Updating a Modular Product: How to Set Time to Market and Component Quality

In the face of shorter product life cycles, designing products with modular component parts can shorten product development time and speed up the introduction of new products in the market. Utilizing stylized models, we examine the reuse/redesign, quality, speed-to-market, and marketing decisions for two consecutive generations of a multicomponent modular product. With modularity that assumes a stable product architecture, each component can be improved by incurring a design cost that is convex increasing in the level of quality. Our study generates the following insights. When development start-up (fixed) cost is negligible, it is profitable to upgrade every component part; otherwise, it is beneficial to reuse some of the existing parts without making any design improvements in order to save on development cost. In an effort to reduce product development time while maximizing profit, we found solid evidence that the productivity level in developing every component part can be a key driver of speed-to-market. Individually, a new product launch time postponement and an R&D budget increase can lead to improvements in component part quality and overall product quality, but our models show that better improvement in quality can be achieved from launch time postponement (budget increase) when product design teams have low (high) product development productivity. Finally, when the marginal cost of producing the new product is equal to that of the old product, it is optimal to remove the old product from the market and sell only the new product.