The Dynamic Pricing of Next Generation Consumer Durables

Learning curve effects, aspects of consumer demand models (e.g., reservation price distributions, intertemporal utility maximizing behavior), and competitive activity are reasons which have been offered to explain why prices of new durables decline over time. This paper presents an alternative rationale based on the buying behavior for products with overlapping replacement cycles (i.e., next generation products). A model for consumer sales of a new durable is developed by incorporating the replacement behavior of a previous generation product. Pricing strategies for two product generations are investigated analytically and with numerical methods. Results indicate that durable replacement behavior leads to a wider set of optimal pricing strategies than previously obtained. Several empirical illustrations of industry pricing practices for successive product generations are also shown to be consistent with the theoretical results. Finally, various areas for future research are outlined.installed base, replacement behavior, technology substitution

High-Definition Television: Assessing Demand Forecasts for a Next Generation Consumer Durable

High-Definition Television promises to be the next generation of television. This technology has broad implications for consumer markets, as well as the underlying manufacturing, technology development, and R&D activities of firms. Under increasing pressure from various groups, the U.S. government must make major policy and funding decisions based on its assessment of the likely demand for HDTV. Three published reports which forecast sales of HDTV after its scheduled introduction in the mid-1990s are available. Unfortunately, these forecasts offer widely differing perspectives on HDTV's potential. This paper presents an approach that links product segmentation (based on historical demand parameters, and marketing and manufacturing related variables) and demand forecasting for new products. The published HDTV forecasts are then assessed using this segmentation scheme. Differing from the Congressional Budget Office's earlier evaluation, this analysis indicates that one report is consistent with historical data from the home appliance industry.technology policy, consumer electronics, marketing, manufacturing

The market evolution and sales take-off of product innovations. Marketing Science Institute Final Report,

I n contrast to the prevailing supply-side explanation that price decreases are the key driver of a sales takeoff, we argue that outward shifting supply and demand curves lead to market takeoff. Our fundamental idea is that sales in new markets are initially low because the first commercialized forms of new innovations are primitive. Then, as new firms enter, actual and perceived product quality improves (and prices possibly drop), which leads to a takeoff in sales. To provide empirical evidence for this explanation, we explore the relationship between takeoff times, price decreases, and firm entry for a sample of consumer and industrial product innovations commercialized in the United States over the past 150 years. Based on a proportional hazards analysis of takeoff times, we find that new firm entry dominates other factors in explaining observed sales takeoff times. We interpret these results as supporting the idea that demand shifts during the early evolution of a new market due to nonprice factors is the key driver of a sales takeoff. (New Product Development; Firm Entry; Entrepreneurship

The Market Evolution and Sales Take-Off of Product Innovations

In contrast to the prevailing supply-side explanation that price decreases are the key driver of a sales take-off, we argue that outward shifting supply and demand curves lead to market take-off. Our fundamental idea is that sales in new markets are initially low since the first commercialized forms of new innovations are primitive. Then, as new firms enter, actual and perceived product quality improves (and prices possibly drop) which leads to a take-off in sales. To provide empirical evidence for this explanation, we explore the relationship between take-off times, price decreases, and firm entry for a sample of consumer and industrial product innovations commercialized in the US over the past 150 years. Based on a proportional hazards analysis of take-off times, we find that new firm entry dominates other factors in explaining observed sales take-off times. We also find no evidence that price mediates the relationship between firm entry and take-off time. We interpret these results as supporting the idea that demand shifts during the early evolution of a new market due to non-price factors is the key driver of a sales take-off.