The Strategic Perils of Delayed Differentiation

Postponement or delayed product differentiation has been identified as a key strategy to manage increasing demand uncertainty. The benefits of postponement arise out of the ability of a firm to pool demand and the associated risks from its various markets. In this study, we model early differentiation (ED) or delayed differentiation (DD) as a strategic choice for a firm selling in an imperfectly competitive market. Typically, delayed differentiation involves greater product design, process design and production cost. However, in order to throw the spotlight on the strategic effects of the choice of business process, we assume that all cost parameters are identical for a firm employing ED or DD. We find that the benefits of DD from risk pooling are reduced due to strategic interactions under competition. In fact, we show that under plausible conditions (i) when one firm employs ED and the other DD, the ED firm may outperform the DD firm; (ii) When the choice of business p...

• Type: Journal
• Year: 2007
• Where: MANSCI
• Authors: Krishnan S. Anand, Karan Girotra
• Keywords: Business Process, MANSCI 2007, Postponement, Strategic Effects