A Manufacturer's New Product Preannouncement Decision and the Supplier's Response

Haoying Sun and Subodha Kumar

Production and Operations Management, 2020, vol. 29, issue 10, 2289-2306

Abstract: We study a manufacturer's product preannouncement decision in a setting where there is uncertainty about when an innovative new product design will be finalized for production, and a key component supplier needs to reserve the capacity before the realization of the final product design. The marketing literature has shown that product preannouncement changes the product demand: it may create buzz about the new product so the demand increases; or it may induce stronger competition from rivals so the demand decreases. We characterize the supplier's optimal response in reserving capacity given the uncertainty in the product design timing and the changing demand. Furthermore, we characterize the conditions under which the manufacturer may benefit from preannouncing her product release date. We show that even when preannouncement leads to a shorter sales window of the product, the manufacturer may still be better off in preannouncing her new product release date because the supplier's response of reserving the capacity earlier improves the manufacturer's profit. For a similar reason, we find that the manufacturer's expected profit may increase in the wholesale price that she pays to the supplier for the key component. In addition, we show that the supplier trusts the manufacturer's preannounced product release date only when this date is sufficiently late; otherwise, he ignores the preannounced product release date. Finally, we demonstrate that the supplier reserves less capacity, but reserves earlier when the competitive response is stronger, the market potential is smaller, and the sales window is shorter.

Date: 2020
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