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Product Introduction Strategies under Sequential Innovation for Durable Goods with Network Effects

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  • Ngan N. Chau
  • Ramarao Desiraju

Abstract

When network effects are important and technology is rapidly improved, this study explores the relative optimality of five product introduction strategies of a durable goods manufacturer: (1) replacement, (2) skipping, (3) a delayed line, (4) shelving, and (5) line‐extension. Using a two‐period analytical model, we show how the type of compatibility—either full or backward compatibility—and the magnitude of the network effect influence the manufacturer's preference for the above strategies. Our analysis reveals that only the strategies (1)–(3) above can be optimal; and the optimal strategy varies with network strength. Further, the type of compatibility can dramatically change the profitability under each optimal strategy; for instance, while backward compatibility can increase the profitability of replacement under certain conditions, it always reduces the profitability of a delayed line. We also illustrate that if compatibility were a choice, although backward compatibility may be observed widely in practice, the parametric region for its optimality is relatively more restricted than that of full compatibility.

Suggested Citation

  • Ngan N. Chau & Ramarao Desiraju, 2017. "Product Introduction Strategies under Sequential Innovation for Durable Goods with Network Effects," Production and Operations Management, Production and Operations Management Society, vol. 26(2), pages 320-340, February.
    • Handle: RePEc:bla:popmgt:v:26:y:2017:i:2:p:320-340
    DOI: 10.1111/poms.12649
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    Cited by:

    1. Yu Wang & Minqiang Li & Haiyang Feng & Nan Feng, 2019. "Optimal sequential releasing strategy for software products in the presence of word-of-mouth and requirements uncertainty," Information Technology and Management, Springer, vol. 20(3), pages 153-174, September.
    2. Boyuan Zhong & Houcai Shen, 2022. "Manufacturer selling mode choice for new‐version product introduction," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3316-3330, December.
    3. Shen, Qichao & He, Bo & Qing, Qiankai, 2022. "Interplays between manufacturer advertising and retailer store brand introduction: Agency vs. wholesale contracts," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    4. Hosseini-Motlagh, Seyyed-Mahdi & Choi, Tsan-Ming & Johari, Maryam & Nouri-Harzvili, Mina, 2022. "A profit surplus distribution mechanism for supply chain coordination: An evolutionary game-theoretic analysis," European Journal of Operational Research, Elsevier, vol. 301(2), pages 561-575.
    5. Kumar, Rajeev Ranjan & Chakraborty, Abhishek & Mandal, Prasenjit, 2021. "Promoting electric vehicle adoption: Who should invest in charging infrastructure?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    6. Jia, Kunhao & Liao, Xiuwu & Feng, Juan, 2018. "Selling or leasing? Dynamic pricing of software with upgrades," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1044-1061.

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