Across the threshold: Role of performance and compatibility in innovative new products' market penetration

Both academicians and practitioners agree that there exists a critical threshold to cross for an innovative new product to be able to achieve ultimate market penetration. In this article, the authors characterize the threshold as depending upon innovation characteristics: performance and compatibility, in particular. Based on the insights from evolutionary games, several numerical simulations are conducted to investigate how the critical threshold changes as each parameter representing the innovation characteristics undergoes a change. The analysis results confirm that relative advantage and compatibility are of critical influence in impacting the threshold and thus the successful market entry. Moreover, the effect size was different depending on the size of the firm's proprietary customer base. Based on the findings, discussion on new product design strategies for companies having different market positions (i.e., new start-up firms, established firms, and incumbent market leaders) is provided.