The timing of new product launch

TABLE OF CONTENTS

1  INTRODUCTION  1

2  IDENTIFYING THE KEY SUCCESS FACTORS IN NEW PRODUCT LAUNCH  

  BY DI BENEDETTO  1

3  UNDERSTANDING MARKET ENTRY TIMING DECISIONS:  THE

  PRACTITIONER-ACADEMIC GAP BY DACKO  3

4  FIRST-MOVER ADVANTAGES BY LIEBERMAN AND MONTGOMERY  6

5  NEW PRODUCT LAUNCH STRATEGY FOR NETWORK EFFECTS  

  PRODUCTS BY LEE AND O CONNOR  7

6  TIMING ORDER AND DURABILITY OF NEW PRODUCT ADVANTAGES  

  WITH IMITATION BY LEE SMITH GRIMM AND SCHOMBURG  8

7  THE TIMING OF COMPETITIVE MARKET ENTRY AN EXPLORATORY  

  STUDY OF NEW INDUSTRIALIZED PRODUCTS BY LILIEN AND YOON  10

8  PREDICTING ORDER AND TIMING OF NEW PRODUCT MOVES - THE  ROLE

  OF TOP MANAGEMENT IN CORPORATE ENTREPRENEURSHIP  BY

  SRIVASTAVA AND LEE  12

9  SYNTHESIS  15

9.1  The Order of New Product Launch  15

9.1.1  The first mover  15

9.1.2  The second and later mover  17

9.1.3  General tasks  17

9.1.4  Consequences of being the first- mover and later-mover  18

9.1.5  Discussion  18

9.2  The Exact Timing of New Product Launch  20

9.2.1  Product Life Cycle  20

9.2.2  Customer Demand  21

9.2.3  Company Resources  21

10  CONCLUSIONS  22

  List of references  

1 Introduction

The purpose of this paper is to review a couple of scientific articles and then make a synthesis of all of them. The seminal article for this study was “Identifying the key success factors in new product launch” written by Anthony Di Benedetto. The article deals with different factors that should be taken into account when a firm is launching a new product. Those factors are studied more specifically in the chapter 2. At the end of the article suggestions for further studies are given. It is stated that the timing of new product launch has been relatively underresearched topic despite of its high importance. That is why this paper focuses on this interesting topic more specifically.

Six articles have been gathered that deal with timing of new product launch. All of the articles approach the subject from different angles but they still share some common characteristics. Points of interest include for example advantages and disadvantages of being a first-mover or later-mover and the different situations that require different actions from companies planning to launch new products.

In the next seven chapters all of the articles will be shortly reviewed. Reviews focus mostly on the timing of new product launch even though the articles might include other issues as well. Chapter 9 links the articles together and chapter 10 draws conclusions about the topic.

2 “Identifying the Key Success Factors in New Product

Launch” by Di Benedetto

A PDMA study of best practices by innovating firms has shown that, among the best

performing firms, 49 % of sales are derived from new products. Among all other firms, the comparable figure was only 22%. Furthermore, launch is often the single costliest step in new product development. Therefore, effective product launch is a critical driver of top performance and there are many studies that show that a strong product launch greatly improves the chances of success.

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In this study, strategic, tactical and information-gathering activities were chosen as the focal points of the research. Strategic decisions were concerned with product and market issues such as how innovative the product should be, what kind of market the product should be launched to etc. Tactical decisions were the marketing mix decisions such as product and branding, pricing, advertising and distribution. Information-gathering activities included for example market research and testing activities which are required to obtain key information about customers and the effectiveness of the marketing activities undertaken as well as to provide feedback both during and after launch.

Background of the research is in previous researches. In literature review it is stated that “bad product launches are typified by poorly planned marketing strategies, resulting in incomplete product offerings, inadequate channel, poor targeting, no focus on effort and slow response to product flaws”. By comparison, a successful launch strategy includes objectives for all elements of the marketing mix, as well as statements of launch control, timing and speed, and likely competitive responses. Marketing tactical decisions at the product launch stage concern the development of the marketing mix: achieving appropriate distribution levels, determining acceptable price etc. Technical tactical decisions, in turn, include modification of the product and/or production process and they are made in consideration of the results of product and market testing. Furthermore, launch timing is a critical variable determining ultimate product success. If the firm waits too long in product development or testing, they allow competitors to launch similar products first successfully. Managers are also often under great pressure to accelerate time to market and they may not always see the risks involved.

In this study, a retrospective methodology was used, in which managers were asked to provide their perceptions regarding the launch activities and new product performance. Respondents chose one of their company’s most recent new product launches and then they aswered to 46 questions which dealt with the skills, resources and activities identified in the launch literature as most critical to new product launch. Four measures of perceived new product performance included overall profitability and perceived profitability, sales and market share relative to competing products on the market. The results of the research were not very surprising. It was found out that

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successful launches were related to perceived superior skills in marketing research, sales force, distribution, advertising and promotion, R&D and engineering. Especially having cross-functional teams make decisions concerning manufacturing, distribution/logistics and marketing/sales and having logistics involved in formulating distribution strategies, coordinating with sales management, developing inventory strategies and planning after-sale service, were regarded as very important for successful new product launches. The tactical activities that were perceived to be performed significantly better in successful launches were high quality of selling effort, advertising, service and technical support, good management of key aspects of the launch, good management of the support programs and launch timing relative to competition and customers. Also, better perceived performance on the information- gathering activities included in this study, were strongly related to success. Those activities i ncluded for example steps in market testing, studying feedback from customers regarding the product both during and after launch, planning and testing advertising and contracting out specialized research work to outside contractors.

The results of the study also show that the timing of the launch is just as important as whether all the activities mentioned are performed. The authors state that a very significant finding of the study is the high perceived importance of launch timing, which has been comparatively under researched in previous studies. They also give suggestions to investigate the antecedents and effects of launch timing more closely.

3 “Understanding Market Entry Timing Decisions: the

practitioner-academic gap” by Dacko

This article deals with the question “When is it best to enter a market with a new product in response to a market introduction of a pioneering new product by a major competitor?” In other words, is it better for the firm to enter the market quickly with a competitive new product or is it better for the firm to delay market entry for strategic reasons when pioneering is no longer an option. In real life this is the case with most of the companies. Many factors, such as factors internal to the firm, within the competitor firm and within the marketplace, affect the decision of whether to be a fast follower or a later market entrant. In the study those factors are classified as follows:

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pioneering firm characteristics, pioneer’s new product characteristics, follower firm characteristics, follower firm’s current product characteristics, market characteristics, follower firm objectives and follower firm’s new product characteristics. We will shortly go through some examples that were presented in the literature review.

It is better for a firm to introduce a new product into the market immediately after the pioneer if:

o the pioneer is able to deplete the market rapidly o unit production costs for the product introduced do not decline with higher accumulated product volume o the firm’s resource strength is high and/or current products are successful o the market growth rate is high o follower firm’s objectives emphasize higher market share

It is better for a firm to use delayed entry strategy when:

o a firm has an opportunity to learn from the pioneer’s new product and to be able to reduce costs o firm’s objective is simply to survive or the firm emphasizes a cost advantage

Generally, fast follower strategy typically includes the following conditions: a high level of product proliferation in the market, a “show of force” objective by the follower firm, and stimulating primary market demand. Delayed entry conditions, in turn, include the objective to reduce market uncertainty, waiting for greater growth certainty and competitive learning from the pioneer’s new product.

The author expects there to be a so called practitioner-academic gap in managers’ understanding of market entry timing strategies. The aim of this study was to identify the areas where managers are in agreement with academic research on market entry timing and also the areas where they are either unclear or less in agreement. A method of the study was a survey which was answered by experienced working managers and full time MBA participants. They were presented two opposite scenarios for which they had to make decisions on market entry timing. It was found out that managerial consensus matched the academic literature on the suggested market entry timing strategies for 17 of the 39 conditions.

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The important findings of the study are the following: o Key parity strategy indicators. When a firm’s objective of a show of force has high importance, the implication is clearly parity entry. If the pioneering firm has a high potential to become synonymous with the product category or if the firm has a high potential to deplete the market, parity entry is desirable.

o Key delay strategy indicators. When a firm has low resource strength or the firm has an opportunity to learn from the pioneer’s new product, the delayed entry is desirable.

o Perceived ambiguous conditions appear when there is low product proliferation in the market, when the pioneering firm’s resource strength is high or the market’ growth rate is low.

o The academic-practitioner divide clearly appeared. Since managerial views match the literature less than half the time, the findings suggest a strong need for managers and academicians to engage in dialogue aimed at better understanding each other’s perspectives on – and knowledge of – market entry timing.

o Timing-sensitive and –insensitive conditions. The factor being the most sensitive to a reversed market entry timing strategy is the firm’s resource strength. When the firm’s resource strength is high, most managers believe it strongly suggest parity entry and vice versa. Again, regardless of whether or not a firm’s market image is high or low, decision makers perceive parity entry to be more desirable than delayed entry. Similarly, regardless of the firm’s current market share and regardless of the level of switching costs in the market, parity entry is perceived to be desirable among managers.

The results clearly suggest that the majority of managers appear to be able to easier interpret and appreciate those conditions that suggest parity market entry as opposed to delayed market entry. Decision makers also seem to have biases toward action that influence their interpretations of all conditions, thereby leading them to a potentially faster-than-warranted market entry timing strategy.

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