Optimal product rollover strategies for successive-generation products: The role of the trade-in program and product characteristics

Abstract

When introducing new generation product (NGP), firms face the problem of whether to phase out old generation product (OGP) (i.e., single rollover strategy) or continue selling OGP at discounted prices (i.e., dual rollover strategy). Besides, the popularity of trade-in transactions and product characteristics (i.e., innovation level and durability level) that directly affect customers’ purchase decisions may further complicate the choice of product rollover strategy. This paper develops an analytical model to investigate a firm’s optimal product rollover strategies with a trade-in program incorporating product characteristics. We find that the firm is better off following a single rollover strategy under the trade-in program when customers are strategic. The trade-in program is not necessarily beneficial to the firm. Specifically, when either the durability level of OGP or the innovation level of NGP is sufficiently low, the trade-in program cannot improve the firm’s profitability. Interestingly, we find that improvement of the innovation level of the NGP is not always beneficial to the firm under the trade-in program, particularly when the durability of the OGP is at a relatively high level.