Dynamic pricing and time-to-market strategy in a service supply chain with online direct channels

Abstract

Abstract Manufacturers’ operation strategies become considerably complicated due to more frequent product updating in the Internet economics. This paper deals with the multi-stage problem of pricing and time-to-market for multi-generation products sold through an online direct channel in a service supply chain with a manufacturer and a logistics service provider. The manufacturer introduces a new generation of products before the present one exits market. The old generation of product may or may not exit the market before the end of the sales period. The service provider is in charge of the logistics service from the manufacturer to the consumers. The manufacturer’s optimal pricing and introduction time strategies and the logistics service provider’s optimal service pricing strategy can be derived. When the substitution rate of a new product to an old one is closer to a threshold, the greater the competition between them, and therefore the lower their optimal prices and the sooner the old product exits market. Moreover, the optimal time-to-market for the new product is decreasing with the potential market share of two generations of products in the second stage. In addition, higher quality which leads to higher costs makes the product enter the market later. Finally, we use numerical examples to illustrate the strategies.