Strategies for generations of new products: Timing of introduction and sequential R&D

Numerous new product generations appear in consumer markets. Frequent arrival of products pushes on the one hand the consumers to make a buy or wait decisions between the product generations based on expectations and the firm on the other to set the timing of introduction and quality, based on the substitution of demands of successive generations and the R&D cost. The first part analyzes the firm's timing decision holding the quality as exogenous and the second part analyzes the firm's investment in R&D (quality decision) in a two period model.; The thesis reveals an ideal time lag until the introduction of the next generation. A firm should not necessarily introduce the next generation immediately even if it is fully developed. This holds even under a threat of entry. It shows that (a) consumer expectation generally allows a firm more time until introduction and (b) if all consumers know the superiority of the next generation a higher quality allows the firm more time. However, if consumers are uncertain about the superiority, a higher quality of the existing product allows the firm to delay launch.; Frequent introduction of new technology is also observed in many B2B markets with a mature customer base. A firm that invests in R&D sequentially learns from experience with initial innovations. That however, endogenously creates customer resistance to upgrade and thus competition for subsequent technological innovations. We propose a multi-period model to analyze a firm's decision to invest in innovation-directed R&D based on its R&D capability and whether product quality is observable. The key insights are: (1) the strong R&D firm should focus on the high valuation customers (high-types) and upgrade them to a new generation each period. (2) The weak R&D firm generally focuses on broad market coverage. Under certain conditions, this can result in the latest generation of the product being sold only to low valuation consumers ("market inversion"). (3) When consumers cannot evaluate product quality by inspection, the ability of the strong R&D firm to screen the high valuation customers is restricted bringing about broader sales strategies early in the life of the category.