Multi-generation pricing and timing decisions in new product development

Abstract

When planning for the introduction of a stream of new products into the marketplace, managers must consider both the timing and dynamic pricing decisions to determine an appropriate entry strategy into the marketplace. Literature in new product development (NPD) typically addresses optimal timing and pricing decisions independently. We develop an analytical model of coordinated product timing and pricing decisions when there are two generations of a new product under consideration. Factors driving the timing and pricing decisions include the unit sales and cost relationships for each generation as well as NPD costs for introducing the next generation of products. We derive analytic results that characterise the optimal timing and pricing strategies for a single product rollover scenario. We analyse several numerical examples to illustrate the interplay between optimal pricing and time-to-market strategies under more general settings.