Optimal reliability, warranty and price for new products

The success of a new product depends on both engineering decisions (product reliability) and marketing decisions (price, warranty). A higher reliability results in a higher manufacturing cost and higher sale price. Consumers are willing to pay a higher price only if they can be assured about product reliability. Product warranty is one such tool to signal reliability with a longer warranty period indicating better reliability. Better warranty terms result in increased sales and also higher expected warranty servicing costs. Warranty costs are reduced by improvements in product reliability. Learning effects result in the unit manufacturing cost decreasing with total sales volume and this in turn impacts on the sale price. As such, reliability, price and warranty decisions need to be considered jointly. The paper develops a model to determine the optimal product reliability, price and warranty strategy that achieve the biggest total integrated profit for a general repairable product sold under a free replacement-repair warranty strategy in a market and looks at two scenarios for the pricing and warranty of the product. The model assumes that the sale rate increases as the warranty period increases and decreases as the price increases. The maximum principle method is used to obtain optimal solutions for dynamic price and warranty situations. Finally, numerical examples are given to illustrate the proposed model.     

Pricing strategies for information products with network effects and complementary services in a duopolistic market

In this paper, we model a fully covered duopoly market in which two firms offer a differentiated information product that exhibits positive network effects and a complementary premium service to consumers. For each firm, there are two marketing strategies: the freemium strategy and the bundling strategy. We find that, under the market equilibrium, a firms’ decision whether to employ the freemium strategy or not depends largely on the quality of the information product compared to its rival. When the information product quality is similar and the products’ intrinsic values are sufficiently large, both firms will be better off by adopting the freemium strategy, while the bundling strategy will prevail if the products’ intrinsic values are sufficiently small. Additionally, when the magnitude of complementary effects or network effects exceeds a given threshold, both firms’ profit can be enhanced by an increase in the degree of product complementarity or in the intensity of network effects. We also demonstrate that a firm can benefit from an increasing market size only if the intrinsic value of its information product is sufficiently large. Finally, we extend our model to the uncovered market and derive the equilibrium prices and profits.     

Price and lead time differentiation,capacity strategy and market competition

We study a duopoly market in which customers are heterogeneous, and can be segmented as price or time sensitive. Each firm tailors (differentiates) its products/services for the two customer classes solely based on guaranteed lead time and the corresponding price. Our objective is to understand how competition affects price and lead time differentiation of the firms in the presence of different operations strategy (shared versus dedicated capacity), product substitution and asymmetry between the competing firms. Our results suggest that when firms use dedicated resources to serve the two market segments, pure price competition always tends to decrease individual prices as well as price differentiation, irrespective of the market behaviour. Further, the effect of competition is more pronounced when customers are allowed to self-select, thereby introducing substitutability between the two product options. On the other hand, when firms compete in time, in addition to price, the effect of competition on product differentiation depends crucially on the behaviour of the market. Our results further suggest that the firm with a larger market base should always maintain a larger price and lead time differentiation between the two market segments. Similarly, the firm with a capacity cost advantage should also maintain a larger lead time differentiation.     

The effect of supply and demand uncertainties on the optimal production and sales plans for new products

When introducing a new product, firms face a hierarchy of decisions at the strategic and operational levels including capacity sizing, time to market or starting sales, initial inventory required by the product’s release time and production management in response to changes in the demand (hereafter referred to as production-sales policies). The goal of this paper was to show the importance of considering both supply and demand uncertainties in the determination of the production-sales policy which has been overlooked in the existing literature. More specifically, we test two main hypotheses: (1) ignoring supply and demand uncertainties may lead to potentially incorrect decisions; and, (2) the decision could be different if risk is used as the primary performance measure instead of the commonly used expected (mean) profit. We perform extensive experimentation with a Monte Carlo simulation model of the stochastic supply-restricted new product diffusion and use different statistical procedures, namely, the Welch’s t-test and a nonparametric double-bootstrap method to compare the average and percentiles of the profit for different policies, respectively. The results indicate that the correctness of the two hypotheses depends on the diffusion speed, consumers’ backlogging behaviour, production capacity, price and variable production and inventory costs. The findings also have important implications for managers regarding market entry time, parameter estimation, production strategy and the implementation of the proposed model.     

On the effect of demand randomness on a price/quantity setting firm

Replenishment and pricing decisions are of great importance to firms. Traditionally replenishment and pricing strategies are determined by separate units of a firm, the former by production and the latter by marketing. In determining these two strategies, firms frequently have to face two challenges. One stems from a lack of coordination between production and marketing, which leads to revenue loss or excess inventory. The other is caused by lack of information when making these two decisions. That is, firms usually have to make decisions when market information is poor. We consider the joint effects of coordination and information when market demand becomes more variable in the sense of a specific mean preserving transformation. We have three main findings. First, when these two strategies are coordinated by the Headquarters (HQ) of the firm, the HQ uses pricing and inventory as two instruments to manage uncertainty. How exactly increasing demand variability affects the decisions depends on the type of demand uncertainty faced. In particular, for additive demand uncertainty, both price and service level decrease in demand variability, whereas for multiplicative demand uncertainty, they both increase in demand variability. Second, the value of information increases with the level of demand variability, suggesting that it is more beneficial to have information when demand is more variable. The impact of demand variability on the value of coordination, however, is indeterminate. Furthermore, perfect information has more value than perfect coordination if and only if demand variability is high. Third, coordinating these two decisions reduces the value of obtaining the demand information and similarly coordination is more valuable when the demand information is unavailable than otherwise.     

Economic Action Does Not Take Place in a Vacuum: Understanding Cisco's Acquisition and Development Strategy

The literature and common belief holds that the acquisition of high- technology firms in rapidly evolving markets normally results in failure. Cisco, however, has successfully grown through the conscious and deliberate use of acquisitions to become the dominant global networking equipment provider. The crux of our argument is that Cisco's success cannot be fully explained by economic and financial variables, or by acquisition target selection, alone. Managing social and organizational processes has been central to Cisco's success. Cisco's success is attributed to an active involvement by both the firm and its employees in its ecosystem. We explain the operation of Cisco's multiplex intelligence gathering function, and characterize it as a "high surface area strategy". This is followed by highlighting how Cisco's due diligence process treats human resource issues as central to calculating the true value of the acquisition. Whereas, most firms consider the process as complete when the decision to acquire has been made, this study explains how Cisco's integration process is staged to ensure that the core product development teams in the acquired firm suffer minimal disruption. Finally, Cisco's success is measured through the use of retention and market share data.     

Strategic cooperation with a backup supplier for the mitigation of supply disruptions

We study optimal sourcing decisions for a firm with a dedicated supplier and a backup supplier. The dedicated supplier charges a lower wholesale price but faces a potential disruption risk. The backup supplier is assumed to be perfectly reliable but charges a higher wholesale price. The primary question we address is how the firm should cooperate with the backup supplier to hedge against the disruption risk. We consider three common cooperation options: advance purchase, reservation and contingency purchase. Our basic results show that the firm should choose advance purchase strategy if the disruption probability is high, while contingency purchase strategy benefits the firm more if the disruption probability is low. Under an intermediate disruption probability, the firm should choose reservation strategy only if the reservation fee is sufficiently low. Then, we explore the optimal backup strategy under partial disruption risk. The results show that the advance purchase and the reservation strategy should be adopted more widely when the dedicated supplier guarantees a relatively high yield rate after disruption.     

The impact of dual-market on supply chain configuration for new products

Given a firm’s supply chain network, the key objective of supply chain configuration (SCC) is to determine a subset of supply chain partners to be involved in development, sourcing, production, distribution and support of a new product at the highest level of efficiency and expected responsiveness. Current literature on SCC realises the importance of considering the demand dynamics associated with the new product diffusion (NPD). However, these studies assume one-segment market for new products, a single homogenous consumer segment. Recent research in marketing indicates that such simplification might be fatal because a diverse and significant number of product categories may experience a dual-market structure, namely early and main markets, and generate a different demand dynamics. The objectives of this study are to: (i) develop a hybrid optimisation model, capturing both SCC decisions and the demand dynamics of dual-market NPD process; (ii) based on real-world data for a host of electronic product categories, various SCC networks and NPD demand dynamics, examine the new integrated optimisation model under one- and two-segment market; and (iii) present relevant managerial implications and guidelines for supply chain and marketing managers. Our extensive comparative computational experiment with 26 categories of consumer electronic products show that on average the relative net profit may improve significantly, when the market is considered as two-segment.     

Joint pricing and advertising strategy with reference price effect

Consumers are susceptible to reference price effects when they make purchase decisions for a certain product. Meanwhile, the sales price and advertisement are the determinable factors that have impact on consumers’ reference price which are also fundamental marketing strategies. Therefore, how to determine an appropriate sales price and advertising effort level to maximise firms’ profits is an essential task. A joint pricing and advertising problem for a monopolistic firm with consideration of reference price effect is investigated, where consumer demand rate is price-sensitivity and depends on the gap between the sales price and the reference price in consumers’ mind. An optimisation model is established to maximise the firm’s total profit by making a joint pricing and advertising strategy. The static and dynamic joint strategies are obtained by applying Pontryagin’s maximum principle. Results show that the dynamic strategies dominate the static ones. Furthermore, the dynamic pricing and dynamic advertising strategies are strategic complements. Additionally, the length of the sales period plays a key role in determining the superiority of the two dynamic strategies. Specifically, a relatively short sales period highlights the value of the dynamic advertising while a long sales period strengthens the function of the dynamic pricing.     

论包装设计与市场营销策略

分析了包装设计在现代产品营销中举足轻重的作用,认为好的包装设计是营销成功的关键。根据不同的市场需求,论述了一系列的包装设计行销战略:品牌定位行销战略、产品定位行销战略、消费者定位行销战略。进而分析了包装设计是以促销为终极目的,提出了包装设计应该与时俱进,针对不同的市场环境,把握消费者的心理策略,走出自己的独特道路。     

基于政府财政干涉的绿色供应链销售渠道模型

以博弈论为基本方法,研究了基于政府财政干涉的绿色供应链销售渠道模型问题。以制造商为市场领导者,构建了单一销售渠道和混合销售渠道的绿色供应链决策模型,通过对决策模型的分析,给出供应链成员的最优绿色度、批发价合同和利润,发现政府的财政干涉能激励供应链成员进行绿色产品的研发工作,且在混合策略下供应链的收益最大。最后通过算例分析验证了以上结论。     

Optimal decision for warranty with consideration of marketing and production capacity

A successful marketing strategy should be managed to integrate the decisions, such as pricing, post-sale service and production in order to maximise profits but most manufacturers did not fully consider how to integrate them into an effective one in the past. Therefore, in this study, we proposed a mathematical model and a corresponding solution algorithm to assist the decision-makers systematically to decide the synthetic decision. The decision-makers can make warranty and marketing decision according to their production capacity. Besides, the impacts on the profit, the sale, the price and the warranty when the related costs were varying are also discussed in the study, so that the decision-maker can more easily handle the possible situations. The failure times of the product in our study were drawn from a non-homogeneous Poisson process with a specific intensity function (linear, exponential or power law). A preventive maintenance programme was also considered in the warranty policy. Finally, a numerical example was given to demonstrate the effectiveness of the proposed model.     

Advance booking discount in the presence of spot market

We consider a risk-neutral firm that can procure raw material via long-term contract as well as in spot market, using the material as a one-to-one input to produce a seasonal product and selling it in the customer market. The firm can use the advance booking discount (ABD) program to entice customers to place their orders prior to the selling season. The ABD program provides an opportunity for the firm to update its understanding of the regular demand and spot price. We separately analyse two cases: (NI) no information updating and (IU) information updating cases. In each case, we derive the optimal discount pricing strategy and corresponding expected profit of the firm. By comparing them, we investigate the value of information updating obtained from the pre-committed order. Among others, our study finds that if the product has a relatively high profit margin, or a low profit margin where the raw material spot price is more sensitive to the trading volume, it is optimal for the firm to implement the discount strategy. The optimal discount coefficient in the IU case is never lower than in the NI case. We further find that the optimal discount coefficient in the NI case decreases in spot market volatility; however, it increases in spot market volatility if and only if the firm’s market share is larger than half of the total market demand in the IU case.     

Optimal pricing and two-dimensional warranty policies for a new product

For commercial products, pricing and warranty are two crucial marketing strategies, which are used to promote the potential market share. The warranty policy adopted by most of the capital-intensive products, such as machines and automobiles, usually has two dimensions, i.e. warranty age and warranty usage. In this paper, we propose to investigate the profit-maximisation problem, in which the revenue and costs will be affected by the product price and the area of warranty region, for a new product sold under two-dimensional warranty. We assume that the product sales can be captured by a stochastic Bass model based on the nonhomogeneous Poisson process. The product follows a two-dimensional failure process and is covered by a non-renewable free minimal-repair warranty, with age and usage limits. We focus on three revenue/cost components, i.e. sales revenue, warranty cost and production cost, that will significantly affect a firm’s total profit. The profit is maximised by jointly optimising three decision variables, i.e. product price, warranty age limit and warranty usage limit. Numerical experiments are conducted to illustrate the effects of some key parameters, including product reliability, price elasticity, warranty elasticity and learning effect factor, on the optimal settings of the price and warranty region.     

Coordination of marketing and production for price and leadtime decisions

We study a firm which serves customers that are sensitive to quoted price and leadtime, with pricing and leadtime decisions being made by the marketing and production departments, respectively. We analyze the inefficiencies created by the decentralization of the price and leadtime decisions. In the decentralized setting, the total demand generated is larger, leadtimes are longer, quoted prices are lower, and the firm's profits are lower as compared to the centralized setting. We show that coordination can be achieved using a transfer price contract with bonus payments. We also provide insights on the sensitivity of the optimal decisions with respect to market characteristics, sequence of decisions and the firm's capacity level.     

网络零售商产品与运费联合定价的优化决策研究

消费者网络购物对运费的认知和商家的偏好存在差异。通过消费者的购买行为分析和效用函数的刻画,研究网络零售商在进行产品与运费联合定价时捆绑定价和分割定价的优化决策问题。讨论商家之间价格竞争的组合形式,提出最优定价存在的情形选项,论证价格决策的边界和适用条件,揭示商家之间采用捆绑定价的对称竞争均衡具有稳定性,及其不同均衡条件下商家利润的相对大小规律。研究结论表明,价格决策的选项取决于商家的产品成本高低,在产品成本给定的条件下,每种价格决策的边界依赖于市场中消费者的属性特征,即运费存怀疑的消费者比例,以及消费者对商家的偏好程度。     

论目标市场策略与商品包装

在市场经济条件下，企业的生产是面向目标市场的。企业在选定的目标市场上的营销，可依其不同的市场策略，采取不同的定位包装。密集性市场策略，则用商品的品质定位包装；差异性市场策略，则用商品的功效定位包装；无差异市场策略则用商品的价格定位包装。     

Relating TQM,marketing and business performance: An exploratory study

Total Quality Management (TQM) is perhaps the leading management approach that companies employ to improve their product and service quality with the aim of improving typical measures of business performance (e.g. increased profits, increased market share, reduced costs). However, consumer perception of quality not only results from an evaluation of the intrinsic quality attributes of the product (e.g. performance, reliability, durability) but is also affected by the marketing mix (e.g. price, advertising, warranties) adopted by the company selling the product. This paper offers a first attempt at cross-functional fertilization by examining the relationships between TQM, some marketing mix variables and measures of company performance by exploring the diverse multidisciplinary literature and developing an explanatory framework, which is tested using non-parametric correlation and refined through an empirical study of Spanish manufacturing companies. The results show that the most important TQM dimensions are the system of employee relations and the use of quality management-related design tools. The results also indicate the existence of a relationship amongst price, advertising and warranties, but that these marketing variables were not related to TQM and that further research is required to include a wider definition of marketing strategy.     

The decoupling of product and process life cycles

When should a plant, if ever, adopt more flexible forms of production technology? The factors supporting the decision for a dedicated system are often based on the dedicated technology's lower fixed and variable costs with respect to production volumes. In. many industries, it is clear that such cost-reduction techniques are essential to a firm's success. On the other hand, flexible manufacturing systems, though initially more expensive, eliminate the requirement for an immediate investment in a new process once the life span of a particular part or product has ended. Given these fundamental differences, it is clear that the question of whether a firm within an industry should select a manufacturing technology which is highly flexible or dedicated can be key to its long-term success. To gain a reasonable understanding of which decision is best, it is imperative that the relationships between innovation, market, and production costs be understood and quantified. The aim of this report is to analyse these vital connections in an attempt to shed further light on these questions. In this context, we introduce the notion of ‘fast response process capability’ as an alternative to the dynamic model of product and process innovation cycles introduced by Utterback and Abernathy (1975). We argue that this new framework will have a large strategic implication across the industry.     

A Stackelberg-Nash model for new product design

Existing conjoint approaches to optimal new product design have focused on the Nash equilibrium concept to model competitive reactions. Whereas these approaches have treated all competing firms equally as Nash players, one firm may have an advantage over its rivals, e.g., more pre-experience on competitors’ behavior and/or a first-mover advantage. This paper proposes a Stackelberg-Nash (leader-followers) model which can accomodate such information for decision making. The optimal product design problem is formulated from the perspective of a profit-maximizing new entrant (the leader) who wants to launch a brand onto an existing product market and acts with foresight by anticipating price-design reactions of the incumbent firms (the Nash followers). In the absence of closed-form solutions, we use a sequential iterative procedure to compute a Stackelberg-Nash equilibrium and to establish its uniqueness. The new conjoint model is illustrated under several competitive scenarios and price, design and profit implications are compared to a simple Nash equilibrium model. We find that a Stackelberg leader strategy may not only yield a much higher profit for the new entrant than a Nash strategy, but may also lead to strong profit asymmetries between competitors with still higher profits for the incumbent firms. In other words, the incumbent firms may also benefit strongly from a new entrant choosing a Stackelberg leader strategy.