Analysis of Product Rollover Strategies in the Presence of Strategic Customers

Liang, Cho–Chung; Çakanyıldırım, M.; Sethi, Suresh P.

doi:10.1287/mnsc.2013.1803

Cited by 103 publications

(68 citation statements)

References 26 publications

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“…Second, we consider a single item and a single location; one can study a setting where markdowns need to be coordinated across different items and locations. Third, one can consider selling multiple versions of a product at a time and the possibility of product rollover strategies (see Liang et al 2014). Fourth, one can investigate the effect of buyer's gradual learning about the market (as opposed to instantaneous learning in this study).…”

Section: Discussionmentioning

confidence: 99%

Markdown Budgets for Retail Buyers: Help or Hindrance?

Şen¹,

Talebian

2017

Production and Operations Management

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For many retailers, markdown decisions are taken by retail buyers whose compensation is based on sales revenue so their objective is to maximize it through the season. This implies that the buyers' objectives are not perfectly aligned with the overall profitability the firm. Many retailers set markdown budgets prior to the season to control margin erosion and increase profitability. Markdown budget constrains the buyers on the amount of discounts that they can apply on a given inventory of merchandise and sets a limit on the dollar value of markdowns for the season. While markdown budgets may be useful in preventing excessive discounts, they can have a detrimental effect on the buyers' ability to respond to poor market and remove distressed inventory. We investigate the effectiveness of this practice in aligning the incentives of buyers with that of the firm, and provide guidance on how these budgets should be established ahead of time. We consider a firm with a fixed inventory of a seasonable item, and a single chance to mark the price down. The retailer knows only the demand distribution at the beginning of the season, but the market information is revealed during the season to the buyer. We first characterize the buyer's markdown policy and understand the circumstances under which this can be different from the retailer's markdown policy. We use our model to determine the optimal markdown budget and quantify its effectiveness considering different factors such as the level of demand uncertainty, initial markup, and market's responsiveness to markdowns.

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Section: Discussionmentioning

confidence: 99%

Markdown Budgets for Retail Buyers: Help or Hindrance?

Şen¹,

Talebian

2017

Production and Operations Management

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“…Complexity finding that consumers' strategic behavior has larger adverse impact on the firm that provides low-quality products [8]. In response to product upgrading, some scholars discuss the impact of consumers' strategic behavior on the product rollover strategies and the firm pricing [9][10][11][12]. For example, Liang et al consider a firm selling products to strategic consumers under two strategies of single rollover and dual rollover, studying the optimal pricing and inventory level of the firm, finding that when the proportion of strategic consumers is high and the degree of new product innovation is low, the firm should adopt single rollover strategy [9].…”

Section: Literature Reviewmentioning

confidence: 99%

“…In response to product upgrading, some scholars discuss the impact of consumers' strategic behavior on the product rollover strategies and the firm pricing [9][10][11][12]. For example, Liang et al consider a firm selling products to strategic consumers under two strategies of single rollover and dual rollover, studying the optimal pricing and inventory level of the firm, finding that when the proportion of strategic consumers is high and the degree of new product innovation is low, the firm should adopt single rollover strategy [9]. Liang et al further study the impact of consumers' strategic behavior on product innovation level and find that consumers' strategic behavior will harm the profit of the firm, but it will increase the product innovation level [10].…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Contract Design of Product‐Service Supply Chain considering Consumers’ Strategic Behavior and Service Quality

et al. 2021

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With increasing market competition and rapid development of service economy, more and more enterprises are shifting from providing products or services to providing product-service systems (PSSs) that integrate products and services, in order to improve competitiveness and profitability. Meanwhile, consumers have strategic delayed purchasing behavior when purchasing the PSS and high requirements for service quality. This paper investigates the two-period pricing and service quality decisions of product-service supply chain (PSSC) considering consumers’ strategic behavior under decentralized and centralized scenarios. The equilibrium results are compared in two scenarios. In order to eliminate performance loss under the decentralized scenario, we design two-period dynamic contracts to coordinate the PSSC. Furthermore, numerical simulation is provided to verify the feasibility of the contracts. The following conclusions can be drawn: (1) the higher the service input-efficiency, the more beneficial for alleviating consumers’ strategic purchase behavior under two scenarios, but this mitigation effect is more obvious under the centralized scenario. (2) Compared with the centralized scenario, the service quality is lower, the two-period PSS sales prices are higher, and the two-period profit is lower under the decentralized scenario. The proportion of service valuation (accounts for the valuation of PSS) will promote the widening of the service quality gap under two scenarios, but in some cases, the service input-efficiency will weaken the promotion effect of the proportion of service valuation. (3) The design of the two-period combined contracts depends on the proportion of service valuation. When the proportion of service valuation is high, the “two-period revenue sharing + service-cost sharing” combined dynamic contract can achieve PSSC perfect coordination. However, when the proportion of service valuation is low, it is necessary to design complexity combined dynamic contract which can achieve PSSC perfect coordination.

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“… study the product line design decision in a distributed development environment that involves cost and development capacity considerations. consider product rollover strategies in the context of inventory considerations. Closer to the spirit of our work, considers an incumbent‐entrant structure where the entrant introduces a disruptive technology that is different from the incumbent and the two firms compete on quantities after capacity investment.…”

Section: Related Literaturementioning

confidence: 99%

Evergreening and operational risk under price competition

Bala

Kunnumkal

Sohoni

2016

Naval Research Logistics

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“Evergreening” is a strategy wherein an innovative pharmaceutical firm introduces an upgrade of its current product when the patent on this product expires. The upgrade is introduced with a new patent and is designed to counter competition from generic manufacturers that seek to imitate the firm's existing product. However, this process is fraught with uncertainty because the upgrade is subject to stringent guidelines and faces approval risk. Thus, an incumbent firm has to make an upfront production capacity investment without clarity on whether the upgrade will reach the market. This uncertainty may also affect the capacity investment of a competing manufacturer who introduces a generic version of the incumbent's existing product but whose market demand depends on the success or failure of the upgrade. We analyze a game where capacity investment occurs before uncertainty resolution and firms compete on prices thereafter. Capacity considerations that arise due to demand uncertainty introduce new factors into the evergreening decision. Equilibrium analysis reveals that the upgrade's estimated approval probability needs to exceed a threshold for the incumbent to invest in evergreening. This threshold for evergreening increases as the intensity of competition in the generic market increases. If evergreening is optimal, the incumbent's capacity investment is either decreasing or nonmonotonic with respect to low end market competition depending on whether the level of product improvement in the upgrade is low or high. If the entrant faces a capacity constraint, then the probability threshold for evergreening is higher than the case where the entrant is not capacity constrained. Finally, by incorporating the risk‐return trade‐off that the incumbent faces in terms of the level of product improvement versus the upgrade success probability, we can characterize policy for a regulator. We show that the introduction of capacity considerations may maximize market coverage and/or social surplus at incremental levels of product improvement in the upgrade. This is contrary to the prevalent view of regulators who seek to curtail evergreening involving incremental product improvement. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 63: 71–89, 2016

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Analysis of Product Rollover Strategies in the Presence of Strategic Customers

Cited by 103 publications

References 26 publications

Markdown Budgets for Retail Buyers: Help or Hindrance?

Markdown Budgets for Retail Buyers: Help or Hindrance?

Dynamic Contract Design of Product‐Service Supply Chain considering Consumers’ Strategic Behavior and Service Quality

Evergreening and operational risk under price competition

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