Kilsun Kim

Commonality in product design: Cost saving, valuation change and cannibalization

Offering a variety of products is important for a firm to attract different consumer segments. However, high product variety increases production and distribution costs. Modular product design and parts commonality are approaches used to counter this trend in cost and still offer a variety of products. This paper develops a model to examine when modular products should be introduced and how much modularity to offer. The model looks at a market consisting of a high segment and a low segment. Customers choose the product that maximizes their surplus, which is defined as the products utility minus its price. Presence of commonality affects the utility of a product. Greater commonality decreases production cost but makes the products more indistinguishable from one another. This makes the products more desirable for the low segment but less desirable for the high segment. The firms objective is to design the products and set the prices so as to maximize its profit.

An experimental investigation of valuation change due to commonality in vertical product line extension

Abstract Commonality in product line design refers to using identical product features or modules in multiple products. The use of commonality in product line extensions is a growing practice in many industries. We consider vertical product line extensions to lower- and higher-end products, and study the effects of identical feature levels on consumers’ evaluation of original products. Using a between-subject experimental design, we examine the effect of commonality using the bicycle as the example product. This experiment is then extended to eight different service and manufactured products. Results show that in many cases identical feature levels increase the perceived similarity between original and extension products. This influences the valuation of original products: valuation of the original low-end product increases while valuation of the original high-end product decreases. However, the amount of valuation change is not necessarily the same for the original low- and high-end products. This valuation change occurs regardless of buyers’ knowledge level of the product and is sometimes moderated by a large difference in a differentiated feature. This study suggests the importance of accounting for the demand-side effect of commonality in product design decisions. Change in customers’ valuation may call for an adjustment in price—the price of a high-end product may have to be lowered due to valuation discount, and the price of a low-end product could be raised to take advantage of valuation premium. This change in valuation does not occur for every feature in every product. Therefore, by properly selecting the features that are identical, a firm may be able to take advantage of valuation premium without sacrificing valuation discount and enjoy the economies of scale in manufacturing and logistics due to commonality.

THE LOVE OF MONEY IS THE ROOT OF ALL EVIL: PAY SATISFACTION AND CPI AS MODERATORS

By incorporating pay satisfaction at Level 1 and Corruption Perceptions Index (CPI) at Level 2, we investigated the relationship between the love of money and self-reported corrupt intent among 6,382 managers in 31 geopolitical entities across six continents. Our significant cross-level three-way interaction effect showed that for managers with high pay satisfaction, the intensity (slope) of the love of money to corrupt intent relationship was almost identical in high or low CPI entities but the former had the lowest magnitude of corrupt intent, whereas the latter had the highest. For those with low pay satisfaction, the slope was the steepest in high CPI entities, but was flat in the low CPI entities and the difference between the two was significant.

Monetary Intelligence and Behavioral Economics Across 32 Cultures: Good Apples Enjoy Good Quality of Life in Good Barrels

Abstract Monetary Intelligence theory asserts that individuals apply their money attitude to frame critical concerns in the context and strategically select certain options to achieve financial goals and ultimate happiness. This study explores the bright side of Monetary Intelligence and behavioral economics, frames money attitude in the context of pay and life satisfaction, and controls money at the macro-level (GDP per capita) and micro-level (Z income). We theorize: Managers with low love of money motive but high stewardship behavior will have high subjective well-being: pay satisfaction and quality of life. Data collected from 6586 managers in 32 cultures across six continents support our theory. Interestingly, GDP per capita is related to life satisfaction, but not to pay satisfaction. Individual income is related to both life and pay satisfaction. Neither GDP nor income is related to Happiness (money makes people happy). Our theoretical model across three GDP groups offers new discoveries: In high GDP (rich) entities, “high income” not only reduces aspirations—“Rich, Motivator, and Power,” but also promotes stewardship behavior—“Budget, Give/Donate, and Contribute” and appreciation of “Achievement.” After controlling income, we demonstrate the bright side of Monetary Intelligence: Low love of money motive but high stewardship behavior define Monetary Intelligence. “Good apples enjoy good quality of life in good barrels.” This notion adds another explanation to managers’ low magnitude of dishonesty in entities with high Corruption Perceptions Index (CPI) (risk aversion for gains of high probability) (Tang et al. 2015. doi:10.1007/s10551-015-2942-4). In low GDP (poor) entities, high income is related to poor Budgeting skills and escalated Happiness. These managers experience equal satisfaction with pay and life. We add a new vocabulary to the conversation of monetary intelligence, income, GDP, happiness, subjective well-being, good and bad apples and barrels, corruption, and behavioral ethics.

Can Commonality Relieve Cannibalization in Product Line Design

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 firms 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 segments preference structure dominates the other segments 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.

Strict-product-ordering approach in the vertical product-line design problem

Abstract We consider a Vertical Product-line Design (VPD) problem for a monopolist where products are designed with quality-type attributes and customer segments exhibit an ordered pattern in the attribute part-worth structure. In this paper, we examine the appropriateness of a strict-product-ordering approach across products in designing a vertical product line. We show that the approach, although used widely in practice, is not a property of an optimal solution and can lead to an arbitrarily bad design. Furthermore, we present a sufficient condition where the strict-product-ordering approach is the property of an optimal solution in a general product line design problem. We also show that the VPD problem with a strict-product-ordering approach is computationally intractable, and develop a greedy heuristic solution procedure that exploits the problem structure. A computational study shows that the heuristic results in an average performance ratio of 98.7% compared with optimal solutions. In addition, our computational study shows that insisting on the strict-product-ordering approach results in on-average 3% less profit for the firm if it is enforced in inappropriate conditions.

Does modularizability of technology matter on the technology competition

ABSTRACT The current study presents a conceptual model that explains the role of architectural characteristics of a technology on the technology competition. We argue that modularizability of a core technology can enhance adopting firms’ dynamic capabilities in technology competition by influencing the shape of suppliers’ networks not only within but also across industries. Furthermore, the increased possibilities of firms’ participation enhance the chances of the technology to better address evolving needs of consumers in market. To coherently explain the effects of the product architectural characteristics of a technology, we explain through the conceptual model how factors such as modularizability, collaborability, expandability and addressability, interact with one another to affect the determination process of a dominant technology. To verify the construct validity of the factors, measurement items for each concept are developed and empirically tested using survey data collected from manufacturing firms across different industries. We show that a technology that is more suitable for modular product architecture exhibits better possibilities for firms’ participation and cooperation by extending a supplier network both within an industry and across different industries. We also show that technologies that excel in the aforementioned fronts are more likely to accommodate evolving market needs during technology competition and to finally win the competition.