product type, and a type-based choice model with the reversed order. Under the quality-based model, the category manager can either adopt vertical differentiation strategy or bi-dimensional differentiation strategy, whereas under the type-based model, the category manager can either adopt horizontal differentiation strategy or bi-dimensional differentiation strategy. We characterise the structure of optimal product category and prices for each product differentiation strategy and develop efficient algorithms for the quality-based consumer choice model. We find that under the quality-based choice model, vertical differentiation strategy is more profitable than bi-dimensional differentiation strategy, whereas under the type-based choice model, horizontal differentiation strategy is preferred over bi-dimensional differentiation strategy. The result is robust considering the impact of heterogeneity in consumer choice process. Thus, further differentiation in quality or type is actually not preferred when consumers follow a sequential consumer choice process.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2014.951091 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:tprsxx:v:53:y:2015:i:8:p:2342-2364

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2014.951091

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().