New product demand forecasting and production capacity adjustment strategies: Within-product and cross-product word-of-mouth

Abstract

Manufacturers attach increasing importance to consumer word-of-mouth (WOM) as it assists them to improve demand forecasting and determine production capacity adjustment strategies. Communication among potential consumers occurs as a result of within-product and cross-product word-of-mouth. Within-product WOM has received due academic attention touching upon production volume adjustment under infinite capacity, while the impact of cross-product WOM on demand is under-researched with limited number of studies investigating production capacity adjustment. To address this research gap, we employ Agent-based Modeling and Simulation (ABMS) approach and the Bass model, together with considering within-product WOM and cross-product WOM, to modify previous demand forecasting methods and propose production capacity adjustment strategies. Results show: (1) higher performances delivered by manufactures depends more on production capacity adjustment strategies rather than production volume adjustment strategies; (2) production capacity adjustment strategies are closely associated with factors including unit capacity fixed cost and cross-product WOM; (3) on condition of low unit capacity fixed cost, proactive strategy leads to maximal expected net present value (NPV) of profit and minimal lost customer number (LCN); (4) greater within-product WOM and cross-product WOM might not as beneficial as expected, in that expanding within-product WOM and cross-product WOM in most cases leads to growing lost customer number.