Increasing Quality Sequence: When Is It an Optimal Product Introduction Strategy?

Mahmood Pedram () and Subramanian Balachander ()
Additional contact information
Mahmood Pedram: School of Business Administration, American University in Dubai, Dubai, United Arab Emirates
Subramanian Balachander: Krannert School of Management, Purdue University, West Lafayette, Indiana 47907

Management Science, 2015, vol. 61, issue 10, 2487-2494

Abstract: In this paper, we analyze the optimal introduction timing of a seller’s products targeted at segments that differ in their willingness to pay for quality. Past studies suggest that an introduction sequence of a high-quality product followed by a lower-quality version of the product may mitigate the cannibalization effects of the low-quality product on profits from the high-quality product. We show that if customers who value quality more possess an outside option such as a substitute product, as may be the case with replacement buyers, a seller may find it optimal to follow a low-quality product with a higher-quality one, the latter being targeted at replacement buyers. Furthermore, the ability of the seller to commit to future qualities accentuates the sequential increase in quality in the presence of such buyers. Thus, we show that conditions other than uncertainty or technological improvements occurring over time may justify a seller adopting a strategy of sequentially increasing quality. This paper was accepted by J. Miguel Villas-Boas, marketing.

Keywords: new product introduction; game theory; marketing strategy; market segmentation; product differentiation; durable products; pricing (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2014.2001 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:61:y:2015:i:10:p:2487-2494

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().