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The Role of Demand Heterogeneity in Product Innovation Strategy

  • Korean Social Science Journal
  • Abbr : KSSJ
  • 2005, 32(1), pp.35-54
  • Publisher : Korean Social Science Research Council
  • Research Area : Social Science > Social Science in general

Sohn Yong Seok 1 박경도 2

1경희대학교
2이화여자대학교

Candidate

ABSTRACT

We investigate the concept of demand heterogeneity in high-tech products through testing for the existence of functionality thresholds, which demarcate the performance level below which a consumer will reject a product-irrespective of price. Above such thresholds, however, the consumer is expected to have no or little marginal utility. If functionality thresholds do exist, then the issue becomes whether new market entrants can capture significant share by offering products at functionality threshold levels with lower prices than existing products - and even perhaps offering additionally new attributes as a differentiation strategy. This study proposes the theory that the more is better precept only applies up to the functionality threshold of a product. A key strategic implication of this is that firms targeting the mass market need to adopt more of a modular product strategy to accommodate the heterogeneous demands in functionality requirements. We explore this issue from both a normative and a simulation study, and we discuss the managerial implications of a mass-customization strategy, especially for late entrants in technology product industries.

Citation status

* References for papers published after 2022 are currently being built.

This paper was written with support from the National Research Foundation of Korea.