Zooming in or zooming out: Entrants' product portfolios in the nascent drone industry

Abstract

AbstractResearch SummaryFaced with demand uncertainty and heterogeneity in a nascent industry, entrants often consider how many customer segments to serve by tailoring the usage breadth of their product portfolios. Portfolio usage breadth is the extent to which products in a portfolio collectively span distinct customer segments. We suggest that when entrants have use experience in contexts that are potential users of the new product, their portfolios exhibit low usage breadth, due to demand‐oriented cognition and knowledge. The relationship is stronger for diversifying entrants relative to startups. The empirical context is the U.S. commercial drone industry, wherein entrants need to adapt their product portfolios for five robust and distinct customer segments of photography, short‐distance inspection, long‐distance surveying, agriculture, and aerial supply chain management.Managerial SummaryNew industries often serve multiple customer segments, each with different preferences. Entrants can either launch products catering to the specific preferences of customers in a small number of segments or launch products targeting numerous segments. Evidence from the U.S commercial drone industry shows that when entrants have experience in one of the customer segments adopting the new industry's product, they tend to introduce products targeting fewer segments. By recognizing the impact of prior experiences on product portfolio development, entrepreneurial leaders gain insights to assess whether their cognitive alignment with a customer segment has restricted their broader exploration of the demand environment, or whether their superior demand knowledge about a customer segment has created a competitive advantage.