2. What are the critical differences in the timing and positioning of successful

CASE STUDY 7

Pre-Launch Decisions which
Influence Innovation Success

It
has been extensively documented in management literature that an incredibly
large share of firms’ investments in technological innovation do not generate
substantial financial returns. Three main reasons underlying this phenomenon
can be identified. First, technological innovation creates knowledge and
technological assets that often remain largely unexploited. Various studies
show that between 70 and 90% of corporate technology assets often never get
used in core products or lines of business. Second, the likelihood that an
innovation project reaches completion and that the new product is introduced
into the market is strikingly low. It has been estimated that the probability
of new product commercialisation is about 40% in many industries, with some cases
(e.g., pharmaceutics) where the mortality of innovation projects is much
higher. Finally, a large share of the innovations that ultimately reach the
market do not experience a satisfactory diffusion and their sales are
discontinued. Empirical studies have shown indeed that on average 40–50% of
fully commercialised new products turn out to be commercial failures.

An important managerial question is however left unanswered: which
are the levers a manager can act upon to achieve adoption network acceptance and
early 329330adopters’ acceptance for a high-tech innovation, having a given
functional content and a set of technical specifications, which is introduced
within the scope of a given competitive and product strategy (Table 7.5)?

TABLE 7.5 Commercialization
factors influencing the adoption of innovations

The commercialisation processes of 11 technological innovations,
launched in high-technology markets in the past 30 years, were investigated
using this approach (Table 7.6).

TABLE 7.6 Successful and
unsuccessful innovation examined

Comparing
the commercialization of the successful and unsuccessful systemic innovations
in the sample, a number of decisions were taken along the dimensions.

Inter-Firm Relationships

Our
analysis indicates that obtaining the support from the critical members of
innovation’s adoption network requires chiefly a careful administration of the
inter-firm relationships that are established before and along the
commercialization process.

The
decision to prevent other companies (e.g., competitors and suppliers of
complementary hardware and software) from manufacturing products based on the
innovation’s underlying technology is likely to be a first detrimental decision
for the large-scale adoption of a high-technology innovation. This is due to
the strong network externalities that high-tech markets, because of their tight
interconnectedness, are currently experiencing. Accordingly, letting the actors
of the adoption network manufacture products based on the innovation’s
technology (e.g., through advantageous out-licensing agreements) increases the
availability of complementary products and the chances that a potential adopter
chooses to purchase the innovation. This in turn exponentially enhances the
value of the innovation in the eyes of both subsequent adopters and the other
members of the adoption network, in a self-reinforcing double-loop cycle. The
effects of this commercialization decision are very clear when comparing the cases
of the Palm Pilot (whose OS operating system was released for free to all
manufacturers of adds-on and software applications) with that of Sony Betamax
(with the Japanese firm that accepted to license the underlying technology to
Zenith only more than one year after launch, when the incoming success of the
VHS by JVC was already undisputable).

It also
emerges as a critical approach to win the support of the critical members of
the adoption network to enter into long-term, strategic partnerships with them.
This allows firms to share the risks and the costs they incur when supporting a
systemic innovation (e.g., developing and manufacturing ad hoc, specialised,
complementary devices or pieces of software). This is what Palm did, in 1996,
when commercialising its Pilot: it decided to sign a €20 million agreement with
Circuit City to ensure adequate shelf space and customer education services for
its new product. Similarly Apple, to streamline the acceptance of the iPod and
the associated iTunes Music Store service, was able to convince a number of
record labels (e.g., Sony Music Entertainment, BMG, EMI, Universal and Warner)
to endorse the new service provision model ensuring a 65% compensation for each
song sold through iTunes. In a similar vein, Nintendo invested heavily in order
to obtain the full support for its NES from the most important game developers
(e.g., Taito, Bandai, Capcom). This required the Japanese firm to grant above
the average money compensation for each game sold. Sometimes the innovating
firm instead refuses to establish any partnerships with the members of the
adoption network, or simply sets up arm’s-length, commercial relationships with
them, with the aim of maximising its potential profits from the innovation.
This is evident in the case of 3DO, which failed to establish any forms of
relationship with the developers of software titles and the manufacturers of
consoles for its new Interactive Multiplayer. A similar phenomenon is clear in
the commercialisation of the Betamax, where Sony refused to partner with video
rental channels and film producers (with the exception of Paramount Home Video,
with which a Joint Venture was established).

A
critical member of the adoption network for content-based innovations is the
community of small and highly creative software and application developers. In
order to secure their support, it is especially critical to develop an easy to
use software authoring kit that is made available for free or at a very low
price. This is what Palm did when it released for free the application
development kit for its Pilot. 3DO, on the other hand, decided to sell the
authoring system for the Interactive Multiplayer for several thousand dollars.

Timing

Besides the form of the inter-firms
relationships with the critical members of the adoption network, it seems that
the timing with which they are established is important in determining the
degree of support they ensure to the innovation. The analysis indicates that
sometimes firms deliberately postpone the establishment of strategic
partnerships with the adoption network on the assumption that, once the
innovation has taken off in the market, its critical players will support it of
their own accord. However, it often happens that, after an initial, unexpected
growth of the new product’s sales, the innovation never diffuses in the largest
part of the332333target market. This is
what happened in the commercialisation of the MiniDisc: Sony refused to partner
with consumer electronics outlets (which played a critical role in ensuring a
wide availability of recorded music albums) in the belief that the new format
would diffuse into the mass market and, as a result, force outlets to provide
the required shelf space. This phenomenon is due to the fact that the bulk of a
high-tech consumer innovation’s target market is made of people who resist new
products and experience a high level of uncertainty when evaluating the
opportunity to buy them. Although early adopters might be willing to purchase
the new product whilst it is not backed up by the critical members of the
adoption network (because they are mainly attracted by the technical content
and degree of sophistication of the innovation and are able to more objectively
assess its advantages), this represents an important signal to later adopters
of the value of the innovation, which helps reduce their resistance and
customer uncertainty.

Therefore,
although a high-tech innovation may experience an unexpected sales growth
immediately after launch without support from the critical players of the
adoption network, it is of paramount importance to rapidly secure this support,
through the establishment of long-term, strategic partnership, if large-scale
adoption is to be achieved. All firms whose innovations had experienced a
relevant and rapid diffusion in the bulk of their target market started very
early indeed to work with the adoption network’s critical players. This is
clear in the cases of the Pilot by Palm, the NES by Nintendo and the iPod by
Apple.

It often
happens that firms rush to market their high-tech innovations in an attempt to
establish them as technological standards and to quickly recover their R&D
investments. This sometimes leads to the launch of an incomplete product, with
some functionalities not working perfectly, as a result of the acceleration of
development and testing activities. This seems to have a very negative effect
on the attitude developed by early adopters. Companies sometimes prefer
shortening time to market at the expense of product completeness on the
assumption that the potential technical problems will not affect the purchasing
decision and the satisfaction of the average member of the target market. In
doing so they overlook that the innovation is adopted immediately after launch
by those customer segments that are most sensitive to the new product’s
technical content and sophistication, and whose opinion about the new product
is key in affecting subsequent purchases. This erroneous conduct is clear in
the commercialisation of the IBM PC-Junior and the Apple Newton, while there is
no sign of new product acceleration for the successful radical innovations in
the sample (e.g., Tom Tom GO, Sony Walkman and RIM BlackBerry).

It should be noted that the negative impact
of the launch of an incomplete product is exacerbated by an overblown
pre-announcement campaign, which raises the expectations of early adopters and
leaves them disappointed when a deficient version reaches the market: their
attitudes to the innovation as a whole are thereby negatively affected. This
happened with the Apple’s Newton, which was announced33333418 months before the actual launch and was known as one of
the most-hyped and postponed products for years. Similarly, the PC-Junior was
pre-announced about 12 months before the launch, which fuelled the curiosity,
rumours and enthusiasm that accompanied the new product. Analysts started
referring to the PC-Junior by the nickname ‘Peanut’. Interestingly, IBM itself
contributed to nurturing these expectations by drawing a thick curtain of secrecy
over the new product after having pre-announced it.

Targeting and Positioning

Especially
for content-based innovations, it seems that a firm more easily succeeds in
orchestrating the behaviour of the adoption network’s players and in securing
their support if the positioning of the new product is unambiguous. The
experience of 3DO in the commercialisation of the Interactive Multiplayer is
paradigmatic in this respect. The new, revolutionary console always lacked a
library of software titles that were able to fully exploit its graphic
capabilities. This was partly due to its unclear positioning: the Multiplayer
was sold as a gaming platform with advanced interactive, learning and
educational capabilities, enabled by its CD-Rom support, that caused confusion
in the developers community about the exact applications that were required for
its commercial success. On the other hand, the NES by Nintendo was
unambiguously positioned as a gaming system, and the Palm Pilot as a substitute
for personal paper-based organisers.

The
incapability to understand that an incomplete new product is likely to elicit a
very negative reaction in the first market segments that adopt it is also due
to a lack of pro-active targeting of these early adopters. The firms in the
sample that failed to raise a positive post-purchase attitude of early adopters
had not targeted the innovation at any specific market segments after launch.
This is clear in the cases of Apple’s Newton and IBM’s PC-Junior that were
aimed at a broadly defined market made of mass consumers and families with
children. It was only after the first months of sales that managers realised
the new products were being purchased by people with a very different profile
than the average target customer (namely, executives and companies looking for
sales force automation applications, and managers used to working with a
traditional PC at the office who wanted to bring some work at home). On the
other hand, when commercialising the Walkman, Sony realized that it was going to
be initially purchased by young men fond of sport and outdoor living, and that
the ‘near CD quality’ of sound reproduction associated with advanced
portability of the device was key in affecting their post-purchase attitude.
Similarly, RIM targeted its BlackBerry immediately after launch to top
executives (e.g., Chief Information Officers, Chief Financial Officers) or
sales agents who had a compelling reason to receive e-mail messages in real
time while travelling for work, and ensured that this functionality was working
perfectly from a technical point of view.

Product

The
aforementioned lack of targeting of the innovation’s early adopters is
detrimental also because it often prevents firms from devising a configuration
of the whole product at launch that meets early adopters’ expectations, which
are usually very different from the intended average target customer’s. For
instance, the IBM PC-Junior was not compatible with many of the applications
available for the traditional PC, and the Apple Newton lacked connectivity with
PC and Macintosh at launch. It is noteworthy and seemingly nonsensical that
both IBM and Apple had sponsored these capabilities of the new products during
the pre-announcement campaign, which exacerbates the negative effect of an
inappropriate product configuration at launch over early adopters’
satisfaction. This might be the result of the attempt to anticipate the launch
of the innovation without a clear targeting of the early customers.

On the
other hand, the successful innovations in the sample do not seem to have missed
any critical functionalities to satisfy early adopters’ expectations. How could
this be achieved? The analysis suggests that an effective commercialisation
strategy could need to include a limited number of simple functionalities in
the configuration of the new product at launch, designed to satisfy the
compelling reason to purchase of early adopters. The product configuration is
enriched with additional functionalities as long as the innovation diffuses in
the less innovative segments of the target market. An essential prerequisite
for successfully adopting this approach, which increases the likelihood that
the new product is complete at launch despite a firm’s attempt to rush it to
market, is a careful targeting of the innovation’s early customers. This
approach was for instance adopted by RIM in the commercialisation of the
BlackBerry. In order to improve the chances of satisfying the new product’s
early customers, RIM decided to design and launch a simplified version of the
BlackBerry, called Desktop Redirector, that could work using as a mail server
any PCs or laptops and only featured the revolutionary ‘push’ approach to mail
delivery. Agenda, address book, and synchronisation with PC were added as long
as the BlackBerry diffused in the market. On the other hand, Apple tried to
include as many complex functionalities as possible in the first version of the
Newton (e.g., infrared communication, advanced handwriting recognition, contact
manager, organiser, synchronisation with both PC and Macintosh, traditional and
wireless phone connectivity), some of which were absent or did not function
perfectly at launch, resulting in a very negative attitude from early adopters.

Advertising and Promotion

The role of the pre-announcement campaign
in influencing the post-purchase attitude of early adopters has already been
discussed in this section of the chapter. In particular, it has emerged that an
early pre-announcement of the new product generates335336great expectations in the innovation’s early adopters. If
the new product at launch fails to fulfil these expectations, because it is
incomplete as a result of a rush to market, or because it lacks some
functionalities that are critical for early adopters, the latter turn out to be
highly dissatisfied with the innovation, and their opinion about it freezes any
further diffusion of the new product. Therefore, if a firm chooses to
pre-announce early a high-tech innovation, it must be sure to arrive on the market
with a complete product having the few, critical functionalities that are
necessary to satisfy the compelling reason to buy of early adopters. This is
consistent with literature on New Product Pre-announcements (NPPAs), which
indicates that pre-announcing and then missing introduction dates for new
products is not detrimental per se in terms of customer acceptance. It becomes
problematic only in the case when the new product, once it reaches the market,
fails to fulfil the expectations of early adopters nurtured by the
pre-announcement campaign. This is exactly what happened with the
commercialisation of the Apple Newton and the IBM PC-Junior.

Read Case Study 7 and respond to question 2.

2. What are the critical differences in the timing and positioning of
successful versus unsuccessful innovations?

Your response should be at least one page long and conform to APA Version 6 standards