Competing on design quality: A strategic planning approach for product quality with the use of a control theoretic model

Abstract Design quality is a strategic variable, a dimension for product differentiation, which can effectively be used to edge out competition and increase market share. Planning for design quality should be based on sound analysis because of the serious effects on the firm's profitability. The decision about design quality is also interlinked with that about price. In this paper, we develop a control theoretic model that can effectively support the strategic planning process for design quality and price. The idea behind the optimal control formulation is to use the design quality level and the price as the control variables to maximize the discounted net present value of the total profit over the life of the product. Managerial insights through analytical results are obtained on the form of the optimal design quality and pricing policies. An extensive set of numerical experiments helped us to gain useful insights on the effects of various model parameters on the optimal policies.