A Diffusion Model for Preannounced Products

Strategic preannouncement of a new product launch by a firm creates a pent-up demand (or consumers committed to purchase prior to launch) for the new product. The level of the pent-up demand depends, among other factors, on the timing and the reputation of the firm announcing the new product; it is critical in shaping up the diffusion process of the new product after launch. In this paper, we develop a two-phase diffusion model that describes both the impact of the announcement on consumers’ purchase commitments and the diffusion process since launch starting with a strictly positive number of new product orders. We illustrate the empirical performance of the model with an old but classic dataset that captures both advance purchase orders as well as sales after launch for a new audio CD. We discuss how our model can guide a firm’s decision on when to preannounce the introduction of its new product or technology, relative to the time of launch, so as to maximize the total benefit during the planning horizon.