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Optimal Pricing Strategy for New Products

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Author Info

  • Trichy V. Krishnan

    (Jesse H. Jones Graduate School of Management, Rice University, Houston, Texas 77005)

  • Frank M. Bass

    (School of Management, University of Texas at Dallas, Richardson, Texas 75083)

  • Dipak C. Jain

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)

Registered author(s):

    Abstract

    Robinson and Lakhani (1975) initiated a long research stream in marketing when they used the Bass model (1969) to develop optimal pricing path for a new product. A careful analysis of the extant literature reveals that the research predominantly suggests that the optimal price path should be largely based on the sales growth pattern. However, in the real world we rarely find new products that have such pricing pattern. We observe either a monotonically declining pricing pattern or an increase-decrease pricing pattern that does not seem close to the sales path. In this paper, we use a variation of the generalized Bass model (called GBM) developed by Bass et al. (1994) that yields optimal pricing policies that are consistent with empirical data.

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    File URL: http://dx.doi.org/10.1287/mnsc.45.12.1650
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 12 (December)
    Pages: 1650-1663

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    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:12:p:1650-1663

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    Related research

    Keywords: generalized Bass model; pricing; optimal strategy; diffusion;

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    Cited by:
    1. Grajek, Michal & Kretschmer, Tobias, 2009. "Usage and diffusion of cellular telephony, 1998-2004," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 238-249, March.
    2. Hiroshi Kitamura, 2007. "Capacity Expansion in Markets with Intertemporal Consumption Externalities," Discussion Papers in Economics and Business 07-11, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    3. Sitzia, Stefania & Zizzo, Daniel John, 2012. "Price lower and then higher or price higher and then lower?," Journal of Economic Psychology, Elsevier, vol. 33(6), pages 1084-1099.
    4. Meade, Nigel & Islam, Towhidul, 2006. "Modelling and forecasting the diffusion of innovation - A 25-year review," International Journal of Forecasting, Elsevier, vol. 22(3), pages 519-545.
    5. Hernández-Mireles, C. & Fok, D. & Franses, Ph.H.B.F., 2008. "The Triggers, Timing and Speed of New Product Price Landings," ERIM Report Series Research in Management ERS-2008-044-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    6. Inseong Song & Pradeep Chintagunta, 2003. "A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category," Quantitative Marketing and Economics, Springer, vol. 1(4), pages 371-407, December.
    7. Leachman, Robert C. & Ding, Shengwei, 2007. "Integration of speed economics into decision-making for manufacturing management," International Journal of Production Economics, Elsevier, vol. 107(1), pages 39-55, May.
    8. Hiroshi Kitamura & Akira Miyaoka & Misato Sato, 2011. "Free Entry, Market Diffusion, and Social Inefficiency with Endogenously Growing Demand," Discussion Papers in Economics and Business 11-04-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Nov 2012.
    9. Druehl, Cheryl T. & Schmidt, Glen M. & Souza, Gilvan C., 2009. "The optimal pace of product updates," European Journal of Operational Research, Elsevier, vol. 192(2), pages 621-633, January.
    10. Luís Cabral, 2012. "Lock in and switch: Asymmetric information and new product diffusion," Quantitative Marketing and Economics, Springer, vol. 10(3), pages 375-392, September.
    11. Souza, Gilvan C., 2004. "Product introduction decisions in a duopoly," European Journal of Operational Research, Elsevier, vol. 152(3), pages 745-757, February.
    12. Vardan Avagyan & Mercedes Esteban Bravo & Jose Vidal-Sanz, 2011. "Licensing radical product innovations to speed up the diffusion," Business Economics Working Papers wb113609, Universidad Carlos III, Departamento de Economía de la Empresa.
    13. Kitamura, Hiroshi & Miyaoka, Akira & Sato, Misato, 2013. "Free entry, market diffusion, and social inefficiency with endogenously growing demand," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 98-116.
    14. Wee, Hui-Ming & Law, Sh-Tyan, 2001. "Replenishment and pricing policy for deteriorating items taking into account the time-value of money," International Journal of Production Economics, Elsevier, vol. 71(1-3), pages 213-220, May.

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