Retail Channel Structure Impact on Strategic Engineering Product Design

• Published in: Management science Vol. 57; no. 5; pp. 897 - 914
• Main Authors: Williams, Nathan, Kannan, P. K., Azarm, Shapour
• Format: Journal Article
• Language: English
• Published: Hanover, MD INFORMS 01.05.2011; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Applied sciences; Competition; Customers; Design; Design engineering; Design specifications; Duopolies; Duopoly; Economics; Empirical research; engineering design; Equipment design; Exact sciences and technology; Firm modelling; Game theory; General aspects; genetic algorithms; Hypotheses; Impact analysis; Industrial design; Interdisciplinary aspects; latent class models; Management; Market shares; Market strategy; Marketing; Monopolies; Monopoly; new product design; Operational research and scientific management; Operational research. Management science; Operations management; Power tools; Product design; Product development; Profit; Profitability; Profits; R&D; Research & development; research and development; retail channels; Retail industry; Retail prices; Retail stores; Retail trade; Retailing industry; structural models; Studies; United States; Conditional distribution; Targeting; latent class models; Modeling; Optimization; Research and development; Marketing; Optimal design; retail channels; structural models; Pricing; Profit; Supplier; Oligopoly; new product design; New product; Consumer products; Retail marketing; genetic algorithms; Game theory; Monopole; Engineering design; Genetic algorithm; Preference; Structural model
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.1110.1326

We examine, in a strategic setting, the broad issue of how retail channel structures-retail monopoly versus retail duopoly-impact a manufacturer's optimal new product design, both in terms of engineering design specifications as well as manufacturer and retailer profits. Our strategic framework enables manufacturers in specific contexts to anticipate the reactions of the retailers and competitive manufacturers to new designs in terms of the retail and wholesale pricing and to understand how different channel structures and channel strategies (such as an exclusive channel strategy) impact the engineering design of the new product, conditional on consumer preference distributions and competitor product attributes. Based on a simple numerical and a power tool design example, we illustrate how the insight from the framework translates to design guidelines; specifically, understanding which designs are optimal under differing channel structure conditions, and which design variables need precise targeting given their profit sensitivity. This paper was accepted by Christoph Loch, R&D and product development.