Brown Bag (Lunch seminar): Product Proliferation with Horizontal and Vertical Differentiation in the Presence of Component Commonality
Component commonality is an effective tool to achieve product proliferation while keeping costs under control. The literature thus far has focused primarily on vertical proliferation with component commonality, that is, products with different quality levels. In this paper, we examine this issue from another angle: horizontal product proliferation. That is, products with similar quality level yet differentiated through style. We focus on the cross effect between the cost of quality and horizontal differentiation achieved, and vice versa. We discover that a firm can achieve higher differentiation through commonality. Therefore, commonality and differentiation is not a zero sum game. We also discovered that reducing cannibalization can increase product quality through increased commonality. It has always been a challenge to put products with different cost structures on a single platform. We discover that a greater difference between products makes a platform less desirable; such asymmetry causes quality distortion for some products, known as overdesign and underdesign. This new model allows us to look at some phenomena, such as incompatibility and product delusion, from a different angle. If we examine commonality from purely a quality perspective, it is better to use the platform of a high-end product instead of that of a low-end product.