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| Author: | Ho, T.-H. Savin, S. Terwiesch, C. |
| Title: | Managing Demand and Sales Dynamics in New Product Diffusion Under Supply Constraint |
| Journal: | Management Science
2002 : FEB, VOL. 48:2, p. 187-206 |
| Index terms: | DEMAND SALES SALES MANAGEMENT SUPPLY MANAGEMENT |
| Language: | eng |
| Abstract: | The Bass diffusion model is a well-known parametric approach to estimating new product demand trajectory over time. This paper generalizes the Bass model by allowing for a supply constraint. The authors study how a firm should manage its supply processes in a new product diffusion environment with backorders and lost sales. The authors consider a make-to-stock production environment and use optimal control theory to establish that it is never optimal to delay demand fulfillment. This result is interesting because immediate fulfillment may accelerate the diffusion process and thereby result in a greater loss of customers in the future. Using this result, the authors derive closed-form expressions for the resulting demand and sales dynamics over the product life cycle. |
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