Predicting new product success with prediction markets in online communities

The prediction of new product success is still a challenging task. Traditional market research tools are expensive, time consuming, and error prone. Prediction markets have been introduced as a viable alternative. Utilizing inputs from various participants in game‐like environments, they have been shown to produce accurate results by combining dispersed knowledge via market‐based aggregation mechanisms. While most previous studies use employees or experts as a sample, we test whether online consumer communities can be used to predict the sale of new skis via prediction markets. Sixty‐two users took part in the study. The prediction market was open for 12 days before the main skiing season 2010/2011 began. The outcomes of the prediction markets were compared with the actual sales numbers provided by the ski producers. The mean average errors were between 2.74% and 9.09% in the four markets. Overall, it can be concluded that the prediction markets based on consumer communities produce accurate results.     

Sourcing,Filtering, and Evaluating New Product Ideas: An Empirical Exploration of the Performance of Idea Markets

The proliferation of interconnectivity and interactivity through Internet‐based technologies enables new forms of support for new product development. This paper analyzes idea markets, which use widely distributed knowledge, the power of markets, and the Internet to support the crucial initial tasks of the new product development process, including the sourcing, filtering, and evaluation of new product ideas. Idea markets employ virtual stocks to represent new product ideas and allow participants to suggest and trade new product ideas in a virtual marketplace. This paper empirically explores the performance of idea markets in a real‐world field study at a large, high‐tech business‐to‐business company that includes more than 500 participants from 17 countries and features various idea sourcing tasks. The results indicate that idea markets are a feasible and promising method to support the fuzzy front end of the new product development process. Idea markets offer a platform and formal process to capture, select, and distribute ideas in an organization, which motivates employees to communicate their ideas to management. By effectively sourcing and contemporaneously filtering, idea markets help reduce the number of ideas brought to management's attention to those that seem worthy of further consideration. Because idea markets also have the ability to source many ideas, they can increase efficiency at the fuzzy front end of the new product development process.     

New Product Development 2.0: Preference Markets—How Scalable Securities Markets Identify Winning Product Concepts and Attributes*

Preference markets address the need for scalable, fast, and engaging market research in new product development. The Web 2.0 paradigm, in which users contribute numerous ideas that may lead to new products, requires new methods of screening those ideas for their marketability, and preference markets offer just such a mechanism. For faster new product development decisions, a flexible prioritization methodology is implemented for product features and concepts, one that scales up in the number of testable alternatives, limited only by the number of participants. New product preferences for concepts, attributes, and attribute levels are measured by trading stocks whose prices are based upon share of choice of new products and features. A conceptual model of scalable preference markets is developed and tested experimentally. Benefits of the methodology are found to include speed (less than one hour per trading experiment), scalability (question capacity grows linearly in the number of traders), flexibility (features and concepts can be tested simultaneously), and respondent enthusiasm for the method.     

Myopic Corporate Behaviour with Optimal Management Incentives

Existing models in which stock markets lead to corporate 'short-termism' rely on an exogenously imposed objective for top managers. This paper endogenizes both managers' concern for short-term stock prices and the resulting distortions. We show that when the manager can trade on her own account on the stock market in a way that is observable to market participants but which is not verifiable in court, shareholders will choose an incentive contract which induces a bias towards short-term returns. Consistent with recent evidence, the short-term bias is greater when the optimal contract provides low-powered management incentives.     

Extending Lead‐User Theory: Antecedents and Consequences of Consumers' Lead Userness*

Lead users are found to come up with commercially attractive user innovations and have been shown to be a highly promising source of innovation for new product development tasks. According to lead‐user theory, these users are defined as being ahead of an important market trend and experiencing high benefits from innovating. The present article extends lead‐user theory by exploring the antecedents and consequences of consumers' lead userness in the course of three studies on extreme sports communities. Regarding antecedents, it uncovers that field‐related variables (consumer knowledge and use experience) as well as field‐independent personality variables (locus of control and innovativeness) help explain an individual's lead userness. These variables might therefore be used as a proxy to identify the rare species of lead users. With regard to consequences, it uncovers that lead users demonstrate innovative behavior not only by creating new product ideas but also by adopting new commercial products more heavily and faster than ordinary users. This highlights the idea that lead users might not only be valuable to idea‐generation processes for radically new concepts; instead, they might also be relevant to more general issues in the marketing of new products.     

Referrals in search markets

This paper compares the equilibrium outcomes in search markets with and without referrals. Although it seems clear that consumers would benefit from referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage consumers to purchase the product elsewhere. In a model of a horizontally differentiated product market with sequential consumer search, we show that valuable referrals can arise in the equilibrium: a firm will give referrals to consumers whose ideal product is sufficiently far away from the firm's offering. We allow firms to price-discriminate among consumers, and consumers to misrepresent their tastes. We found that the equilibrium profits tend to be higher in markets with referrals than in markets without. Consumers tend to be better off in the presence of referrals when search costs are not too low, and under a certain parameter range, referrals lead to a Pareto improvement.     

In the Eye of the Beholder? The Effect of Product Appearance on Shareholder Value

In times of convergence with regard to product functionality and performance, the appearance of a product constitutes an important source of competitive advantage. Astonishingly, only a few studies have empirically examined the relationship between design‐related aspects and firm value. Moreover, existing studies predominantly use accounting‐based and/or subjective performance measures. Against this background, the present work assesses the contribution of the three most important product design dimensions (i.e., aesthetic, ergonomic, and symbolic value) to the creation of firm value in the context of the automotive and consumer electronics industry. To do so, we examine stock market reactions to the unveiling of a new product's appearance to the public using event study methodology. In particular, we combine perceptual data at the consumer level with stock market data to examine how target consumers' perceptions of the aforementioned design dimensions are related to abnormal returns following the unveiling of a new product. Results reveal that ergonomic value is positively related to abnormal returns, while aesthetic value only exerts a significant positive effect on abnormal returns if the product also exhibits a certain degree of functional product advantage. Finally, symbolic value exerts a negative influence on stock market reactions. These findings have important implications for the allocation of design‐related investments to aesthetic, ergonomic, and symbolic design features.     

CPF stocks: Prices,returns and volatility

We identify a unique phenomenon in the Central Provident Fund (CPF) stocks where stock prices increase in the absence of fundamental changes in firm value. CPF stocks are stocks endorsed by the Central Provident Fund Board in Singapore as approved investment for its members. CPF stocks offer significant price appreciation and value preservation as well as abnormal returns in the bull market before the October 1987 market crash. We find evidence of noise trading in bull markets and price pressure effects that persist through bearish market conditions.The authors are from the Department of Finance and Banking, National University of Singapore.     

Launch Decisions and New Product Success: An Empirical Comparison of Consumer and Industrial Products

Many articles have investigated new product development success and failure. However, most of them have used the vantage point of characteristics of the product and development process in this research. In this article we extend this extensive stream of research, looking at factors affecting success; however, we look at the product in the context of the launch support program. We empirically answer the question of whether successful launch decisions differ for consumer and industrial products and identify how they differ. From data collected on over 1,000 product introductions, we first contrast consumer product launches with industrial product launches to identify key differences and similarities in launch decisions between market types. For consumer products, strategic launch decisions appear more defensive in nature, as they focus on defending current market positions. Industrial product strategic launch decisions seem more offensive, using technology and innovation to push the firm to operate outside their current realm of operations and move into new markets. The tactical marketing mix launch decisions (product, place, promotion and price) also differ markedly across the products launched for the two market types. Successful products were contrasted with failed products to identify those launch decisions that discriminate between both outcomes. Here the differences are more of degree rather than principle. Some launch decisions were associated with success for consumer and industrial products alike. Launch successes are more likely to be broader assortments of more innovative product improvements that are advertised with print advertising, independent of market. Other launch decisions uniquely related to success per product type, especially at the marketing mix level (pricing, distribution, and promotion in particular). The launch decisions most frequently made by firms are not well aligned with factors associated with higher success. Additionally, comparing the decisions associated with success to the recommendations for launches from the normative literature suggests that a number of conventional heuristics about how to launch products of each type will actually lead to failure rather than success.     

The Markets for Real Estate Assets and Space: A Conceptual Framework

In this study, we present a simple analytic framework that divides the real estate market into two markets: the market for real estate space and the market for real estate assets. After describing the size and character of flows and stocks in the U.S. real estate market, we use our framework to demonstrate the important connections between the space and asset markets. We illustrate how these real estate markets are affected by the nation's macroeconomy and financial markets, tracing out the impacts resulting from various exogenous shocks on rents, asset prices, construction and the stock of real estate.     

中美市场投资者惯性和反转交易偏好的实证研究

为了探索中国和美国证券市场的惯性和反转收益异常现象差异,本文参考了Jegedeesh和Titman的累计超额收益CAR研究方法,选取了2000年1月~2020年2月美国证券市场和中国证券市场股票数据构建了不同时期的收益期和检验期惯性和反转策略。为了检验结果的稳健性,本文还加入24个月和36个月的窗口期。同时,为了比较两国投资者之间的投资差异,本文构建惯性策略并选取企业规模、价值和波动3个指标来衡量两国间投资者差异。结果表明整体美国市场短期内具有明显的动量效应,而中国市场在短、中、长期都具有显著的反转效应。两个市场中,中国市场的投资者偏好小市值、高成长价值和高波动性的股票,而美国投资者则偏向大市值股票和低波动性股票。基于两个市场的差异(新兴市场和有效市场),本文找到了一些美国市场的先进投资经验,它对规范我国投资市场有重要的借鉴意义。     

The Integration of Commercial Real Estate Markets and Stock Markets

This paper tests whether commercial real estate markets (both exchange-traded and non-exchange-traded) are integrated with stock markets using multifactor asset pricing models. The results support the hypothesis that the market for exchange-traded real estate companies, including REITs, is integrated with the market for exchange-traded (non-real-estate) stocks. Moreover, the degree of integration has significantly increased during the 1990s. However, when appraisal-based returns (adjusted for smoothing) are used to construct real estate portfolio returns, the results fail to support the integration hypothesis, although this may reflect the inability of these estimated private market returns to accurately proxy for commercial real estate returns. Interestingly, the growth rate in real per capita consumption is consistently priced in both commercial real estate markets and stock markets, whereas previous studies have found mixed evidence on the role of consumption in explaining ex ante stock returns.     

Linking Product Development Outcomes to Market Valuation of the Firm: The Case of the U.S. Pharmaceutical Industry*

The purpose of this research was to examine empirically the effects of new product development outcomes on overall firm performance. To do so, first product development and finance literature were connected to develop three testable hypotheses. Next, an event study was conducted in order to explore whether the changes in the stock market valuation of firms are influenced by the outcomes of efforts to develop new products. The pharmaceutical industry was chosen as the empirical context for the present study's analysis largely because the gate‐keeping role played by the Food and Drug Administration (FDA) provides a specific event date on which to focus the event study methodology. As such, this study's events were dates of public announcements of the FDA decisions to approve or to reject the New Drug Applications submitted by the sponsoring firms. Consistent with the efficient market hypothesis, this study's results show that market valuations are responsive strongly and cleanly to the success or failure of new product development efforts. Hence, one of this study's key results suggests that financial markets may be attuned sharply to product development outcomes in publicly traded firms. This study also finds that financial market losses from product development failures were much larger in magnitude than financial market gains from product development successes—indicating an asymmetry in the response of financial markets to the success and failure of new product development efforts. Hence, another implication of this study's results is that managers should factor in a substantial risk premium when considering substantial new development projects. The present study's results also imply that managers should refrain from hyping new products and perhaps even should restrain the enthusiasm that the financial community may build before the product fully is developed. The effect on firm value is severe when expectations about an anticipated new product are not fulfilled. Managers in effect should take care to build reasonable and realistic expectations about potential new products.     

MARKET SEGMENTATION WITH NONLINEAR PRICING*

We study the benefits and drawbacks of allowing firms to offer different price‐quality menus to captive consumers and to consumers more exposed to competition (market segmentation). We show that the effect of market segmentation depends on the relationship between the range of consumer preferences found in captive and competitive markets. When the range of consumer preferences in captive markets is ‘wide,’ segmentation is quality and (aggregate) welfare reducing, while the opposite holds when the range of consumer preferences in captive markets is ‘narrow.’ Segmentation always harms captive consumers, while it always benefits consumers located in competitive markets.     

Commercializing Technological Innovation: Learning from Failures in High‐Tech Markets*

Commercialization is known to be a critical stage of the technological innovation process, mainly because of the high risks and costs that it entails. Despite this, many scholars consider it to be often the least well managed phase of the entire innovation process, and there is ample empirical evidence corroborating this belief. In high‐tech markets, the difficulties encountered by firms in commercializing technological innovation are exacerbated by the volatility, interconnectedness, and proliferation of new technologies that characterize such markets. This is clearly evinced by the abundance of new high‐tech products that fail on the market chiefly due to poor commercialization. Yet there is no clear understanding, in management theory and practice, of how commercialization decisions influence the market failure of new high‐tech products. Drawing on research in innovation management, diffusion of innovation, and marketing, this article shows how commercialization decisions can influence consumer acceptance of a new high‐tech product in two major ways: (i) by affecting the extent to which the players in the innovation's adoption network support the new product; (ii) by affecting the post‐purchase attitude early adopters develop toward the innovation, and hence the type of word‐of‐mouth (positive or negative) they disseminate among later adopters. Lack of support from the adoption network is found to be an especially critical cause of failure for systemic innovations, while a negative post‐purchase attitude of early adopters is a more significant determinant of market failure for radical innovations. There follows a historical analysis of eight innovations launched on consumer high‐tech markets (Apple Newton, IBM PC‐Junior, Tom Tom GO, Sony Walkman, 3DO Interactive Multiplayer, Sony MiniDisc, Palm Pilot, and Nintendo NES), which illustrates how commercialization decisions (i.e., timing, targeting and positioning, inter‐firm relationships, product configuration, distribution, advertising, and pricing) can determine lack of support from the innovation's adoption network and a negative post‐purchase attitude of early adopters. The results of this work provide useful insights for improving the commercialization decisions of product and marketing managers operating in high‐technology markets, helping them avoid errors that are precursors of market failure. It is also hoped the article will inform further research aimed at identifying, theoretically and empirically, other possible causes of poor customer acceptance in high‐tech markets.     

Cross‐Border Mergers and Market Segmentation

This paper shows that cross‐border mergers are more likely to occur in industries which serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. The product price rises in the market where an acquisition is made but falls in the other, decreasing the acquisition price of other firms (in contrast to the results in the existing merger literature on integrated markets). Although the sum of consumer surplus across the countries may rise in response to a given acquisition, one of the countries gains at the expense of the other.     

Constraints in acquiring and utilizing directors' experience: An empirical study of new‐market entry in the pharmaceutical industry

In this study we provide evidence that firms considering entering new markets are more likely to appoint directors with experience in those markets; and subsequently, we show that directors' market experience increases the likelihood of new‐market entry. Moreover, we explore the presence of constraints in both, acquiring experienced directors and utilizing their experience. Specifically, we find that experienced directors are less likely to join firms with financial restatements in the recent past as well as firms with a lower status than the firms where they currently serve. In addition, we find that interlocking directors' experience is less likely to lead to new‐market entry for firms that lack new‐product development experience and that exhibit a high level of market overlap with interlocked firms. Copyright © 2013 John Wiley & Sons, Ltd.     

Product Development for the BoP: Insights on Concept and Prototype Development from University‐Based Student Projects in India

In recent years, market‐based approaches have been proposed for the base of the pyramid (BoP). However, the literature offers little theoretical or practical guidelines for innovative product development for what are radically new market contexts for most businesses in advanced economies. Considering that product development is a fundamental activity in a market economy, and that much BoP consumer welfare potentially arises from innovative and affordable goods and services that can solve critical life needs, this is a substantial gap in knowledge. This paper attempts to address this gap by using an analysis of 13 year‐long university projects on BoP‐focused concept and prototype development conducted between 2006 and 2010. An inventory of research propositions is developed that identifies factors necessary for effective product development for BoP markets. Implications for new product development research and practice are discussed.     

Anti‐Competitive Interconnection: the effects of the elasticity of consumers' expectations and the shape of the network effects function

I find that interconnection might cause the market to be less competitive, and might lead to an increase in the price firms charge for their product. Absent interconnection, firms compete for a consumer for two reasons. The first reason is to obtain revenue from selling the product to a consumer (as in the case without network effects). The second reason is that by expanding the network by one more consumer, the product becomes more attractive to all other consumers. Interconnection eliminates the second reason—when firms interconnect, they are no longer concerned with consumers' following the crowd. I show that consumers and society might be worse off from interconnection. I focus on two factors that make the (post‐interconnection) price increase larger: consumer expectations that are highly sensitive to prices and consumers putting a high value on small increases in network size at the equilibrium market shares. Both of these factors make firms highly competitive, but only if the firms' products' networks are not interconnected.