Advertisement

Optimal sequential releasing strategy for software products in the presence of word-of-mouth and requirements uncertainty

  • Yu Wang
  • Minqiang LiEmail author
  • Haiyang Feng
  • Nan Feng
Article
  • 93 Downloads

Abstract

This study proposes a two-period analytical model to explore the relative optimality of three sequential releasing strategies for a software vendor: (1) Skipping Strategy—skip the limited-functionality version and introduce a full-functionality version in the next period, (2) Replacement Strategy—release a limited-functionality version first and replace it with a full-functionality version later, and (3) Line-extension Strategy—release a limited-functionality version first and extend the product line by releasing a full-functionality version later. Word-of-mouth (WOM) effect and uncertainty in consumers’ requirements are taken into consideration. Our analysis shows that Skipping Strategy is optimal when the net WOM is negative and sufficiently small, while the Replacement Strategy becomes the optimal choice when the net WOM is negative but not sufficiently small. However, the Line-extension Strategy dominates other two strategies when the net WOM is positive. Different pricing patterns may be chosen when adopting Line-extension Strategy, i.e. when the net WOM is positive and not very large, Low–High pricing pattern (a relatively low price for the limited-functionality version and a relatively high price for the full-functionality version) is optimal, while High–Low pricing pattern (a relatively high price for the limited-functionality version and a relatively low price for the full-functionality version) becomes optimal when the net WOM is positive and sufficiently large. Numerical experiments show that the software vendor could improve its profit by choosing optimal quality design but the overall dominance pattern of the three release strategies is similar no matter whether the quality design is exogenously given or optimally chosen.

Keywords

Software products Sequential releasing strategy Pricing strategy Quality design strategy Word-of-mouth Requirements uncertainty 

Notes

Acknowledgements

This work was supported by the General Program of the National Science Foundation of China (Nos. 71371135, 71871155), the Key Program of the National Science Foundation of China (No. 71631003), and the National Science Fund for Distinguished Young Scholars of China (Grant No. 70925005). It is also supported by the Program for Changjiang Scholars and Innovative Research Teams in Universities of China (PCSIRT). The authors are very grateful to the editor and all anonymous reviewers whose invaluable comments and suggestions substantially helped improve the quality of the paper.

References

  1. 1.
  2. 2.
    Siebert R (2015) Entering new markets in the presence of competition: price discrimination versus cannibalization. J Econ Manag Strategy 24(2):369–389CrossRefGoogle Scholar
  3. 3.
    Mahajan V, Muller E, Kerin RA (1984) Introduction strategy for new products with positive and negative word-of-mouth. Manage Sci 30(12):1389–1404CrossRefGoogle Scholar
  4. 4.
    Liu Y (2006) Word of mouth for movies: its dynamics and impact on box office revenue. J Mark 70(3):74–89CrossRefGoogle Scholar
  5. 5.
    Chau NN, Desiraju R (2017) Product introduction strategies under sequential innovation for durable goods with network effects. Prod Oper Manag 26(2):320–340CrossRefGoogle Scholar
  6. 6.
    Kwark Y, Chen J, Raghunathan S (2014) Online product reviews: implications for retailers and competing manufacturers. Inf Syst Res 25:93CrossRefGoogle Scholar
  7. 7.
    Hornik J, Shaanan Satchi R, Cesareo L, Pastore A (2015) Information dissemination via electronic word-of-mouth: good news travels fast, bad news travels faster! Comput Hum Behav 45:273–280CrossRefGoogle Scholar
  8. 8.
    Bensaid B, Lesnea JP (1996) Dynamic monopoly pricing with network externalities. Int J Ind Organ 14:837–855CrossRefGoogle Scholar
  9. 9.
    Foubert B, Gijsbrechts E (2016) Try it, you’ll like it—or will you? The perils of early free-trial promotions for high-tech service adoption. Mark Sci 35(5):810–826CrossRefGoogle Scholar
  10. 10.
    Nidumolu S (1995) The effect of coordination and uncertainty on software project performance: residual performance risk as an intervening variable. Inf Syst Res 6(3):191–219CrossRefGoogle Scholar
  11. 11.
    Ebert C, Man JD (2005) Requirements uncertainty: influencing factors and concrete improvements. In: Proceedings of the 27th international conference on Software engineering, St. Louis, MO, USA, pp 553–560Google Scholar
  12. 12.
    Nuseibeh B, Easterbrook S (2000) Requirements engineering: a roadmap. In: Proceedings of the conference on the future of software engineering (ICSE ’00), ACM, New York, NY, USA, pp 35–46Google Scholar
  13. 13.
    Cusumano MA, Selby RW (1997) How Microsoft builds software. Commun ACM 40(6):53–61CrossRefGoogle Scholar
  14. 14.
    Shapiro C (1982) Consumer information, product quality, and seller reputation. Bell J Econ 13(1):20–35CrossRefGoogle Scholar
  15. 15.
    Levinthal DA, Purohit D (1989) Durable goods and product obsolescence. Mark Sci 8(1):35CrossRefGoogle Scholar
  16. 16.
    Moorthy KS, Png IP (1992) Market segmentation, cannibalization, and the timing of product introductions. Manage Sci 38(3):345–359CrossRefGoogle Scholar
  17. 17.
    Padmanabhan V, Rajiv S, Srinivasan K (1997) New products, upgrades, and new releases: a rationale for sequential product introduction. J Mark Res 34(4):456–472CrossRefGoogle Scholar
  18. 18.
    Bhattacharya S, Krishnan V, Mahajan V (2003) Operationalizing technology improvements in product development decision-making. Eur J Oper Res 149(1):102CrossRefGoogle Scholar
  19. 19.
    Pedram M, Balachander S (2015) Increasing quality sequence: when is it an optimal product introduction strategy? Manage Sci 61(10):2487–2494CrossRefGoogle Scholar
  20. 20.
    Biyalogorsky E, Koenigsberg O (2014) The design and introduction of product lines when consumer valuations are uncertain. Prod Oper Manag 23(9):1539–1548CrossRefGoogle Scholar
  21. 21.
    Bhargava HK (2014) Platform technologies and network goods: insights on product launch and management. Inf Technol Manage 15(3):199–209CrossRefGoogle Scholar
  22. 22.
    Dellarocas C (2003) The digitization of word of mouth: promise and challenges of online feedback mechanisms. Manage Sci 49(10):1407–1424CrossRefGoogle Scholar
  23. 23.
    Trusov M, Bucklin RE, Pauwels K (2009) Effects of word-of-mouth versus traditional marketing: findings from an internet social networking site. J Mark 73(5):90–102CrossRefGoogle Scholar
  24. 24.
    Hu N, Liu L, Zhang JJ (2008) Do online reviews affect product sales? The role of reviewer characteristics and temporal effects. Inf Technol Manage 9(3):201–214CrossRefGoogle Scholar
  25. 25.
    Vazquez-Casielles R, Suarez-Alvarez L, del Rio-Lanza A-B (2013) The word of mouth dynamic: how positive (and negative) WOM drives purchase probability. J Advert Res 53(1):43–60CrossRefGoogle Scholar
  26. 26.
    Wu Y, Wu J (2016) The impact of user review volume on consumers’ willingness-to-pay: a consumer uncertainty perspective. J Interact Mark 33:43–56CrossRefGoogle Scholar
  27. 27.
    Wu J, Wu Y, Sun J, Yang Z (2013) User reviews and uncertainty assessment: a two stage model of consumers’ willingness-to-pay in online markets. Decis Support Syst 55(1):175–185CrossRefGoogle Scholar
  28. 28.
    Godes D (2017) Product policy in markets with word-of-mouth communication. Manage Sci 63(1):267–278CrossRefGoogle Scholar
  29. 29.
    Dogan K, Ji Y, Mookerjee VS, Radhakrishnan S (2011) Managing the versions of a software product under variable and endogenous demand. Inf Syst Res 22(1):5–21CrossRefGoogle Scholar
  30. 30.
    Hong YK, Pavlou PA (2014) Product fit uncertainty in online markets: nature, effects, and antecedents. Inf Syst Res 25(2):328–344CrossRefGoogle Scholar
  31. 31.
    Cheng HK, Liu Y (2012) Optimal software free trial strategy the impact of network externalities and consumer. Inf Syst Res 23(2):488–504CrossRefGoogle Scholar
  32. 32.
    Dey D, Lahiri A, Liu D (2013) Consumer learning and time-locked trials of software products. J Manag Inf Syst 30(2):239–268CrossRefGoogle Scholar
  33. 33.
    Wei XDQ, Nault BR (2013) Experience information goods: “Version-to-upgrade”. Decis Support Syst 56:494–501CrossRefGoogle Scholar
  34. 34.
    Li S, Cheng HK, Duan Y, Yang Y-C (2017) A study of enterprise software licensing models. J Manag Inf Syst 34(1):177–205CrossRefGoogle Scholar
  35. 35.
    Dey D, Lahiri A (2016) Versioning: go vertical in a horizontal market? J Manag Inf Syst 33(2):546–572CrossRefGoogle Scholar
  36. 36.
    Li M, Feng H, Chen F (2012) Optimal versioning and pricing of information products with considering or not common valuation of customers. Comput Ind Eng 63(1):173–183CrossRefGoogle Scholar
  37. 37.
    Katz ML, Shapiro C (1985) Network externalities, competition, and compatibility. Am Econ Rev 75(3):424–440Google Scholar
  38. 38.
    Jing B (2007) Network externalities and market segmentation in a monopoly. Econ Lett 95(1):7–13CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.College of Management and EconomicsTianjin UniversityTianjinPeople’s Republic of China

Personalised recommendations