High-Low or Low-High: Product-Line Introduction Strategies

This paper presents a model of the introduction of a product line that consists of a high-end model and a low-end model, under conditions of demand uncertainty. The firm is a-priori uncertain about the demand for the product line, which can turn out to be either high or low. The firm learns of the actual demand conditions only after at least one product in the line has been introduced. We start with analyzing sequential introduction strategies and find that when the level of demand uncertainty is low, the firm first introduces the high-end model, followed by introduction of the low-end model. When the level of demand uncertainty is intermediate, if demand turns out to be high the firm should follow the introduction of the first product with the introduction of a higher-end model, but if demand turns out to be low the firm should follow the introduction of the first product with the introduction of a lower-end model or replace the first product with a lower-end model. When the level of demand uncertainty is high, the firm should first introduce the highend model. Then, if the demand turns out to be high, a low-end model should be added to the product line, but if the demand turns out to be low, the firm should replace the first product with a new one. We then analyze a simultaneous introduction strategy as well and find that even when it is possible to introduce both products simultaneously the firm should do so only when the level of demand uncertainty is low.