I Don’t “Recall”: The Decision to Delay Innovation Launch to Avoid Costly Product Failure

Innovations embody novel features or cutting-edge components aimed at delivering desired customer benefits. Oftentimes, however, we observe the need to recall new products shortly after their introduction. Indeed, a firm may rush an innovation to market in an attempt to pre-empt rivals and capture early demand, yet in so doing forgo rigorous testing, thus subjecting itself to the risk of a product recall. To shed light on this phenomenon, we construct a dynamic game-theoretic model in which firms plan to launch their innovations. Each firm must decide whether to conduct time-consuming quality assurance testing, which ensures no defects or safety problems but delays the launch. If the innovation is released without such testing and a recall occurs, the firm incurs pecuniary costs and faces future reputation damage in marketing the recalled innovation. We investigate the strategic forces behind firms’ testing and launch-timing decisions in this context. The analysis uncovers a novel mechanism, linked to the possibility of a rival going bankrupt, that causes firms to become more inclined to rush to market and take on the risk of product failure even as the negative consequences of a recall increase. The results further demonstrate how firms’ desire to forgo testing exhibits an inverse-U pattern as consumers become more heterogeneous and how competitive forces may induce both firms to forgo testing, although the resulting profits are lower than had they both committed to conduct testing. The framework is extended to examine how product recall considerations affect firms’ research and development (R&D) investments. Although, in general, post-innovation product failure discourages R&D effort, we identify conditions under which an increase in the recall probability stimulates firms to innovate. Several model extensions are presented, and managerial implications are discussed

Pay-as-You-Wish Pricing

Some firms use a curious pricing mechanism called “pay as you wish” pricing (PAYW). When PAYW is used, a firm lets consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional “pay as asked” pricing (PAAP) strategy. We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are as follows: (1) PAYW helps a firm to maximally penetrate a market; (2) it allows a firm to price discriminate among heterogenous consumers; (3) it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW

Optimal Three-Part Tariff Plans

Service providers, such as cell phone carriers, often offer three-part tariff plans that consist of three levers: A fixed fee, an allowance of free units, and a price per unit above the allowance. In previous studies the optimal three-part tariff contract was characterized using the standard first-order conditions approach. Because this optimization problem is nonsmooth, however, it could only be solved in a few simple cases. In this study we employ a different methodology that is based on obtaining a global bound for the firm profit, and then showing that this bound is attained by the optimal plan. This approach allows us to explicitly calculate the optimal three-part tariff plan under quite general conditions, where consumers are rational, they have a general utility function, they experience psychological costs when they exceed the number of free units, they have deterministic or stochastic consumption rates, they are homogeneous or heterogeneous, and the firm costs are fixed or depend on the usage level

Optimizing service failure and damage control

Should a provider deliver a reliable service or should it allow for occasional service failures? This paper derives conditions under which randomizing service quality can benefit the provider and society. In addition to cost considerations, heterogeneity in customer damages from service failures allows the provider to generate profit from selling damage prevention services or offering compensation to high-damage customers. This strategy is viable even when reputation counts and markets are competitive

Beyond posted prices: the past, present and future of participative pricing mechanisms

Driven by the low transaction costs and interactive nature of the internet, customer participation in the price-setting process has increased. These changes were first brought about by the rise of online auctions in the early 2000s, followed by the emergence of newer participative mechanisms. Today, platforms such as eBay have popularized online auctions on a global scale, Priceline has made headlines with its name-your-own-price (NYOP) business model, and Humble Bundle has enabled independent musicians and game developers to market their works through pay-what-you-want (PWYW) pricing. Advertising exchanges conduct several hundred million individual auctions per day to sell online advertising slots. These are just a few examples of participative pricing in transactions among consumers or businesses. In parallel, academic research on participative pricing has blossomed in recent years, with an overarching concern over the profitability and other marketing implications these mechanisms have on sellers and buyers. The present paper contributes to this literature in three ways. First, we propose a definition of participative pricing mechanisms, as well as a useful taxonomy. Second, we discuss the current understanding by synthesizing conceptual and empirical academic literature. Third, we outline promising research questions with a key focus on the related behavioral aspects of buyers and sellers

Neural processing of criticism and positive comments from relatives in individuals with schizotypal personality traits

Objectives. High negative expressed emotion by family members towards schizophrenia patients increases the risk of subsequent relapse. The study aimed to determine whether individuals with high schizotypy (HS) and low schizotypy (LS) would differ in activation of brain areas involved in cognitive control when listening to relative criticism

Visuospatial working memory in children and adolescents with 22q11.2 deletion syndrome; an fMRI study

22q11.2 deletion syndrome (22q11DS) is a genetic disorder associated with a microdeletion of chromosome 22q11. In addition to high rates of neuropsychiatric disorders such as schizophrenia and attention deficit hyperactivity disorder, children with 22q11DS have a specific neuropsychological profile with particular deficits in visuospatial and working memory. However, the neurobiological substrate underlying these deficits is poorly understood. We investigated brain function during a visuospatial working memory (SWM) task in eight children with 22q11DS and 13 healthy controls, using fMRI. Both groups showed task-related activation in dorsolateral prefrontal cortex (DLPFC) and bilateral parietal association cortices. Controls activated parietal and occipital regions significantly more than those with 22q11DS but there was no significant between-group difference in DLPFC. In addition, while controls had a significant age-related increase in the activation of posterior brain regions and an age-related decrease in anterior regions, the 22q11DS children showed the opposite pattern. Genetically determined differences in the development of specific brain systems may underpin the cognitive deficits in 22q11DS, and may contribute to the later development of neuropsychiatric disorders

New threats to the subscription model

Subscriptions have all the hallmarks of a can't-miss revenue model. Customers love how they lower their barriers to access, while companies embrace their simplicity and ease of communication. Investors prize them because they generate more predictable long-term-revenue flows than conventional one-off transaction models. Proponents of the so-called subscription economy -- a term coined by the CEO of platform provider Zuora -- argue that customers are better served by subscription experiences built around services than by static offerings or a single product. Software giant SAP asserts that a subscription model shortens time to market and speeds delivery of services to customers, in addition to accelerating cash collection and enabling businesses to define and modify pricing models