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The optimal pace of product updates

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  • Druehl, Cheryl T.
  • Schmidt, Glen M.
  • Souza, Gilvan C.
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    Abstract

    Some firms (e.g. Intel and Medtronics) use a time-pacing strategy for product development (PD), introducing new generations at regular intervals. If the firm adopts a fast pace (introducing frequently), it prematurely cannibalizes its old generation, incurring high development costs, while if it has a slow pace, it fails to capitalize on customer willingness-to-pay for improved technology. We develop a model to gain insight into which factors drive the pace. We consider PD cost, the diffusion rate (coefficients of innovation and imitation), the rate of margin decline, and the degree to which a new generation stimulates market growth. We find that a faster pace is generally associated with faster diffusion, a higher market growth rate and faster margin decay. Not so intuitively, we find that relatively minor differences in the development cost function can significantly impact the pace.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 2 (January)
    Pages: 621-633

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:621-633

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: OR in research and development New product introduction Diffusion Time-pacing Clockspeed;

    References

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    Cited by:
    1. Liberali, Guilherme & Gruca, Thomas S. & Nique, Walter M., 2011. "The effects of sensitization and habituation in durable goods markets," European Journal of Operational Research, Elsevier, Elsevier, vol. 212(2), pages 398-410, July.
    2. Chen, Yuwen & Carrillo, Janice E., 2011. "Single firm product diffusion model for single-function and fusion products," European Journal of Operational Research, Elsevier, Elsevier, vol. 214(2), pages 232-245, October.
    3. Ozer, Muammer, 2011. "Understanding the impacts of product knowledge and product type on the accuracy of intentions-based new product predictions," European Journal of Operational Research, Elsevier, Elsevier, vol. 211(2), pages 359-369, June.
    4. Yan, Hong-Sen & Ma, Kai-Ping, 2011. "Competitive diffusion process of repurchased products in knowledgeable manufacturing," European Journal of Operational Research, Elsevier, Elsevier, vol. 208(3), pages 243-252, February.

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