Abstract for: Using System Dynamics to Create Durable Business Strategy- US Air Conditioning Industry Case Study

This paper describes the use of system dynamic modeling at Refrigeration Sales Corporation (RSC) to understand United States air conditioning industry dynamics and to determine advantageous business policy changes. The business context, model designs, and the resulting policies and outcomes are described. The described system dynamics models extend Bass diffusion to include replacement sales of a durable good. Within this context, the relatively long useful life of a central air conditioning unit causes a significant contraction in the industry sales rate prior to reaching sustainable replacement sales. Anticipating the contraction and changing company policy accordingly gave RSC a competitive advantage by being prepared to take advantage of the industry changes. This paper adds to the system dynamics body of knowledge by documenting a successful modification and application of pre-existing model structures within the context of an important and valuable durable goods industry. Insights presented in this paper may be applicable to other durable goods industries.