Optimal sequential introduction of new products and the effect of demand conditions on competitive product and pricing strategies

Mahmood Pedram, Purdue University

Abstract

In the first essay, an analytical study is conducted on the optimal timing of introduction of a seller’s products targeted at segments that differ in their willingness to pay for quality. There are many examples where sellers introduce a high-quality product followed by a lower-quality version of the product, thus stretching their product line down-market after introduction. Past studies have suggested that such an introduction sequence may mitigate the cannibalization effects of the low-quality product on profits from the high-quality product. However, there are several other instances where firms introduce a lower quality model and follow it up with a higher quality model, thus stretching their product line up-market after the introduction. In this paper, we identify the conditions other than technological improvements occurring over time that may justify such a sequential strategy. We show that in the presence of replacement buyers, firms find it optimal to follow a low quality product with a high quality one. Furthermore, the more reluctant replacement buyers are about replacing their existing product, the more likely a firm will adopt a low-high strategy. The second essay investigates the interesting phenomenon in the automotive industry that cash rebates are more common amongst American automakers than their Japanese counterparts. Japanese manufacturers seem to counter by offering added features to their product instead of a similar discount offer. In this paper, a model is set up to analyze this behavior and help explain the divergence in strategies.

Degree

Ph.D.

Advisors

Balachander, Purdue University.

Subject Area

Marketing|Management

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