In many design environments, the technology around which a product is designed may evolve over the course of the product development cycle. In reaction, designers may modify the product's design to avail of new technology, resulting in cost overruns and delays. This effect can be mitigated if a firm proactively considers the revenue projections for alternate technology choices, the cost of these choices, and the anticipated path of technology evolution, in choosing the optimal product positioning policy. We develop an analytical model that navigates this tradeoff. To reflect the fact that the path of technology evolution is itself unpredictable, we model uncertainty in available technologies over the development cycle in a stochastic dynamic programming framework. Under fairly general assumptions, we find that there are three possible optimal actions: to abandon the project, to maintain the current position, or to reposition so as to use the best technology currently available. This result supports the observation that firms often dismiss intermediate solutions in which a product is repositioned to use a technology inferior to the best currently available. In our model, the cost of making design changes reflects the firm's design flexibility. In practice, design flexibility typically decreases over the course of the product development cycle, due to investments in downstream manufacturing equipment, distribution-channel design, etc. In the face of decreasing design flexibility, both previous research and conventional wisdom suggest early finalization of product specifications. In sharp contrast, we find that in some design environments, repositioning late in the development cycle can be optimal even when design flexbility decreases over time. We completely characterize the optimal positioning sequence in different design environments. Counter to intuition, we find it sometimes optimal to stay put when the gap between the technology currently in use and the best available is small and to reposition when it is large. In other circumstances, a "tailgating" approach, in which firms immediately incorporate new technology as soon as it becomes available, may be optimal. That these diametrically opposite prescriptions can emerge as solutions to the same product design problem suggest that an understanding of the differences in various design environments is crucial in making repositioning decisions. By considering different repositioning cost structures, we are able to provide insights on how the specific design environment in which a firm operates impacts its optimal repositioning response. Throughout, we discuss the implications of our model especially for high tech and Web-based products
