Managing product variety in a competitive environment

Restricted until 26 June 2010.Product proliferation has been observed in many product categories over the years. It is commonly believed that increasing variety would potentially attract more customers and hence yield more profit. However, there are variety-associated costs as well, and whether firms in a competitive environment would benefit from increasing product variety is unclear. Therefore, this dissertation studies how to balance the costs and benefits of product variety in presence of competition. More specifically, the following research questions are explored: In presence of competition, how should a firm choose the product strategies that involve production technology (mass production or mass customization), product selection or assortment planning, pricing, and inventory decisions in order to maximize its overall profits? How do these decisions interact with each other, and what is the effect of market characteristics and cost factors on these variety-related decisions?; We analyze competitive variety management problems along different dimensions: in the first essay, we study the competitive production technology strategies faced by manufacturers and the trade-offs between standard products and customized products, along with variety, lead time and pricing decisions; in the second essay we examine the assortment planning and inventory decisions faced by retailers, in consideration of the competitor's choices; the third essay studies the interaction between variety and pricing strategies in presence of competition and the effect of firm reputation on these decisions, which may apply to both manufacturers and retailers.; This dissertation makes the following contributions: 1. It proposes a modeling framework to analyze the product variety management problems in a competitive setting. In contrast to the models in literature, it incorporates customers' heterogeneous preferences for firm and for product attribute, and it models customer behaviors in response to firms' production technology, product assortment and pricing strategies. Therefore, we are able to analyze how these decisions should be made in order to maximize a firm's profit in competition. 2. We demonstrate the strategic interactions among decisions including production technology, product assortment, pricing and stocking quantities in presence of competition, and identify the effect of market characteristics and cost factors on those decisions. The modeling framework proposed and the insights obtained contribute to the literature on product variety management