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Research Papers

Multicategory Design of Bundled Products for Retail Channels Under Uncertainty and Competition

[+] Author and Article Information
N. A. Williams

A. J. Clark School of Engineering, University of Maryland, College Park, MD 20742nawillia@umd.edu

S. Azarm

A. J. Clark School of Engineering, University of Maryland, College Park, MD 20742azarm@umd.edu

P. K. Kannan

R. H. Smith School of Business, University of Maryland, College Park, MD 20742pkannan@rhsmith.umd.edu

J. Mech. Des 132(3), 031003 (Mar 16, 2010) (10 pages) doi:10.1115/1.4001000 History: Received January 19, 2008; Revised December 16, 2009; Published March 16, 2010; Online March 16, 2010

One prevalent approach to increase both retailer and manufacturer revenues are to improve the attractiveness of a product offering by bundling related product categories together for one price. To be most effective, bundled products should be developed with an integrated design approach that seeks to achieve utility for the end customer. We propose a bundled product design approach that endogenizes demand dependencies between the product categories and thus determines the impact of the bundle and cross-category competition on proposed engineering designs. Additionally, the approach simultaneously considers uncertainty in engineering design, competing manufacturer product attributes, and customer preferences to ensure acceptable product profitability and market share under interval uncertainty. We find after optimizing manufacturer profit and market share that considering demand dependencies can lead to optimal bundle and individual product designs that increase profits for both retailer and manufacturer.

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Copyright © 2010 by American Society of Mechanical Engineers
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References

Figures

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Figure 1

Multilayered design framework

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Discrete choice design for product bundling

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Nested optimization

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Design variables

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Robust/nominal Pareto comparison for multicategory designs

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