Product Positioning Using a Self‐Organizing Map and the Rings of Influence

In this article, we propose a new product positioning method based on the neural network methodology of a self‐organizing map. The method incorporates the concept of rings of influence, where a firm evaluates individual consumers and decides on the intensity to pursue a consumer, based on the probability that this consumer will purchase a competing product. The method has several advantages over earlier work. First, no limitations are imposed on the number of competing products and second, the method can position multiple products in multiple market segments. Using simulations, we compare the new product positioning method with a quasi‐Newton method and find that the new method always approaches the best solution obtained by the quasi‐Newton method. The quasi‐Newton method, however, is dependent on the initial positions of the new products, with the majority of cases ending in a local optimum. Furthermore, the computational time required by the quasi‐Newton method increases exponentially, while the time required by the new method is small and remains almost unchanged, when the number of new products positioned increases. We also compute the expected utility that a firm will provide consumers by offering its products. We show that as the intensity with which a firm pursues consumers increases, the new method results in near‐optimal solutions in terms of market share, but with higher expected utility provided to consumers when compared to that obtained by a quasi‐Newton method. Thus, the new method can serve as a managerial decision‐making tool to compare the short‐term market share objective with the long‐term expected utility that a firm will provide to consumers, when it positions its products and intensifies its effort to attract consumers away from competition.     

Optimal Planning Quantities for Product Transition

The replacement of an existing product with a new one presents many challenges. In particular, uncertainties in a new product introduction often lead to extreme cases of demand and supply mismatches. This paper addresses inventory planning decisions for product upgrades when there is no replenishment opportunity during the transition period. We allow product substitution: when a company runs out of the old product, a customer may be offered the new product as a substitute. We show that the optimal substitution decision is a time‐varying threshold policy and establish the optimal planning policy. Further, we determine the optimal delay in a new product introduction, given the initial inventory of the old product.     

The Roles of Supply Chain Intelligence and Adaptability in New Product Launch Success

Many new product introductions continue to be unsuccessful, and while researchers have studied product development processes, relatively few studies directly address new product launch. We do so in the present research and posit that supply chain intelligence, defined as technological and competitive knowledge sourced and integrated from suppliers, customers, and competitors, plays an important role in explaining new product launch success. We further employ the knowledge‐based view to theorize that both supply chain adaptability and product innovation capability act as important mediators of the effects of supply chain intelligence on new product launch success and firm financial performance. While the former capability refers to a firm's ability to quickly adjust its supply chain to react to market and product design changes, the latter refers to the firm's proficiency in developing innovative new products. We test hypothesized relationships among these factors utilizing data collected in a survey of 229 U.S. manufacturing firms. Results point to the central role of supply chain adaptability in capturing the benefits of supplier technological intelligence for enhanced product innovation capability, new product launch success, and firm financial performance. In contrast, product innovation capability serves as the generative means by which customer and competitor intelligence is translated into more successful new product launches, which, in turn, produce superior firm financial performance. Overall, these findings contribute to a better understanding of factors that can explain why certain product launches are more successful than others, and offer practical insights for appropriate investments in the development of related knowledge resources.     

New Product Design under Channel Acceptance: Brick‐and‐Mortar,Online‐Exclusive,or Brick‐and‐Click

In recent years, an increasing number of brick‐and‐mortar retailers have entered into the new brick‐and‐click era. Within this context, when a manufacturer presents a new product offering to a retailer, the ultimate decision is often made by the retailer regarding (1) whether to carry the new product, and (2) the channel outlet the product will be carried in (i.e., in‐store only, online‐exclusive, or brick‐and‐click). In response to this trend, we examine how a manufacturer may use product design to influence a dual‐channel retailer's outlet designation decision. This is the first study to investigate a manufacturer's optimal product design strategy when a brick‐and‐mortar retailer expands online. We demonstrate that, to induce the retailer to carry a new product both offline and online, it may not always be optimal for the manufacturer to enhance product quality (compared with when the retailer only operates offline). With the online store addition, the retailer may also be incentivized to adjust his participation criterion to a level less than what is determined by his outside option.     

When to Offer Lower Quality or Remanufactured Versions of a Product

We investigate the profitability of adding a lower quality or remanufactured product to the product portfolio of a monopoly firm, both in single‐period and steady‐state settings. Consumer behavior is characterized by a deterministic utility function for the original product and a nonlinear relative utility function for the lower quality product. We find a threshold for the cost of the low‐quality product below which it is optimal to add it to the firm's portfolio, and show that while a cost advantage is necessary to make the lower quality offering profitable under linear or convex relative utility functions, market segmentation alone can justify the addition of the lower quality product under concave relative utility functions. In particular, we characterize (i) the new product cost under which it is optimal to offer a lower quality version of the product even if it is as costly to produce as the original product; and (ii) the weighted average of new and remanufactured product costs in the steady state under which it becomes cost effective to offer new products under the remanufactured label. Finally, we also identify the maximum possible profits from customer segmentation and the form of the relative utility function that achieves them. We discuss the implications for the common marketing practices of branding and generics.     

A Strategy for Opening a New Market and Encroaching on the Lower End of the Existing Market

We identify and analyze a scenario where a firm first opens up what we call a “detached” market, by offering a new product that meets a customer need that is very different from (i.e., detached from) the need met by the old established product. Our analysis builds on the previous studies that describe alternate ways in which a new product might open a new market and ultimately encroach on an existing market. Consider the example of cell phones: They opened up a new detached market by meeting the customer need for mobility, a need very different from the traditional attribute of reception quality. By meeting an important detached need, a new product can sell at a high price, even though it might be woefully deficient with regard to the traditional performance dimension (the reception/coverage of early cell phones was sorely lacking). A person who is a high‐end customer for the old product initially despises the new product as a replacement for the old one but might simultaneously be one of the first customers for the new product because it fills the detached‐market need. Over time, the new product improves along the traditional dimension (e.g., cell phone reception/coverage has dramatically improved), and eventually it becomes a replacement for the old product, encroaching from the lower end upward (the first customers to drop their landlines have been lower‐end customers such as students and apartment dwellers, whereas higher‐end business customers still have landlines in their offices). We call this the detached‐market form of low‐end encroachment and show how it helps explain the conundrum of an expensive “disruptive” innovation. We go on to relate our results to the finding that “willingness to cannibalize” is a key factor in an incumbent firm's growth and survival, and to the “blue ocean strategy.”     

Product universality and design for supply chain management

We describe our experience of developing models in which the principles of design for supply chain management (DFCM) have been implemented for new product development at Hewlett-Packard Company (HP). This experience arises from the development of a new product that is scheduled to be released in 1995. A key design decision faced by the product development team was whether to use a universal module or regionally dedicated modules to satisfy global market requirements. We describe a wide range of factors—including manufacturing and logistics costs—that could be used to support the design decision; these factors associated with product and process design contribute to tolal supply chain costs. We review the analytical model used to evaluate the cost and service implications of the two design alternatives. Finally, we discuss qualitative considerations that might influence the eventual decisions as well as the lessons learned from this real world experience.     

Optimal Policies for Selling New and Remanufactured Products

Because of environmental and economic reasons, an increasing number of original equipment manufacturers (OEMs) nowadays sell both new and remanufactured products. When both products are available, customers will buy the one that gives them a higher (and non‐negative) utility. Thus, if the firm does not price the products properly, then product cannibalization may arise and its revenue may be adversely impacted. In this paper, we study the pricing problem of a firm that sells both new and remanufactured products over a finite planning horizon. Customer demand processes for both new and remanufactured products are random and price‐sensitive, and product returns (also called cores) are random and remanufactured upon receipt. We characterize the optimal pricing and manufacturing policies that maximize the expected total discounted profit. If new products are made‐to‐order (MTO), we show that when the inventory level of remanufactured product increases, the optimal price of remanufactured product decreases while the price difference between new and remanufactured products increases; however, the optimal selling price of new product may increase or decrease. If new products are made to stock (MTS), then the optimal manufacturing policy is of a base‐stock policy with the base‐stock level decreasing in the remanufactured product inventory level. To understand the potential benefit in implementing an MTO system, we study the difference between the value functions of the MTO and MTS systems, and develop lower and upper bounds for it. Finally, we study several extensions of the base model and show that most of our results extend to those more general settings.     

Distributed Development and Product Line Decisions

Distributed product development is becoming increasingly prevalent in a number of industries. We study how the global distribution of product development impacts the profit‐maximizing product line that a firm offers. Specifically, we formulate a model to understand the linkage between cost arbitrage as a driver of distributed development and consequent market implications such as customer perceived quality loss to remotely developed products. Analysis of the model reveals that a firm should expand the product line for a development‐intensive good only at intermediate values of cost advantage and quality loss. We modify the base model to include development capacity constraints as a driver of distributed development and find that the results are robust to this change. Our analysis affirms the need for product managers to incorporate the implications of distributed development in making their product line design decision.     

To Preannounce or Not: New Product Development in a Competitive Duopoly Market

In this study, we consider the issue of preannouncing or not preannouncing the development of a new product. Our research is motivated by contrasting views in the literature and varying actions observed in practice. We develop and analyze a game theoretic model that examines the effect of a firm's preannouncement of its product development. Our model is based on a durable goods duopoly market with profit‐maximizing firms. The first firm is an innovator who initially begins developing the product; the second firm is an imitator that begins developing a competing product as soon as it becomes aware of the innovator's product. We assume that consumers are rationally expectant and purchase at most one unit of the product when they have maximum positive utility surplus that is determined by the characteristics of the product, the consumer's marginal utility, and the consumer's discounted utility for future expected products. The innovator firm can release information about its product when it begins developing the product or can guard information about its product until it introduces the product into the market. Our analysis and numerical tests show that, under some conditions, the innovator firm can benefit by preannouncing its product and giving the imitator firm additional time to differentiate its product. We discuss these conditions and their implications for new product development efforts.     

New developments in generative BOM processing systems

Abstract

The principle of generative bill-of-material (BOM) processing systems is that different BOMs belonging to different product variants can be represented by a single, so-called source BOM. The BOM processing systems comprise additional data structures which hold information on the relationships between product characteristics of parent product variants and component product variants, and on the relationships between characteristics of a parent product variant and its BOM data. These relationships allow the automatic generation of the individual BOM of each represented product variant. There are several alternative ways of implementing a generative BOM processing system. The oldest concept known is the variant BOM concept. This concept provides a relatively simple solution to deal with large varieties of final product variants. However the concept has a number of drawbacks such as the representation of product variety at lower levels in the product structure and data redundancy which hampers data maintenance. In this paper an improved concept for generative BOM processing systems is introduced and described: the generic BOM concept. The generic BOM concept does not focus on representing final product variants only, but takes a broader view towards representing any range of product variants at any level in the product structure. This starting point solves a number of draw-backs implied by the variant BOM concept but it also requires new definitions of BOM relationships and the introduction of new data structures to support the generation of individual BOMs.     

How Should a Firm Manage Deteriorating Inventory?

Firms selling goods whose quality level deteriorates over time often face difficult decisions when unsold inventory remains. Since the leftover product is often perceived to be of lower quality than the new product, carrying it over offers the firm a second selling opportunity, a product line extension to new and unsold units, and the ability to price discriminate. By doing so, however, the firm subjects sales of its new product to competition from the leftover product. We present a two period model that captures the effect of this competition on the firm's production and pricing decisions. We characterize the firm's optimal strategy and find conditions under which the firm is better off carrying all, some, or none of its leftover inventory. We also show that, compared to a firm that acts myopically in the first period, a firm that takes into account the effect of first period decisions on second period profits will price its new product higher and stock more of it in the first period. Thus, the benefit of having a second selling opportunity dominates the detrimental effect of cannibalizing sales of the second period new product.     

我国制造企业“服务增强”的实证研究及政策建议

通过服务增强制造企业竞争力已成为全球化竞争和知识经济背景下我国制造企业的重要战略选择。本文研究我国制造企业服务增强的背景、概念、特征、机理和对策。在界定制造企业服务增强概念的基础上,本文提出并阐述了国内制造企业服务增强的质量弥补特征;随后基于调查问卷数据,对基于要素替代的质量弥补以及服务差异化竞争对绩效的影响展开实证研究;最后,指出国内制造业服务增强存在的不足和问题,提出对策建议。本文对企业管理实践者和政策制定者都有较强的启发意义。     

Pricing Decisions During Inter‐Generational Product Transition

How should companies price products during an inter‐generational transition? High uncertainty in a new product introduction often leads to extreme cases of demand and supply mismatches. Pricing is an effective tool to either prevent or alleviate these problems. We study the optimal pricing decisions in the context of a product transition in which a new‐generation product replaces an old one. We formulate the dynamic pricing problem and derive the optimal prices for both the old and new products. Our analysis sheds light on the pattern of the optimal prices for the two products during the transition and on how product replacement, along with several other dynamics including substitution, external competition, scarcity, and inventory, affect the optimal prices. We also determine the optimal initial inventory for each product and discuss a heuristic method.     

Joint Stocking and Product Offer Decisions Under the Multinomial Logit Model

This article studies a joint stocking and product offer problem. We have access to a number of products to satisfy the demand over a finite selling horizon. Given that customers choose among the set of offered products according to the multinomial logit model, we need to decide which sets of products to offer over the selling horizon and how many units of each product to stock so as to maximize the expected profit. We formulate the problem as a nonlinear program, where the decision variables correspond to the stocking quantity for each product and the duration of time that each set of products is offered. This nonlinear program is intractable due to its large number of decision variables and its nonseparable and nonconcave objective function. We use the structure of the multinomial logit model to formulate an equivalent nonlinear program, where the number of decision variables is manageable and the objective function is separable. Exploiting separability, we solve the equivalent nonlinear program through a dynamic program with a two dimensional and continuous state variable. As the solution of the dynamic program requires discretizing the state variable, we study other approximate solution methods. Our equivalent nonlinear program and approximate solution methods yield insights for good offer sets.     

The Potential for Cannibalization of New Products Sales by Remanufactured Products*

The potential for cannibalization of new product sales by remanufactured versions of the same product is a central issue in the continuing development of closed‐loop supply chains. Practitioners have no fact‐based information to guide practice at firms and academics have no studies available to use as the basis for assumptions in models. We address the cannibalization issue by using auctions to determine consumers’ willingness to pay (WTP) for both new and remanufactured products. The auctions also allow us to better understand the potential impact of offering new and remanufactured products at the same time, which provides us insights into the potential for new product cannibalization. Our results indicate that, for the consumer and commercial products auctioned, there is a clear difference in WTP) for new and remanufactured goods. For the consumer product, there is scant overlap in bidders between the new and remanufactured products, leading us to conclude that the risk of cannibalization in this case is minimal. For the commercial product, there is evidence of overlap in bidding behavior, exposing the potential for cannibalization.     

Joint Life‐Cycle Dynamics of New and Remanufactured Products

Many products considered for remanufacturing are durables that exhibit a well‐pronounced product life cycle—they diffuse gradually through the market. The remanufactured product, which is a cheaper substitute for the new product, is often put on the market during the life cycle of the new product and affects its sales dynamics. In this paper, we study the integrated dynamic management of a portfolio of new and remanufactured products that progressively penetrate a potential market over the product life cycle. To this end, we extend the Bass diffusion model in a way that maintains the two essential features of remanufacturing settings: (a) substitution between new and remanufactured products, and (b) a constraint on the diffusion of remanufactured products due to the limited supply of used products that can be remanufactured. We identify characteristics of the diffusion paths of new and remanufactured products. Finally, we analyze the impact of levers such as remanufacturability level, capacity profile and reverse channel speed on profitability.     

Production and Sales Planning in Capacitated New Product Introductions

How should a firm with limited capacity introduce a new product? Should it introduce the product as soon as possible or delay introduction to build up inventory? How do the product and market characteristics affect the firm's decisions? To answer such questions, we analyze new product introductions under capacity restrictions using a two‐period model with diffusion‐type demand. Combining marketing and operations management decisions in a stylized model, we optimize the production and sales plans of the firm for a single product. 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 indeed optimal if consumers are sensitive to delay. 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, or consumer sensitivity to delay decreases, the build‐up policy starts to lose its appeal, and instead, the firm prefers an immediate product introduction. We extend our analysis by studying the optimal capacity decision of the firm and show that capacity shortages may be intentional.     

Pricing Software Upgrades: The Role of Product Improvement and User Costs

The computer software industry is an extreme example of rapid new product introduction. However, many consumers are sophisticated enough to anticipate the availability of upgrades in the future. This creates the possibility that consumers might either postpone purchase or buy early on and never upgrade. In response, many software producers offer special upgrade pricing to old customers in order to mitigate the effects of strategic consumer behavior. We analyze the optimality of upgrade pricing by characterizing the relationship between magnitude of product improvement and the equilibrium pricing structure, particularly in the context of user upgrade costs. This upgrade cost (such as the cost of upgrading complementary hardware or drivers) is incurred by the user when she buys the new version but is not captured by the upgrade price for the software. Our approach is to formulate a game theoretic model where consumers can look ahead and anticipate prices and product qualities while the firm can offer special upgrade pricing. We classify upgrades as minor, moderate or large based on the primitive parameters. We find that at sufficiently large user costs, upgrade pricing is an effective tool for minor and large upgrades but not moderate upgrades. Thus, upgrade pricing is suboptimal for the firm for a middle range of product improvement. User upgrade costs have both direct and indirect effects on the pricing decision. The indirect effect arises because the upgrade cost is a critical factor in determining whether all old consumers would upgrade to a new product or not, and this further alters the product improvement threshold at which special upgrade pricing becomes optimal. Finally, we also analyze the impact of upgrade pricing on the total coverage of the market.     

Impact of product proliferation on the reverse supply chain

Product variety is one of the most important advantages in highly competitive markets. However, excessive product proliferation's reducing the profit margin has caused increased focus on developing a management method for maximal profit. In a closed-loop supply chain, product proliferation affects the reverse supply chain as well as the forward supply chain. Although increasing the number of product types can better satisfy diverse customer needs, complexity in the product recycling, remanufacturing, and resale processes may erode a firm's overall profits. In this study, we develop a mathematical model for analyzing a capacitated reverse supply chain consisting of a single manufacturer and multiple retailers. We reveal closed-form solutions for the optimal batch size and maximal profit, and discuss managerial insights into how the number of products and other factors can affect both batch size and profit. Finally, we investigate the relationship between product proliferation and the choice of logistics strategy.