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Optimal Pricing Strategy for New Products

  • 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):

    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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    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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    1. Bass, Frank M, 1980. "The Relationship between Diffusion Rates, Experience Curves, and Demand Elasticities for Consumer Durable Technological Innovations," The Journal of Business, University of Chicago Press, vol. 53(3), pages S51-67, July.
    2. Dan Horsky, 1990. "A Diffusion Model Incorporating Product Benefits, Price, Income and Information," Marketing Science, INFORMS, vol. 9(4), pages 342-365.
    3. Shlomo Kalish, 1985. "A New Product Adoption Model with Price, Advertising, and Uncertainty," Management Science, INFORMS, vol. 31(12), pages 1569-1585, December.
    4. Jain, Dipak C & Rao, Ram C, 1990. "Effect of Price on the Demand for Durables: Modeling, Estimation, and Findings," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 163-70, April.
    5. Shlomo Kalish, 1983. "Monopolist Pricing with Dynamic Demand and Production Cost," Marketing Science, INFORMS, vol. 2(2), pages 135-159.
    6. Frank M. Bass & Trichy V. Krishnan & Dipak C. Jain, 1994. "Why the Bass Model Fits without Decision Variables," Marketing Science, INFORMS, vol. 13(3), pages 203-223.
    7. Frank M. Bass & Alain V. Bultez, 1982. "Technical Note—A Note on Optimal Strategic Pricing of Technological Innovations," Marketing Science, INFORMS, vol. 1(4), pages 371-378.
    8. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
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