Product development capability and marketing strategy for new durable products

Our objective is to understand how a firm's product development capability (PDC) affects the launch strategy for a durable product that is sequentially improved over time in a market where consumers have heterogeneous valuations for quality. We show that the launch strategy of firms is affected by the degree to which consumers think ahead. However, only the strategy of firms with high PDC is affected by the observability of quality. When consumers are myopic and quality is observable, both high and low PDC firms use price skimming and restrict sales of the first generation to consumers with high willingness to pay (WTP). A high PDC firm, however, sells the second generation broadly while a low PDC firm only sells the second generation to consumers with low WTP. When consumers are myopic and quality is unobservable, a firm with high PDC signals its quality by offering a low price for the first generation, which results in broad selling. The price of the second generation is set such that only high WTP consumers buy. A firm with low PDC will not mimic this strategy. If a low PDC firm sells the first generation broadly, it cannot discriminate between the high and low WTP consumers. When consumers are forward looking, a firm with high PDC sells the first generation broadly. This mitigates the Coase problem created by consumers thinking ahead. It then sells the second generation product only to the high WTP consumers. In contrast, a firm with low PDC does the opposite. It only sells the first generation to high WTP consumers and the second generation broadly

Drucker\u27s Insights on Market Orientation and Innovation: Implications for Emerging Areas in High-Technology Marketing

In 1954, Drucker boldly declared that organizations have only two basic functions, marketing and innovation. While true for any organization, this insight is particularly pertinent for technology-based businesses. The complicated environment surrounding high-tech companies creates a great need for sophisticated marketing, yet these companies continue to have under-developed competencies in marketing and in understanding customer needs. In its first two sections, this essay explores Drucker’s insights with respect to two particularly salient issues for high-tech companies: developing and implementing a market orientation, and sustained break-through innovations. We review Drucker’s insights and synthesize them with the scholarly research on these issues. In the third section, we discuss three emerging areas in high-tech marketing where academics and managers could build on Drucker’s insight to guide future research and practice: market-driving, customer co-creation, and corporate social responsibility. The illustrative examples provided by these emerging areas highlight that even today, Drucker’s writings continue to offer remarkable guidance to scholars and managers who are willing to take the time to reflect, understand, and incorporate these insights in the unique context of high-tech industries