Competition Across Product Attributes

How do products with different attributes impact demand Given customer responses to different attributes, how should a manufacturer position products in the attribute space What is the impact of promised lead time on capacity required  

To examine this question, we provide an example context and then provide details of a model. The example is based on work done by Iyer and Sommer [47] for the Indiana Department of Transportation. The goal of the study was to understand the effect of improving transportation infrastructure in southern Indiana on competitiveness of the local industry. Southern Indiana s Dubois County is home to a thriving commercial furniture industry. In the furniture supply chain, product flows from forest owners who grow the trees to lumber distributors to veneer manufacturers to component suppliers to furniture manufacturers to — retailers and to the flnal customers. 

A model developed by Boyaci and Ray [10] was used to develop insights for this project. The model describes a context where a retailer sells two different products to a market characterized by price and delivery lead time. Suppose that, for Customer Product 1, the retailer chooses a lead time Tj and price p, while for Product 2 there is a fixed, long lead time Zj but a choice of price p2- Given these parameters, customers adjust their choices and thus generate demand rates for each of the two products, as follows  

These demand relations suggest that demand for one product is decreasing when its price increases, and its lead time increases. But this same product attracts customers from the other products demand if its price and lead time are lower. Now consider the cost associated with delivering this demand within the promised lead time. Given an exponential service time, the lead time distribution for retailer j is exponential, with a rate fXj — Xj (from standard single-server exponential interarrival and exponential service-time models), thus the service rate Hj required to guarantee a lead time Lj can be expressed as Xj — where a is the 

The model described earlier was used to link improvements in local logistics, interpreted as decreasing. (4], to their impact on competitiveness (improved profitability). 

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How do our product attributes match customer requirements How do our competitors product attributes match customer requirements The goal of this question is to understand whether there are differences in the extent to which our offerings and the offerings of the competition match the attributes demanded by our customers. The relevant attributes could include the extent of product customization to buyer requirements, the buyer-delivery flexibility vs. the delivery offered, and buyer preferences for the level of involvement in the supply chain vs. the level currently offered across the industry. 

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