The Optimal Pace of Product Updates

39 Pages Posted: 17 May 2006

See all articles by Cheryl Druehl

Cheryl Druehl

University of Maryland - Decision and Information Technologies Department

Glen Schmidt

University of Utah - David Eccles School of Business

Gilvan Souza

University of Maryland - Decision and Information Technologies Department; Indiana University - Kelley School of Business - Department of Operation & Decision Technologies

Date Written: 2005

Abstract

Some firms (e.g. Intel and Medtronics) use a time-pacing strategy for product development (PD), introducing new generations at regular intervals. If the firm adopts a fast pace (introducing frequently), it prematurely cannibalizes its old generation, incurring high development costs, while if it has a slow pace, it fails to capitalize on customer willingness-to-pay for improved technology. We develop a model to gain insight into which factors drive the pace. We consider the degree to which a new generation stimulates market growth, the diffusion rate (coefficients of innovation and imitation), the rate of margin decline, and PD cost. The optimization problem is non-concave and is solved numerically. Somewhat intuitively, we find a faster pace is generally associated with faster diffusion, a higher market growth rate and faster margin decay. Not so intuitively, we find that relatively minor differences in the development cost function can significantly impact the pace.

Keywords: new product introduction, diffusion, time pacing, clockspeed

Suggested Citation

Druehl, Cheryl and Schmidt, Glen and Souza, Gilvan, The Optimal Pace of Product Updates (2005). Robert H. Smith School Research Paper No. RHS-06-005, Available at SSRN: https://ssrn.com/abstract=902897 or http://dx.doi.org/10.2139/ssrn.902897

Cheryl Druehl (Contact Author)

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4313 Van Munching Hall
College Park, MD 20815
United States

Glen Schmidt

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Gilvan Souza

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4313 Van Munching Hall
College Park, MD 20815
United States

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies ( email )

Business 670
1309 E. Tenth Street
Bloomington, IN 47401
United States

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