IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v317y2024i2p578-591.html
   My bibliography  Save this article

Repositioning to sink: The pricing and quality decisions for product line considering the sinking market

Author

Listed:
  • Wang, Yusheng
  • Li, Yongjian
  • Xu, Shuangshuang

Abstract

Opening up new markets (e.g., the sinking market) is one way to boost growth momentum, especially with the decrease in the rate of technological development and the impact of the black swan event (e.g., the COVID-19 pandemic). Considering the difficulty and cost of developing new products, repositioning existing products by a price markdown is an easier way to expand the market. Companies can implement different pricing strategies for different products to target different markets and make extra profits, but products entering the sinking market may deeply erode the original market. Therefore, balancing the advantages and disadvantages of entering the sinking market is a significant challenge for firms selling products as a product line. By building a theoretical model, we investigate the optimal product line repositioning strategy when companies decide to expand the market. First, we examine the optimal conditions for companies to enter a sinking market. We then analyze the optimal product line strategy in the sinking market. Furthermore, we investigate the interaction between repositioning strategy and quality decisions. The main results indicate that with the increase of the consumers’ willingness to pay at the sinking market and the decrease of the production cost, the seller's motivation to enter the sinking market would be greater. More importantly, entering the sinking market with higher quality can also be the optimal decision. What's more, we also find that the seller implementing low-quality repositioning strategy may prefer fiercer product erosion. Interestingly, the consideration of the quality decision would motivate the seller to enter the sinking market more aggressively even when the production cost is relatively high. Yet, this motivation would be weakened when the production cost is relatively low.

Suggested Citation

  • Wang, Yusheng & Li, Yongjian & Xu, Shuangshuang, 2024. "Repositioning to sink: The pricing and quality decisions for product line considering the sinking market," European Journal of Operational Research, Elsevier, vol. 317(2), pages 578-591.
    • Handle: RePEc:eee:ejores:v:317:y:2024:i:2:p:578-591
    DOI: 10.1016/j.ejor.2024.04.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221724002935
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2024.04.012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. J. Miguel Villas-Boas, 1998. "Product Line Design for a Distribution Channel," Marketing Science, INFORMS, vol. 17(2), pages 156-169.
    2. Jing, Fei & Lin, Jun & Zhang, Qiao & Qian, Yanjun, 2022. "New technology introduction and product rollover strategies," European Journal of Operational Research, Elsevier, vol. 302(1), pages 324-336.
    3. Mallik, Suman & Chhajed, Dilip, 2006. "Optimal temporal product introduction strategies under valuation changes and learning," European Journal of Operational Research, Elsevier, vol. 172(2), pages 430-452, July.
    4. Kwong, C.K. & Luo, X.G. & Tang, J.F., 2011. "A methodology for optimal product positioning with engineering constraints consideration," International Journal of Production Economics, Elsevier, vol. 132(1), pages 93-100, July.
    5. Ebina, Takeshi & Matsushima, Noriaki & Shimizu, Daisuke, 2015. "Product differentiation and entry timing in a continuous time spatial competition model," European Journal of Operational Research, Elsevier, vol. 247(3), pages 904-913.
    6. Mahmood Pedram & Subramanian Balachander, 2015. "Increasing Quality Sequence: When Is It an Optimal Product Introduction Strategy?," Management Science, INFORMS, vol. 61(10), pages 2487-2494, October.
    7. S. Arunachalam & S. Cem Bahadir & Sundar G. Bharadwaj & Rodrigo Guesalaga, 2020. "New product introductions for low-income consumers in emerging markets," Journal of the Academy of Marketing Science, Springer, vol. 48(5), pages 914-940, September.
    8. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    9. Palsule-Desai, Omkar D. & Tirupati, Devanath & Shah, Janat, 2015. "Product line design and positioning using add-on services," International Journal of Production Economics, Elsevier, vol. 163(C), pages 16-33.
    10. Mayer, Stefan & Steinhardt, Claudius, 2016. "Optimal product line pricing in the presence of budget-constrained consumers," European Journal of Operational Research, Elsevier, vol. 248(1), pages 219-233.
    11. Sinha, Mona & Sheth, Jagdish, 2018. "Growing the pie in emerging markets: Marketing strategies for increasing the ratio of non-users to users," Journal of Business Research, Elsevier, vol. 86(C), pages 217-224.
    12. Wang, Wei & Lyu, Gaoyan, 2020. "Sequential product positioning on a platform in the presence of network effects," International Journal of Production Economics, Elsevier, vol. 229(C).
    13. Matsubayashi, Nobuo & Ishii, Yasuaki & Watanabe, Kentaro & Yamada, Yoshiyasu, 2009. "Full-line or specialization strategy? The negative effect of product variety on product line strategy," European Journal of Operational Research, Elsevier, vol. 196(2), pages 795-807, July.
    14. K. Sridhar Moorthy & I. P. L. Png, 1992. "Market Segmentation, Cannibalization, and the Timing of Product Introductions," Management Science, INFORMS, vol. 38(3), pages 345-359, March.
    15. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    16. Yan, Xiaoming & Zhao, Wenhan & Yu, Yugang, 2022. "Optimal product line design with reference price effects," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1045-1062.
    17. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    18. Eyal Biyalogorsky & Oded Koenigsberg, 2014. "The Design and Introduction of Product Lines When Consumer Valuations are Uncertain," Production and Operations Management, Production and Operations Management Society, vol. 23(9), pages 1539-1548, September.
    19. Meza, Sergio & Tombak, Mihkel, 2009. "Endogenous location leadership," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 687-707, November.
    20. Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
    21. Tabuchi, Takatoshi & Thisse, Jacques-Francois, 1995. "Asymmetric equilibria in spatial competition," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 213-227.
    22. Lian Qi & Leon Yang Chu & Rachel R. Chen, 2016. "Quality Provision with Heterogeneous Consumer Reservation Utilities," Production and Operations Management, Production and Operations Management Society, vol. 25(5), pages 883-901, May.
    23. Andrade, Xavier & Guimarães, Luís & Figueira, Gonçalo, 2021. "Product line selection of fast-moving consumer goods," Omega, Elsevier, vol. 102(C).
    24. Xue Li & Xiaoqiang Cai & Jian Chen, 2022. "Quality and Private Label Encroachment Strategy," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 374-390, January.
    25. Serguei Netessine & Terry A. Taylor, 2007. "Product Line Design and Production Technology," Marketing Science, INFORMS, vol. 26(1), pages 101-117, 01-02.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Palsule-Desai, Omkar D. & Tirupati, Devanath & Shah, Janat, 2015. "Product line design and positioning using add-on services," International Journal of Production Economics, Elsevier, vol. 163(C), pages 16-33.
    2. Kinshuk Jerath & Sang-Hyun Kim & Robert Swinney, 2017. "Product Quality in a Distribution Channel with Inventory Risk," Marketing Science, INFORMS, vol. 36(5), pages 747-761, September.
    3. Wong, Hartanto & Kim, Kilsun & Chhajed, Dilip, 2021. "Reducing channel inefficiency in product line design," International Journal of Production Economics, Elsevier, vol. 232(C).
    4. Zhang, Yu & Huang, Min & Tian, Lin & Cai, Gangshu George & Jin, Delong & Fan, Zhiping, 2023. "Manufacturer’s product line selling strategy and add-on policy in product sharing," European Journal of Operational Research, Elsevier, vol. 308(3), pages 1332-1343.
    5. Tookanlou, Parisa Bagheri & Wong, Hartanto, 2020. "Determining the optimal customization levels, lead times, and inventory positioning in vertical product differentiation," International Journal of Production Economics, Elsevier, vol. 221(C).
    6. Albert Ha & Xiaoyang Long & Javad Nasiry, 2016. "Quality in Supply Chain Encroachment," Manufacturing & Service Operations Management, INFORMS, vol. 18(2), pages 280-298, May.
    7. Kopalle, Praveen K. & Pauwels, Koen & Akella, Laxminarayana Yashaswy & Gangwar, Manish, 2023. "Dynamic pricing: Definition, implications for managers, and future research directions," Journal of Retailing, Elsevier, vol. 99(4), pages 580-593.
    8. Yunchuan Liu & Tony Haitao Cui, 2010. "The Length of Product Line in Distribution Channels," Marketing Science, INFORMS, vol. 29(3), pages 474-482, 05-06.
    9. Yan, Xiaoming & Zhao, Wenhan & Yu, Yugang, 2022. "Optimal product line design with reference price effects," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1045-1062.
    10. Chen, Chialin & Liu, Lucy Qian, 2014. "Pricing and quality decisions and financial incentives for sustainable product design with recycled material content under price leadership," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 666-677.
    11. Tao Lu & Ying-Ju Chen & Jan C. Fransoo & Chung-Yee Lee, 2020. "Shipping to Heterogeneous Customers with Competing Carriers," Manufacturing & Service Operations Management, INFORMS, vol. 22(4), pages 850-867, July.
    12. Ye, Taofeng & Yang, Huiqiang, 2020. "Price and Quality Management with Strategic Consumers: Whether to Introduce a High or Low Product Variant," Applied Mathematics and Computation, Elsevier, vol. 386(C).
    13. Bing Jing, 2006. "On the Profitability of Firms in a Differentiated Industry," Marketing Science, INFORMS, vol. 25(3), pages 248-259, 05-06.
    14. Maher Agi & Xinghao Yan, 2020. "Greening products in a supply chain under market segmentation and different channel power structures," Post-Print hal-02898158, HAL.
    15. Young Kwark & Jianqing Chen & Srinivasan Raghunathan, 2018. "User-Generated Content and Competing Firms’ Product Design," Management Science, INFORMS, vol. 64(10), pages 4608-4628, October.
    16. Altug, Mehmet Sekip, 2016. "Supply chain contracting for vertically differentiated products," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 34-45.
    17. Xiao, Tiaojun & Xu, Tiantian, 2014. "Pricing and product line strategy in a supply chain with risk-averse players," International Journal of Production Economics, Elsevier, vol. 156(C), pages 305-315.
    18. Hongmin Li & Scott Webster & Gwangjae Yu, 2020. "Product Design Under Multinomial Logit Choices: Optimization of Quality and Prices in an Evolving Product Line," Manufacturing & Service Operations Management, INFORMS, vol. 22(5), pages 1011-1025, September.
    19. Pnina Feldman & Yiangos Papanastasiou & Ella Segev, 2019. "Social Learning and the Design of New Experience Goods," Management Science, INFORMS, vol. 65(5), pages 1502-1519, April.
    20. Agi, Maher A.N. & Yan, Xinghao, 2020. "Greening products in a supply chain under market segmentation and different channel power structures," International Journal of Production Economics, Elsevier, vol. 223(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:317:y:2024:i:2:p:578-591. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.