Modelling diffusion for multi-generational product planning strategies using bi-level optimization

•Two bi-level models for two-generation product diffusion are proposed to tackle the conflicts of sales and production departments.•Continuous production strategy and production halt strategy are compared under supply constraints.•The consumers are grouped into four categories according to the production scale and inventory capacity constraints.•The multi-stage GA is designed to solve the optimum production capacity and time variables under two production strategies. When introducing new products, companies seek maximal profits by determining an optimal production plan and marketing strategy. However, if they have limited production capacity, there is a conflict between sales and production due to the differences in their respective goals. When two generations of the same product co-exist in the market, consumer behavior can have a significant influence on product diffusion. In this paper,consumers are divided into four categories based on supply constraints,and production strategies are classified into two distinct types. After modelling the demand diffusion and sorting the customer relationships into the different production strategies, two bi-level models for two-generation product diffusion are proposed,both of which take profit as the upper level goal and stable production as the lower level goal. An interactive dynamic programming based genetic algorithm (IDP-GA) is then designed to solve the bi-level models. The results found that scientific and practical production planning methods based on new product diffusion under supply constraints can achieve suitable results for both levels.