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Analysis of Product Rollover Strategies in the Presence of Strategic Customers

Author

Listed:
  • Chao Liang

    (Cheung Kong Graduate School of Business, Beijing 100738, China)

  • Metin Çakanyıldırım

    (Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

  • Suresh P. Sethi

    (Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

Abstract

Frequent product introductions emphasize the importance of product rollover strategies. With single rollover, when a new product is introduced, the old product is phased out from the market. With dual rollover, the old product remains in the market along with the new product. Anticipating the introduction of the new product and the potential markdown of the old product, strategic customers may delay their purchases. We study the interaction between product rollover strategies and strategic customer purchasing behavior and find that single rollover is more valuable when the new product's innovation is low and the number of strategic customers is high. Interestingly and counter to intuition, the firm may have to charge a lower price for the old product as well as receive a lower profit with a higher value disposal (outside) option for the old product under single rollover. Facing a market composed of both strategic and myopic customers, the firm does not necessarily reduce the stocking level as more myopic customers become strategic. This paper was accepted by Yossi Aviv, operations management.

Suggested Citation

  • Chao Liang & Metin Çakanyıldırım & Suresh P. Sethi, 2014. "Analysis of Product Rollover Strategies in the Presence of Strategic Customers," Management Science, INFORMS, vol. 60(4), pages 1033-1056, April.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:4:p:1033-1056
    DOI: 10.1287/mnsc.2013.1803
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    References listed on IDEAS

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