2019 Volume 70 Issue 2E Pages 95-104
Sales of accessories and add-ons are strategically important as profit centers for manufacturers of consumer products. In such situations, a durable product with too many attributes might reduce the chance of selling optional items that increase the functionality of the product, whereas too few product attributes will make the product less attractive, thereby reducing profitability. Hence, determining the optimal amount of add-on functionality of a durable product is critical in product design. Another retail challenge is how to sell a durable product and along optional add-on functionalities, whether they should be sold together or separately. This paper examines the number of attributes that a durable product should have by comparing three sales strategies: selling the durable product only (i.e., a one-product-fits-all strategy), selling the durable product and optional items simultaneously, and selling them separately. We compare the optimal level of product functionality among these three sales strategies considering three managerial goals: coverage of the target market, revenue maximization, and profit maximization. We also study the effect of consumers' desire for a product with over-specification in the optimal design. We determine that the sale of add-ons affects the optimal functionality of a durable product and how separately selling optional items can alleviate the tendency toward over-specification in product design.
