The Impact Of Consumer Confusion On The Product Rollover Strategy

Nowadays, the ever-changing scientific and technological progress and increasingly diversificated consumer demand not only shorten the product life cycle,but also force firm to face fiercer market competition. In order to satisfy the increasingly picky consumers and meet the consumer demand, firms have to seed up the pace of new product development. The frequent upgrading of the products brings the firm huge profits and a broader market; in the meanwhile, it also challenges the firm when choosing upgrading strategies of the products,especially the layout and sale of new products.The frequent upgrading of the products which makes the market full of similar products inevitably affects consumers' shopping psychology and behavior. When making a purchase decision between those similar products among various generations, consumers have to deal with the overload of product information and the inevitable product similarity. Additional, confused consumers, compared with unconfused consumers, are always lack of awareness and ability to identify and distinguish the difference between similar products. This series of factors lead to consumer confusion. As a result, confused consumers have substantive difficulty in differentiating the products among various generations. When the strength of consumer confusion increases, confused consumers would rely on price differences between similar products rather than quality differences to make a purchase decision.Obviously, consumer confusion about the product quality challenges the firms when choosing upgrading strategies of the products. To address the impact of consumer confusion on firm's rollover strategy, we extend the utility function by considering consumer confusion on the product quality, based on which a high-tech firm decides the price and quality of the product in one sale cycle.This paper mainly focuses on two types of rollover strategies in the market:single rollover strategy and dual rollover strategy. In single rollover strategy, the price and quality of new product decrease with the strength of consumer confusion, and consequently the demand and profit of the firm decreases as well. In dual rollover strategy, the effect of confusion level is not monotonous. When the confusion is at a high level, the price and quality of new product in dual rollover strategy is larger than those in single rollover strategy. We analyze the optimal decisions in different rollover strategy and derive the optimal rollover strategy when the consumer has different levels of the confusion. If the confusion is at a low level, the firm chooses a single rollover strategy and otherwise dual rollover strategy is profitable. In addition, we extend the single rollover strategy into a two-period model and make three extensions based on the characteristics of consumer behavior: when the remaining consumers who do not purchase basic product would leave the market at the end of the first period, when the remaining consumers would wait and enter the second period to purchase the upgrading product,the presence of strategic consumers. We discover that the impact of consumer confusion on firm's strategy is consistent with that in the previous one-period situation, the price and quality of new product decrease with the strength of consumer confusion, and consequently the demand and profit of the firm decreased as well. We also find that the characteristics of consumer behavior affect the timing of new products entering the market. When the remaining consumers would leave the market at the end of the first period, firm would prefer to speed up the introduction of upgrading product. When the remaining consumers would wait and purchase in the second period, postpone upgrading product is profitable. And in the presence of strategic consumers, the firm would make all the consumers to buy upgrading product in the second period.