Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint
Investing in product quality for future growths or conserving cash flow to avoid bankruptcy is an important trade-off faced by many capital-constrained startups. Focusing on the trade-off, this paper proposes a two-stage model where a startup firm must earn profit above the survival threshold by the...
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2018-01-01
|
| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2018/8302645 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1832556116241809408 |
|---|---|
| author | Bing Xia Richard Y. K. Fung Ju'e Guo |
| author_facet | Bing Xia Richard Y. K. Fung Ju'e Guo |
| author_sort | Bing Xia |
| collection | DOAJ |
| description | Investing in product quality for future growths or conserving cash flow to avoid bankruptcy is an important trade-off faced by many capital-constrained startups. Focusing on the trade-off, this paper proposes a two-stage model where a startup firm must earn profit above the survival threshold by the end of every stage. Considering impacts of the uncertainty of demand responsiveness to quality (DRQ), market shocks, and survival threshold, a hedge with price setting and quality investing is established against the bankruptcy risk. Besides, this paper stresses the necessity of identifying the operational decisions of startups under both profit-seeking and survival-seeking objectives. Results illustrate that, under stochastic environment, the profit-seeking startup makes conservative (aggressive) investment on quality by setting lower (higher) price and investing in lower (higher) quality than the deterministic case, while the survival-seeking startup always sets its price linked to quality in positive direction. In addition, the profit-seeking startup always improves its investment on quality when either the mean or the variance of DRQ increase, while the survival-seeking startup reduces its investment when either the mean of DRQ increases to a certain level or the variance of DRQ increases. Other factors are also examined. Finally, this paper provides the startup managers some guidance on the quality investing strategy under capital constraints. |
| format | Article |
| id | doaj-art-766c21d66d3d420a832036f69ceae894 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2018-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-766c21d66d3d420a832036f69ceae8942025-02-03T05:46:19ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2018-01-01201810.1155/2018/83026458302645Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital ConstraintBing Xia0Richard Y. K. Fung1Ju'e Guo2School of Management, Xi’an Jiaotong University, Xi’an, Shaanxi 710049, ChinaDepartment of Systems Engineering & Engineering Management, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong KongSchool of Management, Xi’an Jiaotong University, Xi’an, Shaanxi 710049, ChinaInvesting in product quality for future growths or conserving cash flow to avoid bankruptcy is an important trade-off faced by many capital-constrained startups. Focusing on the trade-off, this paper proposes a two-stage model where a startup firm must earn profit above the survival threshold by the end of every stage. Considering impacts of the uncertainty of demand responsiveness to quality (DRQ), market shocks, and survival threshold, a hedge with price setting and quality investing is established against the bankruptcy risk. Besides, this paper stresses the necessity of identifying the operational decisions of startups under both profit-seeking and survival-seeking objectives. Results illustrate that, under stochastic environment, the profit-seeking startup makes conservative (aggressive) investment on quality by setting lower (higher) price and investing in lower (higher) quality than the deterministic case, while the survival-seeking startup always sets its price linked to quality in positive direction. In addition, the profit-seeking startup always improves its investment on quality when either the mean or the variance of DRQ increase, while the survival-seeking startup reduces its investment when either the mean of DRQ increases to a certain level or the variance of DRQ increases. Other factors are also examined. Finally, this paper provides the startup managers some guidance on the quality investing strategy under capital constraints.http://dx.doi.org/10.1155/2018/8302645 |
| spellingShingle | Bing Xia Richard Y. K. Fung Ju'e Guo Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint Discrete Dynamics in Nature and Society |
| title | Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint |
| title_full | Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint |
| title_fullStr | Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint |
| title_full_unstemmed | Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint |
| title_short | Quality Investing and Pricing Strategies by Startups: Impacts of Demand Uncertainties and Capital Constraint |
| title_sort | quality investing and pricing strategies by startups impacts of demand uncertainties and capital constraint |
| url | http://dx.doi.org/10.1155/2018/8302645 |
| work_keys_str_mv | AT bingxia qualityinvestingandpricingstrategiesbystartupsimpactsofdemanduncertaintiesandcapitalconstraint AT richardykfung qualityinvestingandpricingstrategiesbystartupsimpactsofdemanduncertaintiesandcapitalconstraint AT jueguo qualityinvestingandpricingstrategiesbystartupsimpactsofdemanduncertaintiesandcapitalconstraint |