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Product cannibalization and the effect of a service strategy

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  • Pietro De Giovanni
  • Vinay Ramani

Abstract

Product cannibalization can push some consumers to shift their purchasing preferences from new to used products. This is a costly issue for manufacturers, who have to adjust their pricing strategies accordingly to mitigate the negative effect of cannibalization. In this paper, we characterize an atypical channel to examine the effect of product cannibalization within the DellReconnect project. In particular, we investigate how the presence of a Goodwill agency in a second-hand market impacts the business of a manufacturer (e.g., Dell) in a new market through cannibalization, and how the manufacturer reacts to mitigate its effects. We show that even if the manufacturer adjusts its price to decrease the negative effects of cannibalization, this effect is so severe that it always loses some profits. Nevertheless, when the manufacturer provides some additional services to new consumers, the negative effects of cannibalization can be partially overcome.

Suggested Citation

  • Pietro De Giovanni & Vinay Ramani, 2018. "Product cannibalization and the effect of a service strategy," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(3), pages 340-357, March.
    • Handle: RePEc:taf:tjorxx:v:69:y:2018:i:3:p:340-357
    DOI: 10.1057/s41274-017-0224-5
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    Cited by:

    1. Pietro De Giovanni & Vinay Ramani, 2023. "A Selected Survey of Game Theory Models with Government Schemes to Support Circular Economy Systems," Sustainability, MDPI, vol. 16(1), pages 1-29, December.
    2. Sarmah, Archita & De Giovanni, Domenico & De Giovanni, Pietro, 2020. "Compulsory licenses in the pharmaceutical industry: Pricing and R&D strategies," European Journal of Operational Research, Elsevier, vol. 282(3), pages 1053-1069.
    3. Pietro De Giovanni, 2019. "Digital Supply Chain through Dynamic Inventory and Smart Contracts," Mathematics, MDPI, vol. 7(12), pages 1-25, December.
    4. Pietro Giovanni & Georges Zaccour, 2019. "A selective survey of game-theoretic models of closed-loop supply chains," 4OR, Springer, vol. 17(1), pages 1-44, March.
    5. Cristina Maranesi & Pietro De Giovanni, 2020. "Modern Circular Economy: Corporate Strategy, Supply Chain, and Industrial Symbiosis," Sustainability, MDPI, vol. 12(22), pages 1-25, November.

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