Managing Product Differentiation and Cannibalization with Con-Textual and Temporal Price-Quality Effects

Description

Behavioral research suggests that consumers’ valuation for a product in a choice set may change with the configuration of the choice set within which the product is embedded. Their preference between options is often dependent of the presence or absence of other available options in the choice set and/or other reference context. When consumers think in context with choice-set dependent preferences, how should a firm position a product line to segment and discriminate consumers who have heterogeneous valuations for quality? Should all of the available options be introduced simultaneously or sequentially? Given that simultaneous and sequential introductions have distinct implied choice-set configurations for each time period, how does context-dependent choice affect the inefficiency caused by the cannibalization problem associated with selling multiple quality-differentiated products? Based on the traditional analysis of optimal product line design problem, the proposed study aims to develop a context dependent model to address the above questions. In particular, by combining the intrinsic consumption utility (absolute valuation) and the gain-loss utility (comparative valuation) into the overall utility, the new preference structure of the proposed model is better grounded in psychological facts. This new structure will allow us to investigate a broader range of scenarios which are more consistent with empirically supported explanations of consumer choice. Hence, the results and findings of the proposed research will provide a more accurate guidance and comprehensive insights which are valuable for efficient management of product lines.