Integrating dynamic time-to-market, pricing, production and sales channel decisions

• We provide an optimization model that captures the key trade-offs among time-to-market, sales channel, pricing and production decisions.
• We characterize optimal pricing, market timing and production policies.
• We show how pricing lever can be used to mitigate the risk of entering the market early or late.
• We study the role of the secondary sales channel on market timing, pricing and inventory decisions.
• We provide a method to characterize optimal policies for optimal stopping problems.
• The results are also proven to be useful for practical application because the model was developed in conjunction with a major hard disk drive manufacturer.

This paper studies a firm’s time-to-market decision and subsequent sales channel, pricing and production decisions under three main sources of uncertainty: possibility of qualifying for lucrative sales channels, competitors’ time-to-market behavior and price-sensitive uncertain demand. In particular, we consider a firm that can potentially sell through two distinct channels. Selling through the primary channel requires the firm to first get its product qualified. The secondary channel does not require qualification. Prior to market entry, the firm performs product and process design activities which improve manufacturing yield and the chances of getting qualified for the primary sales channel. A long delay in market entry allows competitors to enter the market before the firm, reducing the firm’s market share. This delay also affects the firm’s sales channel strategy. While deciding when to enter the market, the firm also needs to decide what price to charge and how much to produce at each period of a finite planning horizon. Demand distributions depend on the product’s price through general stochastic demand functions. Pricing and production decisions can be specified dynamically as a function of the state of the system and they are intertwined with the time-to-market decision. The paper provides a unified model that captures the key relationships and trade-offs among time-to-market, sales channel, pricing and production decisions. Explicitly modeling the linkages among these key decisions enables us to characterize and quantify their joint role in profit generation. This paper provides managers with a tool and a process that can guide them in determining an optimal policy for market-timing, pricing and production decisions that maximize firms’ expected profits.