Designing the Right Product Offerings

• Published in: MIT Sloan management review Vol. 49; no. 1; p. 44
• Main Authors: Evans, David S, Webster, Karen L
• Format: Journal Article
• Language: English
• Published: Cambridge Massachusetts Institute of Technology, Cambridge, MA 01-09-2007
• Subjects: Air conditioning; Alliances; Architecture; Consumers; Costs; Customers; Decision making; Internet; Management science; Product design; Product development; Product lines; Profit maximization; Profitability; Studies
• ISSN: 1532-9194

How can companies design products and product lines to maximize profits? Out of all the potential configurations available to them, how should they decide which ones to offer? The authors have developed a framework for balancing the costs of developing and offering a rich line of products and services against customer demand for additional choice. Their methodology helps managers make informed decisions about which features to include in the product; which variations to include in a product line; and how the offerings should evolve with technology and competition. Using examples from the music, software and media industries and citing companies including Apple, Dell, Microsoft, The New York Times, and ESPN, the authors describe five basic types of product offerings: the à la carte offering, the specialization offering, the all-in-one offering, the basic/premium offering, and the have-it-your-way offering. By highlighting how costs influence product design, they depart from the standard product-success metrics, such as revenue and market share, which are the main focus of most of the work on product bundling. The authors note that the decision to offer a product and how it is designed generally affects both the fixed costs and the marginal costs. They argue that product architects need to expand their definition of fixed and marginal costs beyond those that they typically track and account for to cover costs across the entire supply chain. Although some of these costs may be hard to quantify, they are often too significant to ignore.