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Increasing Quality Sequence: When Is It an Optimal Product Introduction Strategy?

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  • Mahmood Pedram

    (School of Business Administration, American University in Dubai, Dubai, United Arab Emirates)

  • Subramanian Balachander

    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

Abstract

In this paper, we analyze the optimal introduction timing of a seller’s products targeted at segments that differ in their willingness to pay for quality. Past studies suggest that an introduction sequence of a high-quality product followed by a lower-quality version of the product may mitigate the cannibalization effects of the low-quality product on profits from the high-quality product. We show that if customers who value quality more possess an outside option such as a substitute product, as may be the case with replacement buyers, a seller may find it optimal to follow a low-quality product with a higher-quality one, the latter being targeted at replacement buyers. Furthermore, the ability of the seller to commit to future qualities accentuates the sequential increase in quality in the presence of such buyers. Thus, we show that conditions other than uncertainty or technological improvements occurring over time may justify a seller adopting a strategy of sequentially increasing quality. This paper was accepted by J. Miguel Villas-Boas, marketing.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:10:p:2487-2494
    DOI: 10.1287/mnsc.2014.2001
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    References listed on IDEAS

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    Cited by:

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    5. Bo Tan & Zhiguo Zhu & Pan Jiang & Xiening Wang, 2023. "Modeling Multi-Generation Product Diffusion in the Context of Dual-Brand Competition and Sustainable Improvement," Sustainability, MDPI, vol. 15(17), pages 1-22, August.

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