How New Product Introductions Affect Sales Management Strategy: The Impact of Type of "Newness" of the New Product

How do firms adjust sales management strategy for new product launch? Does sales management strategy change more radically for different types of new products such as new‐to‐the‐world products versus product revisions? Because firms introducing a new product rely considerably on their sales force in the product launch effort, the types and degree of changes made in managing the selling effort are important issues. Past studies have demonstrated that firms make substantial adjustments in their sales management strategy when they introduce a new product. This study expands on previous investigations by examining whether sales management strategy changes are conditioned by the type of newness of the new product to the market and to the firm. Australian sales managers were asked to respond to a mail questionnaire concerning pre‐ and post‐new product launch sales management activities. Three groups of firms were compared: (1) those with new‐to‐the‐market and new‐to‐the‐firm products (i.e., new‐to‐the‐world products); (2) those with products new to the firm but not new to the market; and (3) those with products that are revisions to the firm and not new to the market. The study finds that firms do not make the most adjustments for products with the greatest degree of market newness—the new‐to‐the‐world types of products—except in the sales management strategy categories of compensation and supervision. In the other sales management strategy categories defined for study—organization, training, quotas and goals, and sales support as well as for all categories in the aggregate—sales management strategy changes were greatest in incidence, as measured both by the percent of firms making changes and the average number of changes per firm, when the new product was new to the firm but not new to the market. These results suggest that, because different types of new products face different competitive environments, there may be greater incentive for a not‐new‐to‐the‐market new‐to‐the‐firm product to make changes in sales strategy. Uncertainties about market size and customer location with new‐to‐the‐world products may limit the understanding of what changes to make in the strategy categories of quotas and territories. Similarly, uncertainties about product use and customer acceptance of new‐to‐the‐world products may limit the development of training and sales support materials by these firms. Instead, these firms may rely more on compensation and supervision to direct sales efforts for new‐to‐the‐world products. However, observing the market experience and performance of the first‐to‐market product can benefit firms launching a not‐new‐to‐market and new‐to‐the‐firm product, allowing them to rely more on strategy changes in training, sales support materials, organizational adjustments such as redeployments, and quotas.     

Understanding the trade-off between familiarity and newness in product innovation

Studying the trade-off between developing new products that exploit a focal firm's familiar current knowledge resources and developing new products that explore knowledge resources that are new to the firm, we show that new products perform better when the new products are neither too familiar nor new to the firm, in contrast to the findings reported in prior research indicating that both types of new products are positively related to new product performance. The results were consistent for the familiarity and newness of both technological and market knowledge. In addition, the study revealed that while focal firms' inter-organizational network ties involving their supplier firms attenuated the potential negative impacts of technological familiarity and newness, their inter-organizational network ties involving their buyer firms lessened the potential negative impacts of the familiarity and newness of market knowledge that their new products required.     

MANAGERIAL INCENTIVES AND THE PRICE EFFECTS OF MERGERS*

Most analysis of market power assumes that managers are perfect agents for shareholders. This paper relaxes that assumption. When managers of a multi‐product firm exert unobservable effort to improve product quality, there is a trade‐off between providing adequate effort incentives and ensuring sufficient price‐coordination between the product divisions. This makes some intra‐firm price competition optimal, explaining why many multi‐product firms allow for competition between divisions. When there are effort spillovers, the optimal amount of price competition can be as great as when the products are under separate ownership. Even with some profit‐sharing, intra‐firm price competition can reduce quality‐adjusted price, which has important implications for antitrust policy.     

Risky quality choice

In vertical product differentiation with a stochastic research technology, firms should target their research at different quality levels for efficiency. In a natural monopoly where the top firm finds it most profitable to sell to the whole market, the incentives for risk-taking and for firms to differentiate their targeted qualities are optimal. In a natural oligopoly (which results when there is sufficient dispersion of tastes), the relationship between a firm’s payoff and its quality improvement over other firms is weakened. This diminishes the firms’ incentives to differentiate and the targeted qualities are too low and too close together.     

Standardization Alliance Networks,Standard-Setting Influence,and New Product Outcomes*

Standardization alliances evolve through collaborations among firms for developing and implementing industry technical standards. Cooperative standard setting can help allied firms to gain access to external knowledge and technologies, but it is unclear how the configuration of a standardization alliance can result in improving a firm’s performance in new product development. This study examines how standardization alliance network-based resource advantages vary across a firm’s network position and the firm’s ability to influence industry standard setting and new product outcomes. Empirical analyses, based on archival data from 170 Chinese automobile manufacturers from 1999 to 2013, indicate that firms that span structural holes in standardization alliance networks gain an advantage when focusing on early new product introductions but suffer a disadvantage when aiming at more innovative products. In contrast, taking a central position in standardization alliance networks is negatively related to a firm’s speed in bringing new products to market but positively related to the firm’s new product introduction rate. Further, standard-setting influence significantly mediates the effect of network position on a firm’s new product speed to market. Increasing centrality and structural holes can lead to the improvement of a firm’s standard-setting influence, and this, in turn, positively affects speed to market.     

The Survival of New Products

We study the survival of new products in a market with horizontal product differentiation and rapid product turnover. Our data set consists of monthly sales for all new products in the Swedish beer market during 1989–1995. Results show that products with low and decreasing market shares have high hazard rates. The hazard rates are also dependent on firm characteristics; products from firms with the largest market shares face a greater risk of being withdrawn. We argue that high hazard rates of new products can help to explain high failure rates of new firms.     

Ordered to Innovate: A Longitudinal Examination of the Early Periods of a New Product Development Process Implementation in a Manufacturing Firm

Firms can generate rather long‐lasting growth spurts through continuous innovation. Moreover, literature suggests that, when growing organically, firm performance is enhanced through a revenue expansion emphasis encompassing new‐to‐the‐world or new‐to‐the‐firm physical goods or service augmentations. This organic approach usually outperforms cost‐reduction programs, which often yield minor improvements to existing products; or an emphasis on simultaneous revenue expansion and cost reduction. While this finding has the major implication that firms should focus and generate more radical new products for long‐term success, there is need for research that investigates how firms should implement the strategy change to organic growth via innovation. The authors present a case study, which suggests that in the short run, it might be better to commence a revenue expansion strategy by focusing on incremental new product development (NPD) efforts, rather than focusing too much on new‐to‐the‐world or new‐to‐the‐firm products. Moreover, analyses of the rich, multimethod data, collected over a two‐and‐a‐half‐year interaction with the focal firm, illustrates that to increase success prospects of an organic innovation strategy, managers should not only engage incrementally innovative new product projects initially, but also ensure proficiency in commercializing the new product with cross‐functional NPD teams. Thus, in early stages of organization transformation, the merits of the organic growth strategy will be swiftly demonstrated, the cross‐functional teaming skills are learned and tested, and the new strategy becomes institutionalized. While somewhat contradictory to other studies on this topic, this more evolutionary exploration provides a new perspective for organizational change, especially when a firm is ordered to innovate. In conclusion, the insights gleaned in this study shed light on the journey from stagnating firm to a successful serial innovator via formalized NPD process implementation.     

Non-linear pricing and conscious consumption

We consider a duopolistic market in which a green firm competes with a brown rival and each firm sells two quality-differentiated products. We study optimal non-linear contracts offered by the two firms when consumers: (i) Are privately informed about their willingness to pay for quality, and (ii) differ in their environmental consciousness. We characterize how consumers with different valuations for quality self-select into firms and show that the ranking of qualities, relative prices and profits all depend on the interplay between consumers’ valuations and firms’ cost heterogeneity. Interestingly, when consumers’ valuations for quality are relatively low, the brown firm does not offer a low-quality variety. This contrasts with the situation of full information, in which both firms commercialize a high- and a low-quality variety. Hence, the lack of information about consumers’ valuations may not only favor the green firm in terms of higher prices and profits, but also reduce the product range offered by the brown rival.     

How Do Interaction Activities among Customers and between Customers and Firms Influence Market Performance and Continuous Product Innovation? An Empirical Investigation of the Mobile Application Market

Mobile application markets (MAMs) significantly differ from other existing marketplaces at least in two aspects. First, customers (app users) and firms (app providers) frequently interact with each other in real time, which is not common in the conventional marketplaces. Second, many app providers incorporate customers’ opinions or suggestions into their software upgrades, representing one of the most unique and interesting aspects of MAMs. Therefore, it has become critical to understand the impact of interaction activities not only among customers, but also between customers and firms on the market performances of new products in MAMs. One of the most significant issues firms face is whether firms reflect on customers’ postpurchase interaction activities, and the next interesting question is how firms respond to them. This study explores the effects of customer‐to‐customer (C2C), customer‐to‐firm, and firm‐to‐customer interaction activities on market performance. In addition, this study investigates how communication activities influence a firm's tendency to pursue continuous product innovation through research and development (R&D). Using data obtained from a major MAM, T store, three models that are respectively related to product sales, product lifetime, and a firm's R&D activity for product upgrades, are applied to empirically test hypotheses concerning the effects of interaction activities. In our analyses of market performance, a hierarchical log regression model with 10,840 weekly transactions data set related to product sales (model A) and 291 aggregate transactions related to product lifetime (model B) is used. Results indicate that C2C and customer‐to‐firm communication activities have a positive impact on sales, but little relationship with product lifetime. However, a firm's continuous product R&D has a positive impact on both sales and lifetime performance. Our analysis of a firm's R&D (model C) shows that C2C and customer–firm communication increases a firm's R&D activity. Taken together, these results have important implications for customer–firm interactions, market performance, and R&D strategies.     

The Form of Relationship between Firm‐Level Product Innovativeness and New Product Performance in Developed and Emerging Markets

This study compares the new product performance outcomes of firm‐level product innovativeness across a developed and emerging market context. In so doing, a model is constructed in which the relationship between firm‐level product innovativeness and new product performance is anticipated to be curvilinear, and in which the nature of this relationship is argued to be dependent on organizational and environmental factors. The model is tested using primary data obtained from chief executive officers and finance managers in 319 firms operating in the United Kingdom, an advanced Western market, and 221 firms from Ghana, an emerging Sub‐Saharan African market. The model is assessed using a structural equation model multigroup analysis approach with LISREL 8.5. In the United Kingdom and Ghana, the basic form of the relationship between firm‐level product innovativeness and business success is inverted U‐shaped, but the strength and/or form of this relationship changes under differing levels of market orientation, access to financial resources, and environmental dynamism. While commonalities are identified across the two countries (market orientation helps firms leverage their product innovativeness), differences are also observed across the samples. In Ghana, access to financial resources enhances the relationship between product innovativeness and new product performance, unlike in the United Kingdom where no moderation is observed. Furthermore, while U.K. firms leverage product innovativeness to their advantage in more dynamic environments, Ghanaian firms do not benefit in this way: here, high levels of innovation activity are less useful when markets are more dynamic. If the study's findings generalize, there are a number of implications for managers of both emerging and developed market businesses. First, managers in both developed and developing market firms should focus on determining and managing an optimal balance of novel and intensive product innovativeness within the context of their unique institutional environments. Second, for emerging market firms, a market orientation capability helps businesses leverage local market intelligence, enabling them to compete with multinational giants flocking to emerging markets, but typical developed market learning approaches may be insufficient for multinational firms when seeking to compete in emerging markets. Third, for emerging market firms, access to finances helps deliver product innovation success (although this is not the case for developed market firms, possibly due to strong financial institutions). Finally, unlike developed market firms, burdened by institutional voids at home, emerging market firms appear to be less capable of competing on an innovation front in more dynamic market conditions. Accordingly, policymakers in emerging markets should consider identifying ways to help businesses raise market orientation levels, and seek to create conditions that enhance access to financial capital (e.g., direct financing, matching grants, tax rebates, or rewarding firms that innovate creatively and intensely). Likewise, since environmental dynamism is likely to be a growing issue for emerging markets, efforts to help firms become more adept at keeping up with more agile developed market counterparts are needed.     

Orchestrating resources for FMA in coopetitive NPD

The rapid introduction of new products in high‐tech industries is a key competence for firms wanting to benefit from the first‐mover advantage (FMA). Prior studies call for forging links between FMA and the resource‐based view, as the resources at the disposal of a firm tend to influence the likelihood and timing of market entry. Analysing the way firms orchestrate internal and external resources enables a better understanding of this link. More precisely, synchronising the combination of internal and external resources is important in determining the development time of new products. This issue becomes vital when the NPD process regroups competitors due to the short age of the acquired knowledge. An in‐depth case study of the product development strategies of four competitors that collaborated to develop Ethernet solutions identifies three different product introduction strategies based on different resource orchestrations and timing: pioneer, wise and slow. The firms that structured their resources early to make them available for bundling during coopetition were able to introduce products faster than firms that structured their resources during coopetition. Furthermore, our results show that only prepared firms are able to reap benefits from knowledge gained through coopetitive NPD.     

Competitive drivers and international plant configuration strategies: a product‐level test

We analyze the determinants of the decision to invest abroad and the choice of spatial configurations of overseas plants for 120 Japanese firms active in 36 well‐defined electronic product markets. We find that key competitive drivers at the firm and industry levels have a critical impact on the choice between alternative international plant configurations. Regional configurations focused on Asia are chosen by firms with weaker competitiveness for products with established manufacturing technologies. Plant configurations focused on the United States and the European Union are chosen by technology‐intensive firms facing competitive threats in foreign markets. Global configurations are chosen by firms with a strong competitive position in the Japanese and world market for their core product businesses and are more common in the case of strong oligopolistic rivalry between Japanese firms. Copyright © 2005 John Wiley & Sons, Ltd.     

Exploring Mediating and Moderating Influences on the Links among Cycle Time,Proficiency in Entry Timing,and New Product Profitability*

Development cycle time is the elapsed time from the beginning of idea generation to the moment that the new product is ready for market introduction. Market‐entry timing is contingent upon the new product's cycle time. Only when the product is completed can a firm decide whether and when to enter the market to exploit the new product's window of opportunity. To determine the right moment of entry a firm needs to correctly balance the risks of premature entry and the missed opportunity of late entry. Proficient market‐entry timing is therefore defined as the firm's ability to get the market‐entry timing right (i.e., neither too early nor too late). The literature has produced divergent evidence with regard to the effects of development cycle time and proficiency in market‐entry timing on new product profitability. To explain these disparities this study (1) explores the mediating roles of development costs and sales volume in the relationships among development cycle time, proficiency in market‐entry timing, and new product profitability, respectively; and it (2) explores the moderating influence of product newness on the relationship between development cycle time and development costs and that of new product advantage on the link between proficiency in market‐entry timing and sales volume. The results from a survey‐based study of 72 manufacturers of industrial products in the Netherlands suggest that development costs mediate the relationship between development cycle time and new product profitability and that sales volume mediates the link between proficiency in market‐entry timing and new product profitability. In addition, the findings indicate that new product advantage strengthens the positive relationship between proficiency in market‐entry timing and sales volume. The results provide no evidence for a moderating effect of product newness. These results have important implications because to maximize new product profitability managers need to distinguish between costs and demand side effects of development cycle time and market‐entry timing on new product profitability. Keeping this distinction in mind should help them to better determine the relative profit impact of investments in cycle time reduction or improved entry timing. Moreover, the findings suggest that highly advantaged products that enter the market at the right time may have a highly attenuated sales volume. It also implies that new products with lower advantage may have very little leeway in hitting the “sweet spot” in market. The message is that “doing the right thing” (i.e., to develop a highly advantaged new product) may be at least as important as correctly balancing the risks of premature entry and the missed opportunity of late entry.     

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.     

Niche and performance: the moderating role of network embeddedness

What is the relationship between niche and performance? We identify two types of niche positions—product niche and process niche—defined by the extent to which a firm offers distinctive products and has distinctive operational processes, respectively. We argue that the effect of each niche on firm performance is contingent upon network embeddedness—the extent to which a firm is involved in a network of interconnected inter‐firm relationships. Using data covering the period 1995–98 pertaining to venture capital firms and their holdings in initial public offerings (IPOs), we show that both product niche and process niche interact with network embeddedness to determine firm performance. Our findings suggest that the extent to which a firm offers distinctive products or processes will be more positively associated with firm performance when network embeddedness is high. Copyright © 2004 John Wiley & Sons, Ltd.     

The Antitrust Implications of Capacity Reallocation by a Dominant Firm

When a firm acquires rival firms in one market, and moves their capacity to another market, should antitrust authorities be concerned? We address this question by studying a multi‐stage game. A dominant firm has the opportunity to acquire fringe firms that operate in the same market. Then, the dominant firm has the opportunity to move capacity from that market to a second market. The model is motivated by a series of acquisitions in the Specialized Mobile Radio industry aimed at establishing a new cellular carrier. We derive necessary and sufficient conditions for the dominant firm to acquire too little capacity relative to the social optimum. The results shed light on the Consent Decree negotiated in US v. Motorola Inc. and Nextel Communications Inc., 1994.     

Exploration and exploitation alliances in biotechnology: a system of new product development

We link the exploration–exploitation framework of organizational learning to a technology venture's strategic alliances and argue that the causal relationship between the venture's alliances and its new product development depends on the type of the alliance. In particular, we propose a product development path beginning with exploration alliances predicting products in development, which in turn predict exploitation alliances, and that concludes with exploitation alliances leading to products on the market. Moreover, we argue that this integrated product development path is moderated negatively by firm size. As a technology venture grows, it tends to withdraw from this product development path to discover, develop, and commercialize promising projects through vertical integration. We test our model on a sample of 325 biotechnology firms that entered 2565 alliances over a 25‐year period. We find broad support for the hypothesized product development system and the moderating effect of firm size. Copyright © 2004 John Wiley & Sons, Ltd.     

New Product Development Practices and Early‐Stage Firms: Two In‐Depth Case Studies

New product development practices (NPD) have been well studied for decades in large, established companies. Implementation of best practices such as predevelopment market planning and cross‐functional teams have been positively correlated with product and project success over a variety of measures. However, for small new ventures, field research into ground‐level adoption of NPD practices is lacking. Because of the risks associated with missteps in new product development and the potential for firm failure, understanding NPD within the new venture context is critical. Through in‐depth case research, this paper investigates two successful physical product‐based early‐stage firms' development processes versus large established firm norms. The research focuses on the start‐up adoption of commonly prescribed management processes to improve NPD, such as cross‐functional teams, use of market planning during innovation development, and the use of structured processes to guide the development team. This research has several theoretical implications. The first finding is that in comparing the innovation processes of these firms to large, established firms, the study found several key differences from the large firm paradigm. These differences in development approach from what is prescribed for large, established firms are driven by necessity from a scarcity of resources. These new firms simply did not have the resources (financial or human) to create multi‐ or cross‐functional teams or organizations in the traditional sense for their first product. Use of virtual resources was pervasive. Founders also played multiple roles concurrently in the organization, as opposed to relying on functional departments so common in large firms. The NPD process used by both firms was informal—much more skeletal than commonly recommended structured processes. The data indicated that these firms put less focus on managing the process and more emphasis on managing their goals (the main driver being getting the first product to market). In addition to little or no written procedures being used, development meetings did not run to specific paper‐based deliverables or defined steps. In terms of market and user insight, these activities were primarily performed inside the core team—using methods that again were distinctive in their approach. What drove a project to completion was relying on team experience or a “learn as you go approach.” Again, the driver for this type of truncated market research approach was a lack of resources and need to increase the project's speed‐to‐market. Both firms in our study were highly successful, from not only an NPD efficiency standpoint but also effectiveness. The second broad finding we draw from this work is that there are lessons to be learned from start‐ups for large, established firms seeking ever‐increasing efficiency. We have found that small empowered teams leading projects substantial in scope can be extremely effective when roles are expanded, decision power is ground‐level, and there is little emphasis on defined processes. This exploratory research highlights the unique aspects of NPD within small early‐stage firms, and highlights areas of further research and management implications for both small new ventures and large established firms seeking to increase NPD efficiency and effectiveness.     

Launch decisions and competitive reactions: an exploratory market signaling study

When firms launch a new product into the marketplace they often aim to find a balance between building scale and provoking extensive and quick competitive reactions. Competitors react to new products when they perceive the product introduction as hostile, committed or when they feel that the product entry will have a large impact on their profitability. The present study develops a framework that shows how strong and fast incumbents react to perceived market signals resulting from a new product's launch decisions (broad targeting, penetration pricing, advertising intensity and product advantage). The strength of the relationships between the launch decisions and the perceived market signals was expected to depend on one industry characteristic (i.e., market growth) and on one entrant characteristic (i.e., aggressive reputation). We distinguished three market signals in our framework: hostility, commitment and consequences. Signal hostility refers to the extent to which the approach used by an acting firm to introduce the new product is perceived hostile whereas the commitment signal refers to the extent to which incumbents perceive the entrant firm to be committed to the new product introduction. The consequence signal is defined as the incumbents' perception of the impact of a new product entry on their profitability. We tested our framework using cross‐sectional data provided by 73 managers in The Netherlands who recently reacted to a new product entry. The results clearly reveal which launch decisions create which market signals. For example, incumbents consider high advantage new products hostile and consequential. Penetration pricing and an intense advertising campaign are also considered hostile, especially in fast growing markets. Broad targeting is not perceived hostile, especially not when used by entrants with an aggressive reputation. In addition, this study explored the impact of three perceived market signals on the strength and speed of competitive reaction. The results reveal that perceived signals of hostility and commitment positively impact the strength of reaction, whereas the perceived consequence signal positively impacts the speed of reaction. The article concludes with the implications of our study for managers and academics. The relevance to managers was assessed from both the perspective of the incumbent firm that must defend, and that of the rival firm that is introducing the new product.     

Alleviating managerial dilemmas in human‐capital‐intensive firms through incentives: Evidence from M&A legal advisors

Research summary: We examine how human‐capital‐intensive firms deploy their human assets and how firm‐specific human capital interacts with incentives to influence this deployment. Our empirical context is the UK M&A legal market, where micro‐data enable us to observe the allocation of lawyers to M&A mandates under different incentive regimes. We find that law firms actively equalize the workload among their lawyers to seek efficiency gains, while “stretching” lawyers with high firm‐specific capital to a greater extent. However, lawyers with high firm‐specific capital also appear to influence the staffing process in their favor, leading to unbalanced allocations and less sharing of projects and clients. Paradoxically, law firms may adopt a seniority‐based rent‐sharing system that weakens individual incentives to mitigate the impact of incentive conflicts on resource deployment. Managerial summary: The study highlights the dilemmas when professional service firms allocate their key individuals to incoming projects, and the role that monetary incentives play in aggravating or alleviating these dilemmas. In the context of UK M&A law firms, we find that partners have a tendency to be attached to too many projects and not to share enough work, which is exacerbated when individual monetary incentives are stronger. Firms adopting a seniority based incentive system (lockstep system) are able to alleviate this effect. This implies that there is a trade‐off between rewarding personal performance versus balancing workloads and fostering collaboration among professionals. Copyright © 2015 John Wiley & Sons, Ltd.