Designing Digital Rollovers: Managing Perceived Obsolescence through Release Times

Abstract

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuade its existing customer base to upgrade. This is commonly achieved through a rollover strategy, which comprises the price of the new product as well as the decision to discontinue the sale of the existing product (solo rollover) or to sell the existing product at a discounted price (dual rollover). In this study, we argue that the timing of the new product release is an important—but commonly overlooked—third lever in the design of a successful rollover strategy. The release timing influences the consumers' perception of obsolescence, by which an existing product is considered obsolete merely by reference to a new product. This reinforces the upgrading behavior of existing customers, but it also necessitates deep discounts of the existing product to keep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rollovers in markets for digital goods (i.e., where production costs are negligible) that are composed of naive and sophisticated consumers. Under the assumption that both the old and the new product would offer a similar utility if there was no perceived obsolescence, we show that in both markets a firm selecting the release times from a continuous timeline can induce sufficiently large parts of its existing customer base to upgrade so that a solo rollover is optimal. We also characterize the resulting market segmentation, and we offer managerial as well as policy advice.

Last Time Buys during Product Rollovers: Manufacturer & Supplier Equilibria

“…Li and Graves (2012) and Koca et al (2010) consider both the pricing and inventory replenishment decisions concurrently. Liang et al (2014), Liu et al (2018) and Koca et al (2021) propose pricing policies for the firm incorporating how strategic customers react to the rollover under varying levels of innovation. Chau and Desiraju (2017) study rollover strategies in the context of network effects.…”

Product rollover and direct sales decisions in dual-channel supply chains

“…Arslan et al [3] also investigated the timing of new product introduction by a firm and the pricing decision for multiple product generations. Koca et al [24] investigated the introduction of a new version of a digital product that attracts new customers and entice existing customers to upgrade and showed that the choice of the release timing of the new product can induce a sufficiently large portion of the existing customers to upgrade and hence lead single rollover to become the optimal strategy. When introducing a new product, manufacturers may implement trade-in programs to incentivize existing customers to buy the new product.…”

Managing demand by upgrade programs and markdown pricing with a product rollover

“…According to whether the last generation of product should be phased out as soon as the new generation is launched, the product rollover strategy can be classified as single product rollover or dual product rollover. There is a stream literature that studies whether a single or dual rollover strategy should be adopted when considering various factors such as the cannibalization effect (Ferguson & Koenigsberg, 2007), product introduction and phase‐out times (Koca et al, 2021; Lim & Tang, 2006), and the strategic behavior of customers (Levinthal & Purohit, 1989; Liang et al, 2014). Some other papers focus on specific operational issues in the presence of product rollover on the basis of a given rollover strategy.…”