Capturing the Effect of Technology Improvements on Product Positioning and Introduction Sequence Decision-making

Achieving competitive advantage and price premiums in many technology-based markets requires the incorporation of current technology in new products. To do so, firms in hyper-competitive environments increasingly plan and design their products concurrently with the independent development and validation of underlying technologies. The simultaneous evolution of a core technology has important implications for the product positioning and launch sequence decisions a firm must make. Prior research has shown that to minimize cannibalization in the absence of such improvements in technology, a firm should not launch low-end products before high-end products. However, concurrent evolution of technology can make it desirable and even necessary to introduce low-end products before high-end products. This is because in technology-based industries, improvements in technology delay the introduction of a high-end product, and a firm must trade-off the benefit of launching the low-end product earlier (greater discounted profits) against the cost of cannibalization of high-end product sales. Cannibalization can be further reduced by offering the customer an option to upgrade from the low-end to high-end product, with important implications for product positioning and introduction sequence. Based on our study in the high technology industry, we model the product positioning and introduction sequence decisions under the simultaneous evolution of technology. Our analysis indicates that it may be optimal in a variety of circumstances for a firm to launch products in an increasing order of performance, even in the absence of network externalities. Besides presenting analytical results for product positioning and profit from different introduction sequences, the paper also makes a contribution to managerial practice by providing insights in the form of a conceptual framework. 1 Contact author. The address is: V. Krishnan, The University of Texas at Austin, CBA 4.202, Austin TX 78712.