MANAGING PRODUCT VARIETY: AN INTEGRATIVE REVIEW AND RESEARCH DIRECTIONS*

Variety management has emerged as a crucial dimension of successful business practice. In this paper, I first provide a framework for managerial decisions about variety. Variety-creation decisions determine the amount, type, and timing of end-product variety, while variety-implementation decisions focus on the design and operation of internal processes and a supply chain to support a firm's variety-creation strategy. I organize variety-related decisions into four key decision themes in variety creation: 1) dimensions of variety, 2) product architecture, 3) degree of customization, and 4) timing; and three key decision themes in variety implementation: 1) process capabilities, 2) points of variegation, and 3) day-to-day decisions. I describe each theme and review the relevant literature on each theme, with a focus on research that provides insight to problems faced in practice. Finally, I identify untapped avenues for future research that would be of value to the practicing manager, paying special attention to interdependencies among decision themes.

(MANAGING PRODUCT VARIETY; PRODUCT VARIETY, PRODUCT CUSTOMIZATION; VARIETY CREATION; VARIETY IMPLEMENTATION; FUTURE RESEARCH STREAMS)

1. Introduction

Rapidly evolving technologies, global competition, and sophisticated customers have contributed to an increase in product variety in industries as diverse as cars, chemicals, and credit cards. However, simply increasing variety does not guarantee an increase in long run profits and can in fact worsen competitiveness (Ramdas and Sawhney 2001). Rather, how firms choose to create variety in their product offerings, and how the firm's functions and its supply chain are managed to implement variety, are key determinants of the success of this strategy. Because these issues are often hard to resolve, excellent management of product variety has increasingly become a source of competitive advantage (Meyer and Lehnerd 1997).

In this paper, I discuss the key issues faced in managing product variety and then review the literature in product development, marketing, and operations that contributes to variety management. I also refer selectively to the economics literature on variety. Unlike broader reviews of cross-functional research (e.g., Eliashberg and Steinberg 1993; Fitzsimmons, Kouvelis, and Mallick 1991; Griffin and Hauser 1996; Karmarkar 1996; Wind and Mahajan 1997), I focus exclusively on product variety. Further, I examine product variety from the firm's perspective, as opposed to the individual consumer's perspective, market-equilibrium, or social optimality perspective (for excellent surveys of other perspectives, see Kahn 1995; Lancaster 1990).

Managing product variety requires decision making at different organizational levels, over different time horizons, within and across functional and organizational boundaries, before and after product launch. Variety decisions are driven by a combination of inertia, historical precedent, ad hoc criteria, and rational decision-making. While the way in which these decisions are made varies greatly from one instance to another, a common set of decision themes appears to emerge in any comprehensive discussion about product variety. Conceptually, variety-related decisions can be viewed as focusing on how to create variety in a product line, and on managing a firm's processes and supply chain to implement variety. I find it useful to sort variety creation decisions into four key decision themes: 1) dimensions of variety, 2) product architecture, 3) degree of customization, and 4) timing. Similarly, variety implementation decisions can be sorted into three key decision themes: 1) process and organizational capabilities, 2) points of variegation or "decoupling," and 3) day-to-day decisions. These seven themes capture the spectrum of variety-related decision making and yet provide some focus to this wide arena.

Rather than examine variety management from a functional perspective, or a methodological perspective based on the use of specific decision techniques, I will use these recurring decision themes, and the interdependencies among them, to examine both the key practical issues and the research in variety management. I seek to provide an integrative framework for variety management based on these key decision themes, to discuss the research on variety using this framework, and to identify untapped areas for future research. This review is intended for researchers wishing to gain familiarity with the literature on variety management, with a view to contributing to this area. It is not intended to be exhaustive. Instead, I have attempted to identify a set of papers that spans the key decision themes encountered in managing variety, with a focus on papers that provide insight to the practicing manager. This perspective has received little attention in the existing literature on product variety and distinguishes this paper from earlier reviews (e.g., Lancaster 1990). It is because my focus is on research that aids the practicing manager that I have chosen to begin by attempting to understand the spectrum of variety-related decisions faced in practice. Starting instead with the research on variety would run the risk of missing important issues faced in practice that have not received research attention, or of focusing on streams of research on variety that may have little applicability or practical insight.