Market segmentation and pricing strategies based on product platform

Purpose The purpose of this paper is to examine the issue of optimal pricing strategies for two substitutable products from the same product platform and the effects of variations in product architecture. Design/methodology/approach The authors design a product line which consists of two substitutable products and use a traditional market segmentation research framework to analyze the pricing and product design strategies. Findings It is concluded that profit tends to rise in a centralized supply chain at the expense of market share of the integral product. In a decentralized supply chain, one product will reduce its market share so as to enhance the degree of modularity. Although enhancing the extent of integration of a product will bring in more flexibility during the design of the product line, this will do so at the expense of the market share of the other product. Originality/value The authors find that the two products form a product line and share a common module belonging to the platform, so any changes in the modules (changes in product architecture) not only affect the product in question but also the other one in the product line.