Designing Digital Rollovers: Managing Perceived Obsolescence through Release Times

Production and Operations Management (forthcoming)

56 Pages Posted: 18 Mar 2020 Last revised: 28 Apr 2021

See all articles by Esma Koca

Esma Koca

Imperial College Business School

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Wolfram Wiesemann

Imperial College Business School

Date Written: February 23, 2020

Abstract

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.

Keywords: Product Rollover, Version Management, Perceived Obsolescence, Release Time

JEL Classification: L1, M3, D4

Suggested Citation

Koca, Esma and Valletti, Tommaso M. and Wiesemann, Wolfram, Designing Digital Rollovers: Managing Perceived Obsolescence through Release Times (February 23, 2020). Production and Operations Management (forthcoming) , Available at SSRN: https://ssrn.com/abstract=3543050 or http://dx.doi.org/10.2139/ssrn.3543050

Esma Koca

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Tommaso M. Valletti (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Wolfram Wiesemann

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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