Selling Professional Products with Consumer Uncertainty in Expertise Advancement

(1) Problem definition: For professional products such as musical instruments and sports gear, a consumer's quality preference is positively associated with the consumer's expertise level. A novice who initially chooses a low-quality product over a high-quality one may have incentive to upgrade if experiencing expertise advancement after professional training. This paper examines a firm's strategies to sell professional products in two periods, training and post-training, between which consumers' expertise levels advance with uncertainty. (2) Methodology/results: Using a game theoretic model, we find that consumer uncertainty about expertise advancement allows the firm to expand product line and implement expertise-based intertemporal segmentation in selling a line of professional products. In addition, the firm can implement ex-ante market segmentation, selling products of different qualities to consumers with different quality preferences before their training starts. Our analysis reveals the innate conflict between these two types of segmentation so that the firm may forego the opportunity of market segmentation and implement intertemporal segmentation only. Interestingly, offering a trade-in credit facilitates intertemporal segmentation and encourages the firm to offer a product line, whereas a buyback program facilitates market segmentation instead. In addition, the total consumer surplus increases whenever trade-in credit enables upgrading, and otherwise deteriorates or remains the same. Finally, we find that the firm is more likely to offer a product line when selling to myopic consumers, and consumer myopia may hurt firm profit. (3) Managerial implications: Marketers of professional goods can strategically 2 facilitate and meanwhile profit from consumer upgrading. Also, whereas a buyback guarantee is commonly used in a regular goods market to cope with buyer uncertainty, a trade-in program is often a better option in a professional goods market.