Abstract
In this study, we introduce an optimization model for synchronized main market entry timing, pricing, and advertisement spending for a new product in a dual-market setting. It has been established that newly introduced products in the marketplace encounter early adopters before they are accepted by main adopters. Typically, this transient is critical in determining the product's success in the market. Many new products go through a chasm and may not survive the transition to the main market. Product managers use pricing and advertising to help their products cross the chasm and successfully diffuse to the main market. The past experiences have indicated that another critical factor determining the diffusion is the time of entry to the main market. In such cases, the firm introduces the product to the early adopters before entering the main market, and the gradual growth in the former market serves as an effective bridge to the latter. We propose a mathematical model that maximizes total profit across the product's life cycle by making optimal decisions on product pricing pre-main market entry, main market entry timing, pricing post-main market entry, and advertisement spending in main market. The demand mapping is built by extending the Bass Diffusion framework. We employ an integer non-linear programming model to solve this problem. By carrying out computational experiments, we investigate the impact of the influence of the early adopters on the main market and the gap between the price sensitivities in two markets on the optimal decisions and the overall diffusion process.