Product Innovation

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Product Innovation

• MAR 4803
• Dr. Axel Stock
• University of Central Florida

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Background

• Companies introduce 30,000 products every year,
  but 70 - 90 are discontinued after 1 year
• Most radical innovations are also unsuccessful -
  47 of pioneers quite operations
• Examples Webvan, Tivo, Segway Scooter

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Why?

• If unsuccessful innovations were bad ideas that
  were destined to fail
• why isnt it obvious before the fact?
• Why consumers fail to buy innovative products
  even when they offer distinct improvements over
  existing ones?

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How consumers evaluate products

• Customer value
• product benefits - costs
• Consumers incur transaction costs when they
  switch technologies/ products
• The costs associated with behavioral change is
  ignored by companies

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Examples
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The psychology of Gains and Losses

• Kahnemann and Tversky
• Consumers irrationally overvalue benefits they
  currently possess relative to those that they
  dont.
• Losses loom larger than gains (Loss
• aversion)
• Firms overvalue innovations versus currently
  existing products

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Examples

• Experiment 1 Choose
• A) 0 dollars with certainty
• B) 50 chance of winning 100 dollars
• 50 chance of losing 100 dollars
• Most people do not accept the gamble
• - winning needs to be 2-3 times more attractive
  than losing

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Experiment 2

• Choose
• A) 0 dollars with certainty
• B) 67 chance of winning 100 dollars
• 33 chance of losing 100 dollars
• At these odds people begin to accept the
• gamble!

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Examples

• Endowment effect Status quo bias
• People are reluctant to part with objects they
  posses
• Experiment Sellers of a mug which was given to
  them demand a 2-3 times
• higher price
• than buyers are willing to pay for the mugs

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The 9 x effect
Expected bias 3 x 3

• Consumers are usually
• Skeptical about performance
• Unable to see the need for it
• Satisfied with the existing product
• Quick to see what they already own as a status quo

• Companies are often
• Convinced the innovation works
• Likely to see the need for the product
• Dissatisfied with the existing substitute
• Set on viewing the innovation as the benchmark

Bias factor 3
Bias factor 3
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Capturing value from innovations