Rollover Strategies Research Articles

Demand cannibalization during product rollovers in the presence of strategic customers

This paper studies how different types of demand cannibalization take place during product rollovers and their effects on a firm’s profitability. Due to continuous product upgrades, demand cannibalization among various generations of products has become a common practice, raising interesting investigations from professionals and academics. Within this context, we model firms’ and customers’ decision-making as a two-period sequential game and derive equilibrium results under a dual rollover strategy, with and without a trade-in program. We find that demand cannibalization is essentially caused by customers’ strategic comparison of available purchase options. Our analysis further reveals that both the cannibalization effect and the postponement effect resulting from customers’ waiting for upgraded products are necessary for firms to improve profits. On the contrary, the postponement effect due to waiting for a discount is entirely detrimental to the firm. We propose effective launch strategies to avoid unfavorable demand cannibalization under different conditions. In addition, offering trade-in programs helps not only suppress strategic waiting, but also foster demand for an upgraded product. These strategies are particularly effective when the firm holds a greater quantity of inventory or when the degree of incremental innovation is high.

Single rollover or dual rollover: How a monopoly NEV manufacturer responds to NEV credit policy

The NEV credit policy plays a crucial role in advancing the new energy vehicle (NEV) industry and environmental conservation. This study investigates the monopoly NEV manufacturer’s optimal rollover strategy (Single Rollover (SR) vs. Dual Rollover (DR)) and pricing scheme (skimming vs. penetration) under the government’s stricter calculation criteria for NEV credit policy, considering a two-period market with strategic consumers. We find that the NEV manufacturer typically adopts a skimming pricing scheme in DR strategy, while a penetration pricing scheme in SR strategy. The choice between SR and DR strategy hinges on the government’s calculation criteria for NEV credits, product upgrade speed, and vehicle environmental performance improvement. When the calculation criterion for NEV credits is moderate, or when it is low, coupled with fast product upgrade speed and marginal improved environmental performance of the new vehicle, SR strategy is beneficial to the NEV manufacturer to avoid the cannibalization between new and old vehicles. In contrast, the NEV manufacturer can benefit from DR strategy through price discrimination between new and old vehicles to attract consumers from different market segments. However, stricter calculation criteria for NEV credits do not always result in higher social welfare.

Product rolling strategies in competitive scenarios based on differential games

AbstractIn competitive scenarios, we analyze the optimal pricing, launch timing, and influencing factors of new products by establishing three differential game models. The findings indicate that (1) the depreciation rate of old products directly impacts the pricing strategies of advantaged and disadvantaged enterprises. Enterprises with competitive advantages tend to set higher prices for new products when old products depreciate faster, while those with fewer advantages adjust their pricing strategies by initially increasing prices for the latest prices and eventually reducing them. (2) The rate of old‐product depreciation also affects the timing of new‐product launches. Advantaged enterprises tend to delay their product launches when the impact of the new product on the old ones is significant, while disadvantaged enterprises opt for earlier launches under similar circumstances. (3) The technological level of the new product influences the timing of its launch for both advantaged and disadvantaged enterprises. Higher technological levels prompt advantaged enterprises to launch earlier and disadvantaged enterprises tend to follow suit. (4) High levels of innovation in new products by advantaged enterprises prompt earlier launches by disadvantaged enterprises. These results may offer valuable insights for enterprises in formulating effective product rollover strategies.

The Joint Decision of Cost Reduction Effort and Product Rollover Strategy for Fashion Items in the Presence of Strategic Consumers

The trend in the fashion industry forces them to change their collection more frequently than ever. Product rollover strategy refers to the retailer’s decision how to manage the old product when the new one enters the market. They can either withdraw the old product to avoid cannibalization between two products (called a single rollover strategy) or sell both to maximize total sales (called a dual rollover strategy). This study considers a supplier who sells an innovative product through a retailer, which the latter subject to decides the rollover strategy. Through analytical approaches, we investigate the interaction between a supplier's cost-reduction and a retailer's rollover strategy when strategic consumers are present in the market. We found that the supplier's capability in R&D plays a crucial role in equilibrium results. When the firm is highly efficient in cost reduction, the introductory product price can be increased regardless of the rollover strategy being chosen. Our study demonstrates a counterintuitive result where a dual rollover strategy might have a lower introductory price compared to the single rollover strategy when the investment in production cost takes place. This finding shows how a supplier’s cost reduction effort mitigates the cannibalization effect while delivering a better profit.

New product introductions with selection of unique and common features in monopoly markets

Firms have to determine the right features and prices for their new products as they introduce new product generations to the market. We consider the problem of determining the features of a new product that a monopolist will introduce into a market that contains an existing product as well as setting the prices of the existing and the new products. The firm also decides on offering only the new product or both the existing and the new products. We explicitly capture the effects of unique features, which are specific to one of the two products, and common features which are shared between the new and the existing product on these decisions. The problem is formulated as a nonlinear-mixed-integer program with general cost, demand, and price functions. For the case of linear cost, demand, and price, the nonlinear-mixed-integer program is converted to a nonlinear program and solved analytically. Based on this solution, the optimal prices for both products and the optimal unique features for the new product are derived in closed form, a linear-time algorithm is presented to determine the optimal common features, and the optimality conditions of keeping the existing product in the market are characterized. We show that the selection of the unique features, but not the common ones, is based on the difference between a feature’s contribution to the product’s demand and its cost adjusted by the price sensitivity in the linear case. Moreover, we find that the firm, if it wants to avoid demand cannibalization, should remove the existing product from the market rather than offer two products with mainly unique features. Capturing the effects of unique and common features directly allows firms to decide on the best rollover strategy and determine the right features and prices.

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

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.

Managing product upgrades and rollover under demand uncertainty

We study the optimal product upgrades and rollover strategies of a risk-averse firm that is uncertain about future demand. For this purpose, we develop a two-period model based on whether the firm makes upgrading investments and if so which product rollover (solo or dual) strategy it adopts. Analysis of the equilibrium outcomes shows that if the firm is moderately risk-averse, it is unprofitable to upgrade and therefore only sells the first-generation product over two periods. Otherwise, the firm benefits from upgrading investments. In this case, the (solo-) dual-rollover guarantees the maximum total payoff if the degree of risk aversion is (low) high. Our sensitivity analysis demonstrates that: (i) the dual-rollover strategy can be seen as a hedge against increased demand uncertainty; (ii) the firm has a higher likelihood of using the dual-rollover strategy as cannibalization intensifies or intertemporal demand spillovers increase; and (iii) a lower payoff discount rate generally discourages the firm from upgrading the product. When upgrading investments happen, the optimal product rollover strategy is contingent upon the degree of risk aversion and the payoff discount rate.

Dynamic pricing for the successive-generation products in the presence of strategic customers and limited trade-in duration

PurposeThis paper investigates the dynamic pricing strategy of a firm for the successive-generation products under the conditions of the limited trade-in duration and strategic customers. Further, it explores the effect of a limited trade-in duration on the choice of the myopic and strategic customers, besides the optimal dynamic pricing and trade-in strategy of the firm.Design/methodology/approachBased on the choice behavior of the myopic and strategic customers, the authors have developed a two-period game-theoretic analytical model to decide the optimal retail prices of the successive-generation products and the optimal trade-in rebate when the firm adopts a dynamic pricing strategy and then investigate three extensions of the basic model to discuss the change in the results owing to the relaxation of certain conditions.FindingsThe authors find from the results that, in terms of profit maximization, it is better to extend the limited trade-in duration, and hence, the firm should implement a dynamic pricing strategy. However, in the situation of using a static pricing strategy, the firm should extend the limited trade-in duration only if the incremental value of the new generation products is below a certain threshold. Moreover, the firm should use a dual rollover strategy instead of a single rollover one. If all customers in the market are myopic, then the firm should also extend the limited trade-in duration.Research limitations/implicationsThis study mainly discusses the impact of limited trade-in duration on the firm's dynamic pricing strategy when facing strategic customers, which provides several directions for future research. First, if the government offers subsidies to consumers, how will strategic consumers make purchase decisions? How would the enterprise make its pricing decision? Second, when asymmetric information exists between consumers and firms, how will it affect consumers' choice behavior and firms' pricing decisions? All these issues are worth exploring in the future.Practical implicationsThese results offer certain managerial insights for the firm in the decision making on pricing within the trade-in program.Originality/valueThis is the first work to study the dynamic pricing strategy of the firm for the successive-generation products under the conditions of the limited trade-in duration and strategic customers. Further, this work discusses the changes in results owing to the relaxation of certain conditions.

New technology introduction and product rollover strategies

In a market with a technology provider and two competing manufacturers, we examine the provider's technology introduction strategy and the manufacturers’ product rollover strategies. Our main results show that, first, the provider sells the new technology to both manufacturers in the case of small-level technology improvement, and sells to only one of them otherwise. Specifically, under the niche strategy (i.e., the provider sells the new technology to only one manufacturer), the provider sells the new technology to the low-quality manufacturer in the case of moderate-level technology improvement; otherwise, the provider sells to the high-quality manufacturer. Interestingly, the provider's profit may decrease with increased technology improvement. Second, the manufacturers will remove the old version of the product from the market when adopting the new technology, as long as the quality of the new version of the product exceeds a critical threshold. Finally, if the provider has a limited production capacity and can only satisfy the demand of one manufacturer, the provider sells the new technology to the low-quality manufacturer when the technology improvement is moderate; otherwise, the provider sells to the high-quality manufacturer.

Product rollover strategy and emission reduction with intertemporal carbon emission regulation versus consumer supervision

Product rollover strategy and emission reduction with intertemporal carbon emission regulation versus consumer supervision

Designing Digital Rollovers: Managing Perceived Obsolescence through Release Times

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuade its existing customer base to upgrade. This is commonly achieved through a rollover strategy, which comprises the price of the new product as well as the decision to discontinue the sale of the existing product ( solo rollover) or to sell the existing product at a discounted price ( dual rollover). In this study, we argue that the timing of the new product release is an important—but commonly overlooked—third lever in the design of a successful rollover strategy. The release timing influences the consumers' perception of obsolescence, by which an existing product is considered obsolete merely by reference to a new product. This reinforces the upgrading behavior of existing customers, but it also necessitates deep discounts of the existing product to keep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rollovers in markets for digital goods (i.e., where production costs are negligible) that are composed of naive and sophisticated consumers. Under the assumption that both the old and the new product would offer a similar utility if there was no perceived obsolescence, we show that in both markets a firm selecting the release times from a continuous timeline can induce sufficiently large parts of its existing customer base to upgrade so that a solo rollover is optimal. We also characterize the resulting market segmentation, and we offer managerial as well as policy advice.

Hedging Home Equity Risk: Examination of a Nobel Idea

Robert Shiller has long advocated the use of derivative real estate instruments to manage home equity risk and address the economic inefficiencies in the housing market. His body of work in this area is literally a Nobel, if not noble, idea, having led to his being awarded economics’ most prestigious award in 2013. While Shiller carefully lays out the benefits of managing homeowner’s equity risk, to date practical issues of hedging have been largely unexplored. With the 2006 listing of real estate futures contracts on the Chicago Mercantile Exchange (CME), it is now possible to examine hedging effectiveness using the CME derivatives. In the following analysis, we examine transaction data from Las Vegas and consider a simple futures rollover strategy along with hedging strategies whose payouts are related to changes in the underlying house price index. The results indicate that idiosyncratic risk is large and renders hedging strategies ineffective for many homeowners that lost money on the sale of their house during the financial crisis. The set of results include certain holding periods where hedge payouts are only a small fraction of their home equity losses and still other times when an individual would lose both on their home sale and on their derivatives position. Thus, the evidence suggests that while the idea of home equity risk management is a Nobel idea, hedging strategies can often lead to ineffective results.

Activity-Based Life-Cycle Costing applied to an innovative forestry company product portfolio

An accounting system helps to provide information for planning and control of production. This article presents a Life Cycle Costing by using an Activity Based Costing approach of an innovative forestry company. In order to perform a cradle-to-gate assessment the study covers the forest and industrial activities of the forest product processing. The costs of each product in the portfolio are determined by the treatment activities they undergo. The inventory covers several years of activity of the company, which makes it possible to calculate the uncertainty of the average results with Monte Carlo simulation presented in the result section. Based on the results a products portfolio analysis was performed to identify the development progress phases of the mains products to support the product rollover strategy decision.

Optimal sales and production rollover strategies under capacity constraints

Firms regularly replace their old product generation by a newer generation to sustain and increase their market share and profit. The product rollover problem of deciding on the number of old products to be pre-produced before the introduction of the new generation, and then deciding on the prices, sales volumes, and production volumes of the old and the new generation during the introduction under capacity constraint is considered.Production capacity limitations are common during the introduction period of a new product. We provide the first study that examines how a production capacity constraint affects the optimal decisions. The optimal decisions for a deterministic period-based model are provided in closed-form.A single sales/production rollover strategy implies that the sales/production of the old generation is discontinued before introducing the new generation. With a dual sales/production rollover strategy, the old and the new generation are sold/produced simultaneously. Depending on the capacity shortage, there are two types of mitigation actions: (i) increasing the prices, (ii) changing the sales and/or production rollover strategies with pre-production while adjusting the prices accordingly. If the capacity is unlimited, aligned sales and production rollover strategies are always optimal. We establish the conditions under which limited capacity leads to a combination of a single production rollover with a dual sales rollover strategy. We show that the selection of optimal rollover strategies is non-monotone in the available capacity. This implies that a change in the rollover strategy in response to limiting capacity has to be revoked for more severe capacity shortages.

Analysis on product rollover strategies: The innovation level perspective

We focus on the firm's decision on product rollover strategies from the view of innovation level. Consider an innovative firm produces and sells durable goods to strategic consumers over two periods. In period one, the firm offers a product with a low innovation level. During that period, the firm continues to innovate such that a product with a high innovation level can be offered in period two. The analysis is separated into two parts: minor-to-moderate innovation and major innovation. We find that the rollover decision is considerably different when the innovation is minor-to-moderate from when the innovation is major. In the former case, the optimality of each rollover strategy is fully determined by the innovation level of the product introduced in period two and the customers' discounter factor; whereas in the latter case, the single rollover strategy always dominates the dual rollover strategy. Moreover, the firm's pricing policy under single rollover is strongly dependent on the innovation level of the product introduced in period two. Whereas under dual rollover, the firm's pricing decision is independent of the innovation level. Finally, it is to be noted that the findings in this research are mainly contingent on the model framework.

Designing Digital Rollovers: Managing Obsolescence through Release Times

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuade its existing customer base to upgrade. This is commonly achieved through a rollover strategy, which comprises the price of the new product as well as the decision to discontinue the sale of the existing product (solo rollover ) or to sell the existing product at a discounted price (dual rollover ). In this paper, we argue that the timing of the new product release is an important — but commonly overlooked — third lever in the design of a successful rollover strategy. The release timing influences the consumers’ perception of obsolescence, by which an existing product is considered obsolete merely by reference to a new product. This reinforces the upgrading behavior of existing customers, but it also necessitates deep discounts of the existing product to keep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rollovers in markets composed of naive and sophisticated consumers. We show that in both markets, the endogenization of the release time enables the firm to induce sufficiently large parts of its existing customer base to upgrade so that a solo rollover is optimal in commonly encountered market settings. We also characterize the resulting market segmentation, and we offer managerial as well as policy advice.

Optimal Sales and Production Rollover Strategies under Capacity Constraints

Firms regularly replace their old product generation by a newer generation to sustain and increase their market share and profit. The product rollover problem of deciding on the number of old products to be pre-produced before the introduction of the new generation, and then deciding on the prices, sales volumes, and production volumes of the old and the new generation during the introduction under capacity constraint is considered. Production capacity limitations are common during the introduction period of a new product. We provide the first study that examines how a production capacity constraint affects the optimal decisions. The optimal decisions for a deterministic period-based model are provided in closed-form. A single sales/production rollover strategy implies that the sales/production of the old generation is discontinued before introducing the new generation. With a dual sales/production rollover strategy, the old and the new generation are sold/produced simultaneously. Depending on the capacity shortage, there are two types of mitigation actions: (i) increasing the prices, (ii) changing the sales and/or production rollover strategies with pre-production while adjusting the prices accordingly. If the capacity is unlimited, aligned sales and production rollover strategies are always optimal. We establish the conditions under which limited capacity leads to a combination of a single production rollover with a dual sales rollover strategy. We show that the selection of optimal rollover strategies is non-monotone in the available capacity. This implies that a change in the rollover strategy in response to limiting capacity has to be revoked for more severe capacity.

Effects of the Sharing Economy on Sequential Innovation Products

The emergence of the sharing economy has affected consumers and traditional manufacturers. We focus on product sharing and analyze its impacts on the manufacturer that offers sequential innovation products. We develop a two‐period model in which a monopoly manufacturer sells an old product and introduces a new product in each period; in the same period, an owner who bought a product for self‐use from the manufacturer in the previous period may rent the product out because of the low self‐use value in this period. Our analysis reveals that the sharing market increases or decreases the manufacturer’s profit, and this is mainly determined by the moral hazard cost and the salvage value of sharing products. Furthermore, the sharing market has an insignificant effect on the upgrading of products, but there is a bumping‐down effect on old products’ sales. Finally, the effect of the sharing market on the revenue of the owner and the sharing platform mostly depends on the risk of moral hazard, and it also affects the manufacturer’s product rollover strategy.

Longitudinal Rollover Strategy as Effective Intervention to Reduce Wrist Injuries During Forward Fall

Strategies for reducing fall-related injuries have been assessed through biomechanical studies and employed in robotics. A better understanding of the mechanism of such fall arresting methods can help fall prevention programs to reduce injuries and help robots to prevent damage to themselves. Rollover about the longitudinal axis is an effective strategy to reduce the impact force experienced by the hand and consequently reduce the associated injuries; however, neither biomechanical researchers nor roboticists have studied this useful fall arresting strategy. This study was designed to investigate the impact force experienced by the human hand during a forward fall using the longitudinal rollover strategy. We designed a series of fall experiments in which the subjects were instructed to arrest a forward fall using longitudinal rollover and bimanual strategies. The experimental results showed that during a forward fall, longitudinal rollover considerably reduces the impact force and the risk of injuries. The kinematic data of motion were measured and presented. A comparison of our method with various forward fall arresting methods reported so far in the existing literature showed that our proposed fall arresting strategy is one of the most efficient techniques. Our study results are expected to provide robotics researchers with useful data to design algorithms to reduce robot damage during falls.

Can Strategic Customer Behavior Speed Up Product Innovation?

We study a monopolistic firm which introduces two product versions sequentially in two periods. We analyze and compare the firm's decisions on the innovation level of the new version, the production quantities and prices of both versions, and the associated profit in four settings: when the customers are myopic or strategic in period 1 and whether the leftover inventory of the old version is phased out from the market (single rollover strategy) or is sold in the market (dual rollover strategy). In period 2, newcomers who wish to buy the new version arrive in the market. We show that the firm can improve both its profit and its innovation level by adopting an appropriate rollover strategy when selling to strategic customers. This finding underscores the importance of choosing a rollover strategy. Interestingly and differently from the existing literature, we see that strategic waiting behavior can accelerate innovation. These analytical insights remain largely valid when some of the customers who cannot get the old version due to a stockout leave the market before the new version arrives, or when some of the newcomers are interested in the new version as well as the leftover old version.