Managing product introductions and transitions [electronic resource]
Keywords: Management Science and Engineering

As the rate of innovation increases, companies face expanding product lines, shorter product lifecycles, and more frequent product transitions, all of which can bring tremendous value but also pose enormous challenges. In this dissertation, we provide a brief introduction to and survey of product introductions and transitions in Chapter 2, and then address three different operational problems encountered during new product introduction and transition phases of the firms. Our goal is to complement this literature in three aspects: pricing successive product generations, sales and production plans during capacitated new product introductions and refurbished product management during new product introductions. In Chapter 3, we model the dynamics between two product generations by accounting for product cannibalization; we characterize properties of optimal pricing. Since the optimal prices are difficult to obtain and closed-form solutions do not exist for the general problem, we provide a heuristic that performs within 6.1% of optimal (with an average performance of 2%) in numerical analysis. We also consider the case where two products are introduced by competing firms. Our results show that the difference between monopoly and competition prices can be substantial, especially when the price sensitivity of the new product is higher than that of the old product. Although prices are generally lower under competition, we identify situations where monopoly leads to lower prices for both generations. In Chapter 4, we analyze new product introductions under capacity restrictions with both monopoly and competition market assumptions. We optimize the production and sales plans of the firm(s), combining marketing and operations management decisions in a stylized model. We identify four different introduction policies and show that when the holding cost is low and the capacity is low to moderate, a (partial) build-up policy is optimal. Under such a policy, the firm (partially) delays the introduction of its product and incurs short-term backlog costs to manage its future demand and total costs more effectively. However, as either the holding cost or the capacity increases, the build-up policy starts to lose its appeal and firms prefer an immediate product introduction instead. Although competition tends to decrease the reliance on the build-up policy, there are situations under which competing firms may be more willing to employ a build-up inventory policy compared to a monopolist. Our results show that introduction policies are sensitive to market and cost conditions as well as the firm's capacity, and a careful analysis is required to optimize such strategies. In Chapter 5, we consider a setting where a firm may sell refurbished products in addition to its existing portfolio of an old and a new product. We analyze the problem of determining the price of this refurbished product as well as its sales policy when the refurbished product interacts with the firm's product portfolio. We show that the firm's pricing and sales policy depends on its old product inventory and refurbished product demand. Our results indicate that when the refurbished market demand is low, it is optimal not to sell the refurbished product as its negative impact on profit through cannibalization is more significant than its positive impact through additional revenue generation. In this case, the firm sets a high price for its refurbished product to channel the demand to its existing product portfolio. As a result, refurbished products enable firms to capture a new market and increase the sales of the whole product line. With a numerical analysis, we show that refurbishing can have a significant role, increasing the profit up to 12.2% and constituting up to 6.8% of the firm's sales portfolio. In Chapter 6, we conclude with a summary of our results and potential research directions.