Friday, September 14, 2012

JIANG Zhengrui, JAIN Dipak C.
Optimal Marketing Entry Timing for Successive Product/Service Generations
INSEAD Working Paper 2012/83/MKT

When to introduce successive generations of products or services to the market is an important decision for firms. In this study, we develop analytical models to help decide the optimal market entry timing for each generation. Our analysis is very comprehensive in that we consider two commonly observed revenue streams (i.e., revenue is generated from either one-time sale or continuous service) and two generation transition strategies (i.e., older generation are either gradually phased out or totally replaced). Pioneering research models by Wilson and Norton (1989) and Mahajan and Muller (1996) have considered the specific business scenario corresponding to one-time sale and phase-out transition. Results of these studies conclude that a second generation should be introduced now or never (Wilson and Norton 1989) or now or at maturity (Mahajan and Muller 1996). We find that under one-time sale and phase-out transition, the optimal entry timing is not limited to now or never or now or at maturity, but it can also lie between now and maturity. Interestingly, when continuous service (instead of one-time sale) is the source of revenue and the new generation is less profitable than the older per unit time’s service, the now or never pattern is observed. Lastly, we demonstrate that the proposed modeling framework can be easily used to derive market entry timing for more general business scenarios where a) revenue is generated from both one-time sale and continuous service, and b) there exist three product generations, which also extend previous research.