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In this paper, we address the product-family design problem of a firm in a market in which customers choose products based on some measure of product performance. By developing products as a family, the firm can reduce the cost of developing individual product variants due to the reuse of a common product platform. Such a platform, designed in an aggregate-planning phase that precedes the development of individual product variants, is itself expensive to develop. Hence, its costs must be weighted against the benefits of its reuse in a family. We offer a model for capturing costs of product development when the family consists of variants based on a common platform. It is shown that the model can be converted into a network-optimization problem, and the optimal product-family can be identified under fairly general conditions by determining the shortest path of its network formulation. We also analytically examine the effect of alternative product designs on product-family composition, and discuss the implications of investing in new-product technology. Finally, we illustrate our model and managerial insights with an application from the electronics industry.Product Family, Platform, Reusability

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