Fusion Product Planning: A Market Offering Perspective

Devices that integrate multiple functions together are popular in consumer electronic markets. Examples include the cellular phone that takes digital pictures and plays MP3’s, the PDA with cell phone, and multi-function office machines. We describe these multi-function devices as fusion products since they fuse together products which traditionally stand alone in the marketplace. In this paper, we investigate the manufacturer’s fusion product planning decision adopting a market offering perspective which allows us to address the design and product portfolio decisions simultaneously. The general approach adopted is to develop and analyze a profit maximizing model for a single firm which integrates product substitution effects in identifying an optimal market offering. In the general model, we demonstrate that the product design and portfolio decisions are analytically difficult to characterize since number of possible portfolios can be extremely large. To resolve this, we propose an algorithm which identifies the optimal solution and the corresponding product design. The managerial insight from a stylized all-in-one model and numerical analysis is that the manufacturer should in most cases select only a subset of fusion and singlefunction products to satisfy the market’s multi-dimension needs. This may explain why the function compositions available in certain product markets are limited. In particular, one of the key factors driving the product portfolio decision is the margin associated with the fusion products. If a single all-in-one fusion product has relatively high margins, then this product likely dominates the product portfolio. Also, the congruency of the constituent single function products is an important factor. A portfolio of single function products is considered to be fairly congruent if it is easy to create a fusion product from them and that the newly fused product is serving a similar market as the original single-function products. When substitution effects are relatively high (i.e. the product set is more congruent), a portfolio containing a smaller number of