EXPRESS: Launching “what” versus “when”: Pacing successive new product releases

We consider a monopolist that over time offers its customers new versions of an evolving product. Given uncertainty in the rate of product development over time, we consider the alternatives of planning new-product releases based on time intervals versus development increments, i.e., performance targets. These policy regimes are referred to in the literature as event pacing versus time pacing. With uncertainty and strategic consumers, we prove that the time paced regime optimally engenders a faster rate of product releases, yielding both strictly higher revenues for the seller and surplus for consumers. The revenue gains from time paced releases stem from two drivers that we refer to as innovation option-value and duration risk. The former reflects that, unlike event pacing which releases upon reaching development goals, time pacing continues R&D over its planned time interval, yielding potential upside development increments across release epochs. Time pacing's duration-risk benefit is that it allows consumers to accurately assess the decision of whether to purchase a given release, knowing not only the quality of the product but also the timeframe before it will be superseded. Event paced releases, in contrast, benefit the seller in managing cost risk. That cost-risk benefit stems from not committing to launch potentially costly releases during times with lackluster development improvements. We show that this benefit of event pacing results in higher profits when fixed or variable costs are high. We also show that a dynamic hybrid policy that can switch between the two release regimes generates only small gains, given the underlying regimes' already-strong performance when costs are either low or high. We also analyze a generalized setting with new-customer arrivals with heterogeneity in outside options, as well as customer attrition over time. We prove that when serving heterogeneous consumers, the firm's release pacing and pricing optimally accommodate “version skipping” by consumers, over a wide range of heterogeneity levels. Collectively, our findings provide a theoretical basis for contrasting the time versus event paced release regimes for multi-generational products and explain the prevalence of these strategies in practice.