Assessing the economic worth of new product pre‐announcement signals: theory and empirical evidence

Abstract

Actual and intended new product introduction announcements constitute significant events for firms’ customers, competitors, and investors. Typically, past research has focused on the economic impact of actual new product introduction announcements. However, research relating to firms’ intentions to introduce new products is relatively uncommon. These intended introductions or “pre‐announcements” have important strategic objectives and affect a firm’s customers and competitors in significant ways. Builds upon existing theory to study the economic impact of product pre‐announcement signals. Adopts the event study methodology and explores the relationship between product pre‐announcements and stock prices. Results show that relatively irreversible product pre‐announcements, i.e., those containing “evidence” are valued positively by the stock market. In contrast, the stock market ignores bluffs or easily reversible announcements that lack such evidence. Given the significance of pre‐announcements, managers should take these signals seriously. Discusses how product managers may use these results to develop actionable strategies for communicating with investors. Outlines the contribution of this paper to product management theory.