Product Introduction Decisions Research Articles

Updated‐generation product introduction decisions under trade‐in programs and different pricing strategies

AbstractManufacturers introduce updated‐generation products to meet intensified competition under trade‐in programs. Based on this phenomenon, we built a two‐period game‐theoretic model, in which the manufacturer sells the old‐generation product during both periods and considers whether to introduce the updated‐generation product in the second period. We find that under a static pricing strategy, if the costs of both products are low, the updated‐generation product's entry increases the old‐generation product's retail price. The manufacturer cannot benefit from introducing the updated‐generation product if the updated‐generation product's cost is high. Under a dynamic pricing strategy, the updated‐generation product entry benefits both the manufacturer and the consumer.

Managing Product Transitions under Technology Uncertainty

Sequential innovation, where a new product is developed to replace an existing product, creates several logistical challenges for innovating firms. We consider a firm that has to make the end-of-life inventory decision (or final build) for an existing product before identifying key performance measures of a new product. The firm also has the ability to improve the new product's quality during the transition, which we refer to as development flexibility. We jointly model the final build and new product introduction decisions, and characterize optimal inventory and launch policies. The effects of competition, product architecture and development flexibility on the firm's product transition strategy are also explored. In a competitive setting, we show that the optimal policy can be characterized as competitively overstocking or understocking, based on the inventory level relative to a rival's time of entry. Our results thus provide an alternative view of inventory as a hedge against development uncertainty that is inherent to product development.

The influence of tax and regulatory policies on entrepreneurs’ opportunity evaluation decisions

Purpose– The purpose of this paper is to investigate effects of policy initiatives on entrepreneurs’ opportunity evaluation decisions.Design/methodology/approach– Factors were selected from real world policy initiatives. The model pricing power as a traditional economic base rate attribute and then considering how variance in use fees and reporting requirements changes the base rate relationship. The factors served as decision attributes in a conjoint analysis experiment. A total of 126 entrepreneurs made 2,268 opportunity evaluation decisions.Findings– While increases in pricing power result in a positive upward base rate opportunity evaluation, government mandated use fees and reporting requirements diminish the base rate toward the negative. This suggest that that even though the likely profits are much higher with the significant pricing power opportunity, entrepreneurs heavily discount these opportunities because they view the combination of economic costs of paying high use fees and the non-pecuniary costs of reporting requirements as unappealing. Further, the authors find entrepreneurs’ disproportionately discount higher margin opportunities when the regulatory burden is higher revealing the importance of policy factors in new product introduction decisions.Practical implications– Policy has traditionally focussed on the macro-level effects of initiatives and how they directly affect issues like economic growth. This study reveals that this is only part of the equation because changes in government policy impact entrepreneurs’ opportunity evaluation decisions that underpin macro trends. In order to be effective, policy makers need to pay greater attention to not only the economic, but also the non-pecuniary costs that policy changes evoke. This is especially true for those policies like reporting requirements that may be perceived as threats to entrepreneurs’ sense of autonomy.Originality/value– This research brings to the foreground the relationship between the policy environment and the cognitions and decision of individual entrepreneurs whose collective actions move the economy. The net effect is new insight regarding how policy factors coalesce to influence entrepreneurs’ assessments of opportunities, often in ways that negatively affect these assessments beyond what simple economic calculations would suggest.

Hitachi Global Storage Technologies: Competing on Time

This case discusses a firm’s challenge of establishing an integrated business analysis process and a policy for new product introduction decisions, such as the time-to-market decision and post-introduction operational decisions. Such decisions are based on various factors and information is often dispersed across multiple functional areas (such as Marketing, Manufacturing, and R&D) within an organization. The timing decision depends on various factors such as investing more time and resources in product and process design and improvement or push the product to market before competitors. Market-timing decisions are even more challenging when product life cycles are shortened and firms are pressured to release new products more frequently. What has been the optimal timing for a new product may not be the best timing for the next new product. The case illustrates challenges involved in a cross-functional and collaborative approach to develop and introduce a new product to the market.

Retailers and new product acceptance in India's base of pyramid (BoP) markets

PurposeRetailers' new product acceptance in base of pyramid (BoP) markets is crucial to marketers in this segment. This paper seeks to develop propositions for research on factors that affect retailers in new product introduction. The propositions also aim to make a distinction between urban and rural BoP markets.Design/methodology/approachThe paper provides a broad description of India's BoP market (one of the world's largest BoP markets) to better understand context. It uses literature from developed country context to BoP markets to arrive at research propositions for further research.FindingsThe key research propositions derived relate to exogenous and endogenous factors. Exogenous factors relate to store trading area, competitive environment, shopper characteristics and product diversity. The endogenous factors include store atmosphere, assortment and shelf space allocation, price and promotion. The differences across rural and urban BoP markets are highlighted for each proposition.Practical implicationsUnderstanding differences between rural and urban BoP retailers can help make crucial new product introduction decisions. Considering endogenous and exogenous factors that influence retailer acceptance decisions will make product introduction decisions successful.Originality/valueBoP literature has been replete with research on marketers and products but less on retailing. This paper addresses that gap. In addition, very few papers make the distinction between urban and rural BoP markets and mostly across countries but not within a country. This paper places the distinction within the country. Finally, explaining how various factors influencing retailing differ in urban and rural contexts and developing propositions is a major original contribution of this paper.

Profitability, Uncertainty and Multi-Product Firm Product Proliferation: The Spanish Car Industry

This article studies how product introduction decisions relate to profitability and uncertainty in the context of multi-product firms and product differentiation. These two features, common to many modern industries, have not received much attention in the literature as compared to the classical problem of firm entry, even if the determinants of firm and product entry are quite different. The theoretical predictions about the sign of the impact of uncertainty on product entry are not conclusive. Therefore, an econometric model relating firms’ product introduction decisions with profitability and profit uncertainty is proposed. Firm’s estimated profits are obtained from a structural model of product demand and supply, and uncertainty is proxied by profits’ variance. The empirical analysis is carried out using data on the Spanish car industry for the period 1990-2000. The results show a positive relationship between product introduction and profitability, and a negative one with respect to profit variability. Interestingly, the degree of uncertainty appears to be a driving force of entry stronger than profitability, suggesting that the product proliferation process in the Spanish car market may have been mainly a consequence of lower uncertainty rather than the result of having a more profitable market.

The Strategic Effects of Multimarket Contact: Mutual Forbearance and Competitive Response in the Personal Computer Industry

Firms frequently compete across multiple segments. Such multimarket contact has been shown to deter aggressive competition, leading to “mutual forbearance.” Empirical support for this phenomenon derives mainly from studies on the direct effects of multimarket contact on a firm's decision variables. The analysis in this article extends the existing literature by empirically considering both the direct effects of multimarket contact (i.e., how it affects a firm's decision variables) and its strategic effects (i.e., how it affects a firm's reactions to its competitors' decision variables). The authors study the pricing and new product introduction decisions of firms in the personal computer industry. Consistent with prior research, the authors find that firms mutually forbear in price and new product introductions. More important, the authors find strong strategic effects that are asymmetric; namely, firms respond to competitive attacks by introducing new products but do not use price as a retaliatory weapon. Thus, firms isolate any competitive retaliation to only a single marketing variable. The results offer a deeper understanding of the influence of multimarket contact on firm behavior.

The Strategic Effects of Multimarket Contact: Mutual Forbearance and Competitive Response in the Personal Computer Industry

Firms frequently compete across multiple segments. Such multimarket contact has been shown to deter aggressive competition, leading to what has been termed mutual forbearance. Empirical support for this phenomenon derives mainly from studies of the direct effects of multimarket contact on a firm's decision variables. Our analysis extends the existing literature by empirically considering both the direct effects (i.e., how multimarket contact affects a firm's decision variables) and its strategic effects (i.e., how multimarket contact affects a firm's reactions to its competitors' decision variables). We study the pricing and new product introduction decisions of firms in the personal computer industry. Consistent with prior research, we find that firms mutually forbear in price and new product introductions. More important, we find strong strategic effects of MMC that are asymmetric in price and product decisions-firms respond aggressively to competitive attacks by introducing new products but do not use price as a retaliatory weapon. Thus, firms in the personal computer industry isolate any competitive retaliation to only a single marketing variable. Our results offer a deeper understanding of the influence of multimarket contact on firm behavior.

Factors Influencing Brand Launch in a Global Marketplace

The purpose of this study is to explore the factors that influence the launch of brands into new markets in a global environment. Although multiple streams of literature exist with respect to the entry of brands into new markets and the diffusion of new brands within and across markets, the process of launching products and brands globally over time has received relatively limited attention. To address this issue, this study incorporates multiple indicators of activities that can contribute to experiential learning relevant for launching brands in a global marketplace. Market uncertainty and experiential learning provide a conceptual foundation for the development of relevant hypotheses, which are tested in the context of the global automotive industry from 1981 to 2004. A discrete time event history analysis with time‐varying independent variables is employed to estimate the effects of the independent variables on the probability of a brand being launched in a specific market. The global brand launch observations are extracted from a proprietary dataset containing the global dispersion of automotive brands including 22 countries of origin and 42 countries of brand entry. The sample yields 50,572 spells, derived from 99 companies, 173 brands, and 700 market entries. The results of this study contribute to the literature in a variety of ways. Market attractiveness positively influences the propensity of a brand to be launched into a new market. This supports the idea that potential demand conditions are an important managerial consideration in product introduction decisions. The results reveal significant effects with respect to the role of psychic distance and experiential learning. Brands are reluctant to launch into countries that are culturally and economically less similar to the home market. Yet firms tend to place a lower degree of emphasis on factors of cultural distance when launching brands into larger markets, and global experience enables companies to overcome the uncertainties associated with launching brands into international markets that are economically distant. The results also suggest that companies are more likely to introduce additional brands in markets where they already have a presence. Overall, global dispersion and geographic scope, coupled with local market knowledge facilitate the launch of brands globally. From a managerial perspective, this study suggests companies should focus on acquiring both local and global experience to facilitate the launch of products and brands in the global marketplace.

New product introductions and failures under uncertainty

This paper examines new product introductions and failures when firms make new product introduction decisions under some uncertainty about future demand or cost conditions. It shows that increased uncertainty is not necessarily detrimental to new product introductions; it can incentivize more firms to introduce new products, and can lead to more new product failures, too. The paper also shows that markets that have firms with more positively correlated cost structures may attract fewer new product introductions and have fewer new product failures. Such cost correlations can arise, for example, if firms choose to cooperate on R&D, have common labor unions, or use the same suppliers, etc. Finally, we show that if firms are risk-averse, then the relationship between degree of uncertainty and number of new product introductions can be non-monotonic.

Timing Successive Product Introductions with Demand Diffusion and Stochastic Technology Improvement

This paper considers a firm’s decisions on the introduction timing for successive product generations. We examine the case where a firm introduces multiple generations of a durable product for which demand is characterized by a demand diffusion process. Under fixed introduction costs, we consider the case where available product technology improves stochastically. As such, delaying introduction to a later date may lead to the capture of further technology improvements, potentially at the cost of slowing sales for the existing product (and a decline in market potential for the product to be introduced, given our focus on durable products). We specify a state-based model of demand diffusion and construct a decision model to solve the firm’s introduction timing problem. By incorporating technology improvement in our model, we prove the optimality of a state-dependent threshold policy governing the firm’s product-introduction decisions. Numerical analysis reveals the influence of key model parameters on the pace of product introduction. Our model helps to explain the product-introduction behavior of firms and provides an alternative to previous explanations of IBM’s introduction timing decisions for successive generations of its mainframe computers.

Product introduction decisions in a duopoly

In this paper we model a dynamic environment with two firms that fight for share of industry sales and profit in a market with constant size. They capture share by repeatedly introducing new products. Price changes from period to period reflecting each firm’s learning. We formulate the problem as a repeated game, where each player’s decision at each period is to introduce a new product. We find that, in general, each firm’s frequency of product introductions (clockspeed) in equilibrium decreases as its fixed product introduction cost increases. Further, we find that a higher rate of manufacturing learning results in a higher clockspeed and in a higher market share, and also results in significantly worse profits for the competitor. The results underscore the importance of manufacturing expertise in a firm’s ability to introduce new products.

The relative importance of time and dollar values in new product introduction decisions

This study investigates managerial sensitivity to timing differences in new product introduction decisions. Using a case scenario as the research setting, the study finds that in managerial decisions involving a choice between two-attribute alternatives (dollar value and time), respondents shifted their emphasis between attributes when they were personally affected by the decision outcome. Specifically, it was found that an additive constant manipulation (adding a constant to the dollar amount of each alternative) caused respondents to place more emphasis on the time attribute, and a multiplicative constant manipulation (multiplying the dollar amount of each alternative by a constant) caused them to place more emphasis on the dollar-value attribute.