Diffusion control of successive product generations with recycling potential

Abstract

In this thesis, we study the sales planning problem of a producer who sells two successive generations of a durable good with recycling potential. Certain ex-pensive materials can be recovered from consumer returns of the early-generation product and can be used in manufacturing of the new-generation product. De-mands for the successive product generations arrive as a generalized Norton-Bass diffusion process and the recycling operations for the new-generation product are constrained by the early-generation product returns. In this setting, we inves-tigate whether slowing down the new-generation product diffusion by partially satisfying its demand might be profitable for the producer who aims to maximize its total profit from the entire product line. Such manipulation of the diffusion process may improve the use of recycled content in production as well as the cross-generation repeat purchases over a sufficiently long selling horizon. The optimal sales plan involves partial demand fulfillment when the diffusion curves of the early- and new-generation products overlap substantially and the release of the new-generation product only moderately increases the customer base. How-ever, partial demand fulfillment is less likely to be desirable if the product returns mostly arrive through trade-up programs rather than recycling programs such as free mail-back and physical drop-off options offered to consumers. Finally, partial demand fulfillment, if initiated too late, may escalate the overall consumption of virgin raw materials, making it environmentally undesirable.