A profit-oriented approach for selection of new product scheme

The multinomial logit (MNL) consumer choice rules employed in the extant product design research assume that a product always has a market share even though the product has a very low utility value. In this paper, a new consumer choice rule integrating the dollar-scaled utility with piecewise logit function is proposed to avoid estimation bias caused by this problem. A profit maximizing model under the proposed rule is established in a multi-segment product market. It has been proven that in an unpartitioned product market, a local optimal solution of the model is also a global optimal solution, and hence standard nonlinear programming algorithms can be applied. An algorithm based on interval analysis is developed to solve the model under a multi-segment market. Finally, an example of selection of new product scheme is given to illustrate the feasibility and effectiveness of the proposed model and algorithm.