Pricing and sequencing differentiated products for strategic consumers under demand uncertainty

Pricing and the introduction of new products are critical decision-making challenges that can significantly impact a firm’s competitive marketing capabilities. Particularly when there exists demand uncertainty, these decisions become even more complicated due to consumers’ strategic behavior, such as delaying purchases to wait for season-off sales at discounted prices. This paper examines how such forward-looking behavior among consumers influences a firm’s key decisions regarding product introduction sequencing, pricing, and production. Our work demonstrates that demand uncertainty exacerbates price distortion due to cannibalization effects. More importantly, we show that production must follow a newsvendor-type logic where early sales information improves later production decisions. Furthermore, our findings challenge the conventional wisdom in the marketing literature. Specifically, we show that under demand uncertainty, the principle established in classic marketing literature — introducing a high-end product first is preferable to launching a low-end product — does not always hold. In particular, the optimal sequence depends on market conditions: upward sequencing can dominate when vertical differentiation is strong, while the preferred strategy is to introduce the product serving the more volatile segment later, especially when the correlation effect is pronounced. This paper offers new insights beyond the conventional marketing perspective by incorporating production and inventory considerations, showing how sequencing, pricing, and production decisions jointly shape firms’ strategies under demand uncertainty and strategic consumer behavior.