A Dynamic Strategy to Optimize Market Entry Timing and Process Improvement Decisions

Conventionally, manufacturing firms determine the time to introduce a new product to the market long before launching the product. As the rate of technological innovation increases, product life cycles become shorter, and the timing for introducing a new product becomes more important. As a result, firms need to dynamically determine the market entry timing depending on the evolution of uncertain market potential and the readiness of their production processes. This paper studies such a dynamic market entry strategy. We consider a manufacturer who employs a dynamic strategy to optimize the timing for introducing a new product and investment decisions for the new production process. Investments in production and learning processes often yield uncertain results. Uncertainties also reside in competitors’ market entry decisions. Hence, depending on the changes in the market potential and the readiness of his own production process, the manufacturer dynamically makes process improvement decisions in coordination with the market entry decision. After determining the market entry timing, the manufacturer also makes production and pricing decisions for the new product. We establish the optimality of threshold-type market entry policies and determine optimal joint production and pricing decisions in conjunction with the market timing decision. We show that compared to conventional static strategies, the dynamic strategy yields a higher and less variable profit. Our study also characterizes the industry conditions under which the dynamic strategy is most effective. ∗IBM Almaden Research Center, email: [email protected] †The University of Texas at Dallas, School of Management, email:[email protected] ‡Contact Author