Modular Machine Tools: Bundling and Pricing Strategies under Demand Uncertainty

German machine tool manufacturers are increasingly confronted with difficulties in gaining competitive advantages by offering highly customized products. But necessary cost reductions can be obtained by employing a modularization strategy that explicitly considers customers' requirements already in the module design stage. Nils Tönshoff presents a new framework of the machine tool building and selling process that accounts for optimized cross-functional decision making in module design, machine tool manufacturing and product marketing. The tradeoff between customization and standardization is balanced by a bundle pricing strategy based on a modular product structure. The analytic tool developed by the author has been validated by a major German machine tool manufacturer.