Product Platform: its strategic implications

Firms often find it necessary to offer variety of products in order to compete in existing and emerging product market segments. The extreme requirement of this trend is that of mass customization. An important principle is to mitigate costs due to variety and manage complexity in order to achieve efficiency level similar to that of mass production. A systematic and fundamental strategy to achieve mass customization at an efficiency level is through the method of product platform. We propose a conceptual model of a product platform to suggest some normative principles for implementing variety or mass customization system. This formulation takes into account explicitly the production and market interaction of derivatives from a product platform; we find that a platform – based firm needs to leverage upon economies due to cross learning to make sure that increasing number of differentiated derivatives will increase aggregate installed base and help lower production cost while achieving product differentiation or even customization. Cross learning among customized offers or derivatives is analogous to and takes a similar role to volume – based learning in the mass production regime. Beyond product development, from a strategic management perspective, product platform can be seen as a synthesis of firm’s intangible competencies such as market insights, product technology, production technology and organizational capability to address market opportunities. In the competency domain, platform – based firm must focus on managing its production and organizational capabilities in order to pursue a variety strategy; otherwise, it should emphasize market insights and product technologies if it is to pursue a fixed variety priority. A strategic focus therefore emerges.