Companies create product versions from multiple components. The big challenge is how to take the available components and combine them into the product versions and product lines that will maximize profits.
Businesses are constantly making decisions about which products and services will attract customers. In an era driven by the mantra of “give customers what they want,” some businesses feel compelled to offer many different versions of their products. This trend is relatively new. For years, blue jeans came in only one shade of blue and in only one style, but now they are available in a dizzying array of styles and colors. Yet some companies continue to stick to a single version of their products, making alterations only when technology impacts what they can provide or when competition shifts. Music publishers, for example, after decades of providing mainly bundles of songs on compact discs or records, have, in recent years, made individual songs available as well — thanks to technological changes that have made distribution over the Internet less costly to them and more efficient for consumers.
How can companies design products and product lines to maximize their profits? Out of all the potential configurations available, how should companies decide which ones to offer? We 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. (See “About the Research.”) Our methodology allows managers to make informed decisions about product-offering architecture: which features to include in the product, which variations to include in a product line, and how the goods should evolve with technology and competition. In particular, our approach highlights how costs influence the design of the most profitable offering.1 Thus, it departs from the standard product-success metrics, such as revenue and market share, which are the primary focus of most of the work on product bundling.2