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Vol. 39, No. 4, 2025

Joint decision model of innovative products′ sales mode and rollover strategy——— Based on the perspective of consumer market segmentations

Title

Joint decision model of innovative products′ sales mode and rollover strategy——— Based on the perspective of consumer market segmentations

Author

DU Huafeng; GUAN Zhenzhong

Abstract

In order to satisfy the multifaceted and ever-changing preferences of consumers, enterprises are constantly upgrading their products. This is especially true in the high-tech industry, best represented by smartphones. Enterprises need to make crucial decisions regarding product prices and rollover strategy. Currently, there are two types of product rollover strategies: the single rollover strategy and the dual rollover strategy. With the single rollover strategy, the enterprises immediately stop selling their existing products when introducing new products. This means that consumers can only buy a single new product. The dual rollover strategy allows different versions of vertically differentiated products to coexist so that old products continue to be sold, often with a price reduction. This means that consumers can purchase different versions of the same product to achieve maximum utility. In addition, selling and leasing have been hot topics in academic and business circles. When selling, consumers can enjoy ownership and the right to use the product. When leasing however, ownership and the right to use the product are separated. Consumers pay rental fees over a certain period of time and can use the product, but they do not have ownership. In essence, enterprises face a decision-making dilemma when choosing the sales mode and rollover strategy due to the frequent updating of existing mainstream products. Both are important marketing strategies. Thus, the issue of how to effectively integrate the sales mode and rollover strategy to achieve maximum profits is of central concern. To address this issue, the popular two-period model is considered. We first examined the different purchasing behavior of consumers and analyzed the various possible market segmentation structures. Then, we constructed four game models based on a two-dimensional perspective regarding sales mode and rollover strategy: selling + single, selling + dual, leasing + single and leasing + dual. On this basis, two-period equilibrium solutions under different combinations were obtained by using optimization theory such as backward induction. Finally, we discussed the interaction between sales mode and rollover strategy through a horizontal comparison, vertical comparison and cross-comparison. Our results may provide valuable insights for enterprises on how to integrate the two marketing strategies.Through model construction and analysis, we found that joint equilibrium decision-making depends on whether there is a complementary relationship between the sales mode and rollover strategy. Under certain conditions, the leasing mode and the two rollover strategies are complementary. However, the selling mode only complements the single rollover strategy. This shows that enterprises cannot ignore the interaction between the two strategies. Relying on a simple and unilateral impact as the basis for decision-making may increase the risk of marketing strategy failure. In particular, the blind implementation of a dual rollover strategy combined with the selling mode may not produce the same-direction superposition effect and also lead to the loss of profits. At the same time, the effect of the rollover strategy on the optimal sales mode is asymmetric. With the single rollover strategy, the optimal sales mode is not always dominant. However, under the dual rollover strategy, the leasing mode is always better than the selling mode. On the contrary, the impact of sales mode on the rollover strategy is mainly reflected in whether to expand the value of the rollover strategy. Specifically, the leasing (selling) mode can further expand the value of dual (single) rollover strategy. Moreover, it is interesting to note that when the consumer strategy is moderate, as innovation increases, the joint equilibrium decision will change along the path of leasing + single → leasing + dual → leasing + single.Admittedly, our model also has some limitations that can be improved upon in future research. First, we don′t consider the issue of leftover inventory at the end of the sales period. It is difficult to accurately predict consumer demand, which may then lead to substantial inventory accumulation. In the future, the newsvendor model or other theories may be used to describe the stochastic demand of consumers which could take into account the impact of product inventory on the joint equilibrium decision. Second, in order to reduce the information asymmetry regarding new product quality, enterprises often use advertising and other means to influence consumers′ purchasing decisions. Therefore, it is also important to consider the diffusion problem of new products. Last but not least, competition is everywhere. With the increasing homogenization of smart products, enterprises are faced with increasingly tough market competition. Considering competitive game strategies may be a valuable area for future exploration.

Keywords

Rollover strategy; Sales mode; Market segmentations; Joint decision; Continuous innovation

Issue

Vol. 39, No. 4, 2025

References