OPTIMAL REPEATED PRODUCT MANAGEMENT WITH CUSTOMERS’ PREFERENCES

Abstract

The study deals with the product management of repeated products such as smartphones, cars, and healthcare devices. They have limited lifecycles. The Galaxy S5 was marketed in 2014 and faded out as the Galaxy S6 launched in 2015. The study deals with when to stop selling a given product and initiate another repeated product, together with the R&D period and timing issues.  The objective function is to maximize the discounted net cash flow or the equivalent annuity for a given period, e.g., a year, a decade, etc. We define the first-order conditions for optimality along with economic and management interpretation. The initiation of the following product functionally depends on the current product termination. We define the resulting rules in managerial terms. A numerical example illustrates the rules and the solution.