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"Optimal Temporal Product Introduction Strategies Under Valuation Changes and Learning"

Suman Mallik and Dilip Chhajed

 

First Author :

Suman Mallik
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

mallik@uiuc.edu

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Second Author :

Dilip Chhajed
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

chhajed@uiuc.edu

http://www.business.uiuc.edu/faculty/chhajed.html

 
 
Abstract :
 
Consider a firm facing two consumer segments with differing valuations for quality. The demand is stationary and known, and consumers make repeat purchase. However, once a premium product is introduced, the valuations of the consumers change in the next period. The firm derives a cost savings due to learning effect in the second period, the magnitude of which depends on the volume in the first period. Under such a situation, should a firm introduce a premium product before a basic product or vice-versa? Should it introduce two products simultaneously? What should it then do in the second period? Should it introduce a single product into the market first and expand its product offering later? Using a two-period stylized model we seek to answer these questions. We characterize the optimal product introduction strategy for the firm. We show how the firmís choice is influenced by cost savings and valuation changes. The managerial implications of the model are also discussed.
 
 
Keywords :
 
Marketing, Marketing/Manufacturing Interface, Product Design, Segmentation, Valuation Change
 
 
Manuscript Received : 2002
Manuscript Published : 2002
 
 
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