Management Science and Engineering Department's Lecture

Theme：Should Tech Companies Offer More Alternatives for Innovative Products?

Speaker：Haoyu Liu （HKUST Business School）

Time：2019-12-12 14:00

Address：Room 1007, Mingde Business Building

Language：English/Chinese

Abstract：

Technology companies frequently face the problem of how many alternatives to offer consumers for their innovative products. Unlike traditional products, the quality of innovative products is usually unfamiliar to consumers (we refer to the unknown element as opaque quality), which makes results in previous studies on product variety unsuitable. In this paper, we build a simple stylized model to answer this product breadth problem. Consumers, who are behaviorally inattentive, evaluate both the design and quality of the product and make purchase decisions, and the technology company decides how great the product variety should be. Our analytical model is accompanied by experimental evidence.

The contribution of our paper is threefold. First, the model fills a vacuum in the literature on product variety decisions by considering both horizontal and vertical differentiation, as well as behavioral inattention. We show a tradeoff between product fit and perceived quality, which serves as a novel incentive for firms to limit product variety. Second, the experiment helps with understanding how consumers choose innovative products from a consumer behavioral viewpoint. Third, we also provide practical guidelines and important implications for marketing managers. Notably, we show that when the opaque quality of a product is large, the company should offer a limited number of alternatives.

Short biography：

Haoyu Liu is a PhD candidate in Operations Management at HKUST Business School, where he received his MPhil degree in 2017. Prior to that, he obtained his bachelor’s degree in Statistics and Operations Research at HKBU. His research interests include innovative operations, socially responsible operations, and the interface of marketing and operations. He employs various techniques to facilitate his research, ranging from mathematical modeling to typical tools in empirical and experimental studies. He has several papers currently under review in top journals, such as Management Science, Manufacturing & Service Operations Management, and Production and Operations Management.