ITIS407

IS Innovation and New

Technologies

Fall 2021
Timing of Product Introductions
and Market Changes
 Overview
• There are a number of advantages and
disadvantages to being a first mover, early
follower or late entrant. These categories are
defined as follows:
▪ First movers are the first entrants to sell in a new
product or service category (“pioneers”)
▪ Early followers are early to market but not first.
▪ Late entrants do not enter the market until the
product begins to penetrate the mass market or
later.
 First-Mover Advantages and
Disadvantages
• Advantages:
▪ Brand loyalty and technological leadership
▪ Exploiting buyer switching costs
▪ Reaping increasing returns advantages.
• Disadvantages:
▪ High research and development expenses
▪ Undeveloped supply and distribution channels
▪ Unformed enabling technologies and
complements
▪ Uncertainty of customer requirements
 Factors Influencing Optimal
Timing of Entry
1. How certain are customer preferences?
• If customer needs are well understood, it is more feasible to
enter the market earlier.
2. How much improvement does the innovation provide
over previous solutions?
• An innovation that offers a dramatic improvement over previous
generations will accrue more rapid customer acceptance.
3. Does the innovation require enabling technologies,
and are these technologies sufficiently mature?
• If the innovation requires enabling technologies (such as long-
lasting batteries for cell phones), the maturity of these
technologies will influence optimal timing of entry.
Factors Influencing Optimal Timing
of Entry (cont.)
4. Do complementary goods influence the value of
the innovation, and are they sufficiently
available?
• Not all innovations require complementary goods, but for
those that do (e.g., games for video consoles), availability of
complements will influence customer acceptance.
5. How high is the risk of competitive entry?
• If there are significant entry barriers, the may be less need to
rush to market to build increasing returns ahead of others.
6. Are there increasing returns to adoption?
• If so, allowing competitors to get a head start can be very
risky.
 Factors Influencing Optimal
Timing of Entry
7. Can the firm withstand early losses?
• The first mover bears the bulk of R&D expenses and may
endure a significant period without revenues; the earlier a firm
enters, the more capital resources it may need.
8. Does the firm have resources to accelerate market
acceptance?
• Firms with significant capital resources can invest in aggressive
marketing and supplier and distributor development, increasing
the rate of early adoption.
9. Is the firm’s reputation likely to reduce the uncertainty
of customers, suppliers, and distributors?
• Innovations from well-respected firms may be adopted more
rapidly, enabling earlier successful entry.
 Strategies to Improve Timing
Options
• To have more choices in its timing of
entry, a firm needs to be able to develop
the innovation early or quickly.
• A firm with fast-cycle development
processes can be both an early entrant,
and can quickly refine its innovation in
response to customer feedback.
• In essence, a firm with very fast-cycle
development processes can reap both
first- and second-mover advantages.
 Product Development Timing

Fast Cycle Development

Firm 1
Time
Firm 2

Slower Cycle Development

 Demand Forecasts
1. Determine how much to produce
2. Projects future costs in businesses
based on economies of scale
3. Determines the payback on your
investment in product development
4. Makes pricing and advertising decisions
5. Determines the competitiveness of the
market
 Forecasting Demand

• Can’t estimate future demand solely on

the basis of the current market size.
• Depends on the timing of customer
adoption.
• Depends on the accuracy of information
about the factors that influence distribution
patterns.
 Information Diffusion Models
• The functional form of diffusion is primarily
a function of the distribution of innovators
and imitators (not originals).
• When there are few innovators and many
imitators, diffusion follows an S-shaped
pattern.
 How Not To Do It
• The number representing a similar market
should not be used as the estimated size
of the target market:
▪ May be a substitute for more than one
existing product
▪ May be a complement for one or more
products
 The Bass Model
• A quantitative tool for forecasting the diffusion of
new technology products that many companies
use.
• Based on the size of the market, the rate of
adoption by innovators and imitators, and the
proportion of adopters in the previous time
period.
• Can be modified to include a variety of factors
that affect the diffusion of new technology
products.
• Most accurate at predicting the diffusion of
customer durables.
 Bass Model Limitations
• Cannot use to estimate diffusion in the first year
of a product’s life
• Accuracy of predictions depends on the
accuracy of assessments of size of the possible
market
• Assumes that the diffusion of a technology
product depends only demand-side factors
• Accuracy is much lower when competing
technologies are being introduced
• Further away in time from the initial adoption
point the accuracy declines
 The Delphi Technique
• An important tool to use to identify potential
technological trends that might impact the
development of new products and services
▪ Experts are selected and asked anonymously
(secretly) for their estimates of the chance of
particular outcomes occurring
▪ Participants return their estimates to a coordinator,
who compiles them
▪ Summary data outlining the mean and range of
viewpoints is then returned to the respondents who
are asked again for new estimates in light of the
information presented by the other experts
 The Delphi Technique Major
Weaknesses
1. Sensitive to the precision of the questions
asked
2. Sensitive to variance in the expertise of
the respondents
3. Validity of the technique is limited by the
intervention of unexpected events that the
experts do not incorporate into their
analyses
 Product Diffusion Models
• Look at product characteristics to explain their
rate of diffusion
1. The greater the benefit and the lower its cost, the faster it
will diffuse
2. The provision of information about a new product and the
opportunity to test it enhance the rate of diffusion
3. Perceived risk of a new product lowers its rate of diffusion
4. The characteristics of adopters affect the rate of diffusion
5. Aspects of the environment affect the rate of diffusion
6. Social and political factors affect the diffusion of a new
product
 The Importance of Complementary
Technologies
• New products based on systemic
technologies employ ways to make certain
that complementary technologies will
develop.
 Substitution
• The achievement of the same objective by the
replacement of one technology for another
• It influences the competition between incumbent
(mandatory) firms and new entrants
• Implementation of a substitution strategy is
difficult because substitution can be multi-level,
face political opposition, be partial, and take a
long or a short time
• Companies take risks by deliberately developing
new products to substitute for old ones