How can a firm can use its product mix, capacity allocation and pricing to respond to uncertainty and variation in economic conditions and consumer purchasing behavior? Firms sell multiple products typically face a trade-off. On the one hand, the products compete for the demand, as well as for the firm’s limited production capacity. On the other hand, a multi-product firm can change its product mix, including the production quantity and price of each product, as economic conditions change. A multi-product firm can become more agile and adaptable under consumer purchasing behavior uncertainty by employing postponement in these product mix, quantity and pricing decisions. In particular, a firm can use product line flexibility to make adjustments after understanding the realized economic conditions. The value of capacity flexibility also has little benefit beyond the product line flexibility in this study.
Firms increasingly need to manage uncertainty and become more agile and adaptable. This study considers how a multi-product firm can use its product mix, resource capacity allocation, and pricing decisions to manage challenges such as structural economic shifts or changes in consumers' willingness-to-pay. Firms that seek to develop and use such a product line face a fundamental trade-off. On the one hand, multiple products compete for the demand externally (i.e., cannibalization effects), as well as for the limited resource capacity internally. On the other hand, a multi-product firm does have the ability to change the product mix and to adjust the production quantity and pricing of each product in order to manipulate supply and demand as conditions change. In this study, we demonstrate that a multi-product firm can become more agile and adaptable under consumer purchasing behavior uncertainty by employing postponement in product mix, quantity, and pricing decisions, and by allocating capacities appropriately. In particular, we show that a firm can use its product line flexibility to make strategic adjustments after understanding the realized economic conditions, and to decide whether to follow a focus or segmentation strategy. We also extend the model to look at the value of resource flexibility and find that it has little or no benefit above and beyond the product line flexibility studied here.