2017 Volume 67 Issue 4E Pages 327-337
In some product categories, such as personal computers and motorcycles, customers usually customize a base model using optional items. These items are a strategic tool for revenue generation. Moreover, customers tend to buy a product with attributes that exceed their real needs, and on using the product, they are likely to be dissatisfied by the unnecessary features that it possesses. This paper, as a study of sales management, considers how a firm can select the most appropriate sales strategy: selling only a base product, a base product with optional items that are purchased before using the product, or a base product with after-sales services that are purchased after using the product. We develop utility functions for the over-specification (over-spec) tendency, analyze customers' choice of either options, after-sales services or none, and suggest the most adequate sales strategy for a firm. We find that when the over-spec tendency is weak but the price of additional items/services is relatively high, the “base model” strategy might be the most appropriate. In addition, we conclude that the “after-sales” strategy is dominant over the “options” strategy as long as the payment for customization is equivalent between these strategies. In other words, a firm that adopts the “options” strategy should reduce the cost that a customer bears when purchasing these options. This finding implies a rationale behind the common observation that a firm that wants to sell optional products in addition to the main product often offers these products as a package.
