A Dynamic Product Line Model: Theory, Evidence, Strategy

By Hermann Simon
1984| Working Paper No. 731

In contemporary marketing research product line interdependencies are largely ignored, though substantial empirical evidence exists that these phenomena are of considerable practical relevance. In the present paper it is argued that experiences are transferred from one product to another product of the same manufacturer. A similar “goodwill-transfer” occurs over time. Alternative models which incorporate dynamic and product line goodwill-transfer are developed and calibrated for a pharmaceutical product line. Many of the hypothesized interdependencies are found to be statistically significant and the explanatory power of the models is strongly improved. It is demonstrated that the inclusion of the goodwill-transfers leads to important implications for the marketing strategy and that considerable profit reductions may result if these interdependencies are neglected.