Can Commonality Relieve Cannibalization in Product Line Design?

Authors:
Kilsun Kim;Dilip Chhajed;Yunchuan Liu
Affiliations:
College of Business, Sogang University, Seoul 121-742, South Korea;Department of Business Administration, University of Illinois at Urbana--Champaign, Champaign, Illinois 61822;Department of Business Administration, University of Illinois at Urbana--Champaign, Champaign, Illinois 61822
Venue:
Marketing Science
Year:
2013

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Abstract

The predominant perception on commonality strategy in product line design is that it entails a trade-off decision for a firm between cost savings and product differentiation. Adopting the commonality strategy may lower a firm's manufacturing costs, but it blurs the distinction between products targeting different consumer segments and makes consumer switching between products more likely such that cannibalization is always intensified. We show that this view in the literature is based on a crucial assumption that the quality valuation of one consumer segment is greater than that of another segment for all product attributes; i.e., one segment's preference structure dominates the other segment's preference structure. In this paper we consider the case of a nondominating preference structure where each segment has an attribute it values more than the other segment does. Interestingly, we show that the effect of commonality strategy is more diverse in this nondominating preference structure and that commonality can actually relieve cannibalization in the product line design. This finding gives rise to a previously unrecognized opportunity for firms to redesign their product lines to improve profits.