Speed-to-market and new product performance trade-offs

Abstract

When pressed to accelerate a development effort, more than a few managers have responded in terms such as “Good, fast, cheap … Pick any two”. Time-to-market decisions clearly play an important role in determining the ultimate success or failure of a new product. Just as clearly, however, speed to market is not the sole determinant of success. The seemingly offhanded “Pick any two” response points to the tradeoffs that product development managers must make in their decisions about development time and costs. Barry Bayus discusses the relationship between product development time and costs, and he fomulates a mathematical model that simultaneously considers the decisions regarding time-to-market and product performance levels. He applies the model to two competitive scenarios, and he identifies the optimal entry timing and product performance decisions for various market, demand, and cost conditions. In the first scenario, a firm must decide whether to accelerate development efforts to catch a competitor that has just introduced a new product. Analysis of the tradeoffs among the various parameters in the model suggests that fast development of low-performance products is optimal under the following conditions: a relatively short window of market opportunity, a weak competitor, and relatively high development costs. For example, if the competitor is weak, high performance levels are not necessary and the firm can safely reduce time-to-market. Under the same scenario (that is, accelerating development to catch a competitor), the analysis suggests that fast development of products with high performance levels is optimal under conditions of relatively high sales and relatively flat development costs. In the second scenario, the firm must decide whether to speed development efforts to beat the competition to market. Analysis of the various tradeoffs for this scenario suggests that first-to-market status for a product with a high performnace level is optimal under the following conditions: a relatively long window of market opportunity, relatively high sales, and relatively flat development costs. With a long product lifecycle, stable margins, and high sales, the firm can generate sufficient revenue to offset the increased cost incurred in speeding a high-performance product to market. Beating a competitor to market with a low-performance product is never optimal for the cases considered here.