scholarly journals The valuation of product introduction time strategies using a real options approach

2021 ◽  
Author(s):  
Mehdi Hossein Yazdi
Keyword(s):  
Life Cycle ◽  
Product Life Cycle ◽  
Durable Goods ◽  
Second Generation ◽  
Net Present Value ◽  
New Technologies ◽  
Drift Rate ◽  
Manufacturing Companies ◽  
Product Introduction ◽  
Pricing Policy

In today’s economy, new technologies rapidly emerge in the durable goods market. Therefore, it is paramount for manufacturing companies to optimize product introduction time for their second-generation product (SGP), which is an upcoming product in the production line, when profitability is at stake. The main factors affecting this timing are technology advancements and changes in customer tastes, which make determining an optimal introduction time for a product a challenging task. The main goal of this research is to find the optimal product introduction time for the SGP that maximizes the net present value (NPV) over a given period while product life cycle (PLC), pricing, and advertising are explicitly being taken into consideration. Demand for each product contains two regimes life cycle, and each regime is defined by a geometric Brownian motion (GBM). Each GBM has a drift rate and volatility. Moreover, there is a correlation between different regimes for different products. Correlated GBMs are discretized using a lattice approach. The Bass model is used to determine demand parameters including drift, volatility, and correlation, while dynamic programming is used to optimize NPV. Flexibilities, such as expansion, contraction, and switching, are identified between two products. Examples are provided to show the applicability of the developed models. Accordingly, the results show as the drift rate, volatility, and initial demand for a first-generation product (FGP) increase, the SGP introduction time has to be delayed. Furthermore, results demonstrate that in decreasing pricing policy, the SGP has to be introduced as early as the FGP. In increasing-decreasing pricing policy, as the increasing pricing rate is increasing, the SGP introduction time is delayed. When the advertising budget percentage increases, the NPV increases up to a certain level and then it will be saturated. Major contributions of this thesis are as follows: first, investigating the product introduction time by integrating marketing and manufacturing aspects; second, developing a model to incorporate the flexibility and production cost of the system for determining the optimal product introduction time. Third, the value of the product introduction time is expressed in terms of dollar value and this would help managers to make decisions easily. The models developed in this research can be used as practical tools for manufacturers to find the optimal product introduction time (PIT) and also the research can be used as a guideline to introduce the second-generation PIT.

scholarly journals The valuation of product introduction time strategies using a real options approach

2021 ◽  
Author(s):  
Mehdi Hossein Yazdi
Keyword(s):  
Life Cycle ◽  
Product Life Cycle ◽  
Durable Goods ◽  
Second Generation ◽  
Net Present Value ◽  
New Technologies ◽  
Drift Rate ◽  
Manufacturing Companies ◽  
Product Introduction ◽  
Pricing Policy

In today’s economy, new technologies rapidly emerge in the durable goods market. Therefore, it is paramount for manufacturing companies to optimize product introduction time for their second-generation product (SGP), which is an upcoming product in the production line, when profitability is at stake. The main factors affecting this timing are technology advancements and changes in customer tastes, which make determining an optimal introduction time for a product a challenging task. The main goal of this research is to find the optimal product introduction time for the SGP that maximizes the net present value (NPV) over a given period while product life cycle (PLC), pricing, and advertising are explicitly being taken into consideration. Demand for each product contains two regimes life cycle, and each regime is defined by a geometric Brownian motion (GBM). Each GBM has a drift rate and volatility. Moreover, there is a correlation between different regimes for different products. Correlated GBMs are discretized using a lattice approach. The Bass model is used to determine demand parameters including drift, volatility, and correlation, while dynamic programming is used to optimize NPV. Flexibilities, such as expansion, contraction, and switching, are identified between two products. Examples are provided to show the applicability of the developed models. Accordingly, the results show as the drift rate, volatility, and initial demand for a first-generation product (FGP) increase, the SGP introduction time has to be delayed. Furthermore, results demonstrate that in decreasing pricing policy, the SGP has to be introduced as early as the FGP. In increasing-decreasing pricing policy, as the increasing pricing rate is increasing, the SGP introduction time is delayed. When the advertising budget percentage increases, the NPV increases up to a certain level and then it will be saturated. Major contributions of this thesis are as follows: first, investigating the product introduction time by integrating marketing and manufacturing aspects; second, developing a model to incorporate the flexibility and production cost of the system for determining the optimal product introduction time. Third, the value of the product introduction time is expressed in terms of dollar value and this would help managers to make decisions easily. The models developed in this research can be used as practical tools for manufacturers to find the optimal product introduction time (PIT) and also the research can be used as a guideline to introduce the second-generation PIT.

Toward a Method for Improving Product Architecture Solutions by Integrating Designs for Assembly, Disassembly and Maintenance

2012 ◽  
Author(s):  
Andreas Dagman ◽  
Rikard Söderberg
Keyword(s):  
Life Cycle ◽  
Product Development ◽  
Product Life Cycle ◽  
Development Process ◽  
Business Models ◽  
Design Guidelines ◽  
Product Development Process ◽  
Product Architecture ◽  
Manufacturing Companies ◽  
Maintenance And Repair

New customer demands and increased legislation drive business-oriented companies into new business models focusing on the entire life cycle of the product. This forces the manufacturing companies into service-oriented solutions as a compliment to the original business areas. Takata [1] postulates that “the goal is no longer to produce products in an efficient way, but rather to provide the functions needed by society while minimizing material and energy consumption”. This new situation affects the product requirements as well as product development process (PD). When focusing on the entire product life cycle, product aspects such as maintenance and repair will receive more attention since the companies will be responsible for them. In the product development process of today, especially in the automotive industry, maintenance and repair aspects (repair and maintenance methods and manuals, for example) are currently taken care of when the product is more or less fully developed. Maintenance and repair requirements are difficult to quantify in terms of core product properties (for vehicles, cost, CO2 emissions, weight, and so on). This leads to difficulties in equally considering maintenance and repair requirements while balancing vast amounts of product requirements. This paper focuses on a comparison and discussion of existing design guidelines affecting the structure and organization of parts in an assembled consumer product, such as Design for Assembly (DFA), Design for Maintenance (DFMa), Design for Service (DFS) and Design for Disassembly (DFD) methods. A tool for evaluation and analyzing product architecture as well as assemblability and maintainability is proposed.

Modeling the Product Life Cycle for Consumer Durables

1981 ◽  
Vol 45 (4) ◽  
pp. 68-75 ◽  
Author(s):  
Stephen G. Harrell ◽  
Elmer D. Taylor
Keyword(s):  
Life Cycle ◽  
Product Life Cycle ◽  
Durable Goods ◽  
Model Development ◽  
Major Elements ◽  
Consumer Durables ◽  
Product Life ◽  
Consumer Durable ◽  
Validity Tests ◽  
New Consumer

This paper proves that the product life cycle of a new consumer durable goods product can be simulated with reasonable accuracy assuming various causal marketing conditions. Major elements of the model development are discussed as well as the validity tests conducted. Strategic and operational uses of the model are also discussed.

Linking Balanced Scorecard Measures to Size and Market Factors: Impact on Organizational Performance

2000 ◽  
Vol 12 (1) ◽  
pp. 1-17 ◽  
Author(s):  
Zahirul Hoque ◽  
Wendy James
Keyword(s):  
Life Cycle ◽  
Organizational Performance ◽  
Balanced Scorecard ◽  
Product Life Cycle ◽  
New Products ◽  
Life Cycle Stage ◽  
Manufacturing Companies ◽  
Organization Size ◽  
Market Position ◽  
Product Life

This paper examines the relationship between organization size, product life-cycle stage, market position, balanced scorecard (BSC) usage and organizational performance. Using financial and nonfinancial measures, the BSC appraises four dimensions of performance: customers, financial (or shareholders), learning and growth, and internal aspects. Based on a survey of 66 Australian manufacturing companies, the paper suggests that larger firms make more use of a BSC. In addition, firms that have a higher proportion of new products have a greater tendency to make use of measures related to new products. A firm's market position has not been found to be associated significantly with greater BSC usage. The paper also suggests that greater BSC usage is associated with improved performance, but this relationship does not depend significantly on organization size, product life cycle, or market position.

Competitive Dynamics and the Introduction of New Products: The Motion Picture Timing Game

1998 ◽  
Vol 35 (1) ◽  
pp. 1-15 ◽  
Author(s):  
Robert E. Krider ◽  
Charles B. Weinberg
Keyword(s):  
Life Cycle ◽  
Motion Picture ◽  
Product Life Cycle ◽  
Equilibrium Analysis ◽  
General Context ◽  
Product Introduction ◽  
New Product Introductions ◽  
Timing Game ◽  
Equilibrium Configurations ◽  
Key Factor

The extremely short life cycle and the rapid decay in revenues after opening coupled with the rapid and frequent introduction of new competitive products makes the timing of new product introductions in the motion picture industry critical, particularly during the high-revenue Christmas and summer seasons. Each studio wants to capture as much of the season as possible by opening early in the season. At the same time, each wants to avoid head-to-head competition. The authors model competition between two motion pictures in a share attraction framework and conduct an equilibrium analysis of the product introduction timing game in a finite season. The following three different equilibrium configurations emerge: (1) a single equilibrium with both movies opening simultaneously at the beginning of the season, (2) a single equilibrium with one movie opening at the beginning of the season and one delaying, and (3) dual equilibria, with either movie delaying opening. A key factor is the product life cycle, which can be captured well with a two-parameter exponential decline. The authors relate the life-cycle parameters to these possibilities with the general result that the weaker movie may be forced to delay opening. These results are related to case studies of the opening of recently released movies. A statistical analysis of the 1990 summer season in North America provides support for the conclusions and suggests that current release timing decisions can be improved. The authors discuss the rationale of “avoiding the competition” in the general context of product introduction timing.

scholarly journals Probabilistic learning curve and real options approach to the valuation of cross-training with product life cycle

2021 ◽  
Author(s):  
Thanasiri Muttulingam
Keyword(s):  
Life Cycle ◽  
Learning Curve ◽  
Real Options ◽  
Product Life Cycle ◽  
Net Present Value ◽  
Individual Characteristics ◽  
Probabilistic Learning ◽  
Product Life ◽  
Real Options Approach ◽  
Cross Training

Learning and forgetting are two important characteristics in manufacturing environments where workers are cross-trained to increase their flexibility of adapting to different tasks. Cross-training is introduced by industries so that one worker can work on multiple stations. This thesis develops two models: (i) a probabilistic learning curve approach to the production lot size problem to determine the economic manufactured quantity (EMQ); (ii) a real options approach to the valuation of cross-training with product life cycle. Different workers perceive the complexity of a certain task differently and each worker will have his/her learning curve with its individual characteristics. So, it is more realistic to assume that the learning curve characteristics are random variables with given probability density functions. Furthermore, for the second model, the demand of the product follows three-regime product life cycle. Each regime is modeled by a geometric Brownian motion. The net present value (NPV) is calculated using the real options. The results show that there is a significant change in the NPV compared to standard model with simplified assumption

scholarly journals Probabilistic learning curve and real options approach to the valuation of cross-training with product life cycle

2021 ◽  
Author(s):  
Thanasiri Muttulingam
Keyword(s):  
Life Cycle ◽  
Learning Curve ◽  
Real Options ◽  
Product Life Cycle ◽  
Net Present Value ◽  
Individual Characteristics ◽  
Probabilistic Learning ◽  
Product Life ◽  
Real Options Approach ◽  
Cross Training

Learning and forgetting are two important characteristics in manufacturing environments where workers are cross-trained to increase their flexibility of adapting to different tasks. Cross-training is introduced by industries so that one worker can work on multiple stations. This thesis develops two models: (i) a probabilistic learning curve approach to the production lot size problem to determine the economic manufactured quantity (EMQ); (ii) a real options approach to the valuation of cross-training with product life cycle. Different workers perceive the complexity of a certain task differently and each worker will have his/her learning curve with its individual characteristics. So, it is more realistic to assume that the learning curve characteristics are random variables with given probability density functions. Furthermore, for the second model, the demand of the product follows three-regime product life cycle. Each regime is modeled by a geometric Brownian motion. The net present value (NPV) is calculated using the real options. The results show that there is a significant change in the NPV compared to standard model with simplified assumption

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