THE EFFECT OF COMPLEXITY ON CHOICE OF BUSINESS PRODUCTS
Sagit harel-Tal and Dan Horsky, Simon School of Business University Of Rochester
Sagit harel-Tal and Dan Horsky, Simon School of Business University Of Rochester
The technological advancements of the last decade brought with them digital products with a large number of features and options. This enhanced functionality, however, turned out to be a double-edged sword: using sophisticated options, keeping up to date with new features and sorting out the features that are needed from those that are just clutter requires customers to invest significant time and effort. Measuring the tradeoff
between enhanced functionality and the increase in the complexity of business products is at the heart of this research. In this study a new methodology for quantifying this tradeoff in terms of market shares is proposed. A theoretical construct is developed, and a structural empirical model that lends itself to estimation techniques that utilize available product-level and aggregate consumer level data is presented. In a market validation example I empirically examine the multi- and single functional copiers market in order to demonstrate the effect of complexity on customer adoption as measured by device sales and market share.The findings reveal that the actual purchase behavior manifested in the specific market is concave in complexity and that an optimal level of complexity can be found. Additionally, I find that larger firms have a higher tolerance to complexity in multifunctional devices than smaller firms. Finally, the results of this research suggest that there are potential biases in price and features estimates when a customer preference model does not account for complexity.
between enhanced functionality and the increase in the complexity of business products is at the heart of this research. In this study a new methodology for quantifying this tradeoff in terms of market shares is proposed. A theoretical construct is developed, and a structural empirical model that lends itself to estimation techniques that utilize available product-level and aggregate consumer level data is presented. In a market validation example I empirically examine the multi- and single functional copiers market in order to demonstrate the effect of complexity on customer adoption as measured by device sales and market share.The findings reveal that the actual purchase behavior manifested in the specific market is concave in complexity and that an optimal level of complexity can be found. Additionally, I find that larger firms have a higher tolerance to complexity in multifunctional devices than smaller firms. Finally, the results of this research suggest that there are potential biases in price and features estimates when a customer preference model does not account for complexity.
