A model-based framework for designing products and services: the role of multiple quality dimensions

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Zhu, Wenge

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In this dissertation, I examine the challenges of designing products in development-intensive settings and where tight integration with services is necessary. The first problem studied is the design of development-intensive products, for which the fixed costs of development far outweigh the unit-variable costs. Examples of such development-intensive offerings abound in a number of industries including the pharmaceutical, information, and entertainment sectors of the economy. It is shown that the design problem presents some unique managerial challenges. Specifically, I find that managerial insights from the traditional approach to product line design developed for unit-variable cost intensive products do not carry over to development-intensive products. I present new mechanisms and managerial guidelines for designing a family of such products for which development costs cannot be ignored, and illustrate the insights with an extended industry case-study. Specifically, I show that the design approach based on degrading (or subtracting value from) a high-end product to obtain a subsumed low-end edition, discussed in the literature to be an effective approach for designing unit cost intensive products leads to a sub-optimal line of development-intensive products. As an alternative to a subsumed product design strategy, I propose the overlapped product design approach, in which the low-end product is not completely subsumed in the high-end product, but differentiated on additional vertical quality dimensions. The second problem studied is the design of product lines with after-sale service offerings. I show that a multi-dimensional quality model can help a firm design a more profitable product line and after-sale services. I specifically study the performance and conformance quality dimensions, as well as the interaction between the dimensions. I find that substitute after-sale services have opposite impacts on the optimal quality levels in performance and conformance quality dimensions. With important after-sale services the firm has quite different strategies for its product line and service line that are sold through a distribution channel. The so-called quality distortion from uncoordinated supply chain can be alleviated because of the service offerings. The contribution of this work is to unearth the crucial role of multiple quality dimensions in designing product lines in today's knowledge and service economy.