Designing Digital Rollovers : Managing Obsolescence through Release Times

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuade its existing customer base to upgrade. This is commonly achieved through a rollover strategy, which comprises the price of the new product as well as the decision to discontinue the sale of the existing product (solo rollover ) or to sell the existing product at a discounted price (dual rollover ). In this paper, we argue that the timing of the new product release is an important — but commonly overlooked — third lever in the design of a successful rollover strategy. The release timing influences the consumers' perception of obsolescence, by which an existing product is considered obsolete merely by reference to a new product. This reinforces the upgrading behavior of existing customers, but it also necessitates deep discounts of the existing product to keep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rollovers in markets composed of naive and sophisticated consumers. We show that in both markets, the endogenization of the release time enables the firm to induce sufficiently large parts of its existing customer base to upgrade so that a solo rollover is optimal in commonly encountered market settings. We also characterize the resulting market segmentation, and we offer managerial as well as policy advice