You will then write a 4?5 page paper in which you use this new knowledge and proven strategies to respond to the five statements

Innovation and Entrepreneurship, Bessant and Tidd, 2nd Rd.

P.p. 329-336

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 commercialization 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 commercialized 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 adopters’ 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

Variable Description

Timing

 – When will the innovation first be launched into the market?

 – Will the firm announce the innovation to the press long before its market

launch?

 – Will the firm partner with external organizations long before the official

market launch?

Targeting and

positioning

 – Which market segments will the innovation will be addressed to?

 – Which will be the position of the innovation in the eyes of potential adopters

in each of the targeted market segments?

 – Will the firm target different segments as long as the commercialization

process progresses?

Inter-firm

relationships

 – Which external organizations will the firm partner with during the

commercialization of the innovation?

Variable Description  – Which forms of relationships will be most appropriate (e.g., licensing

agreements, strategic, long-term partnerships) to organize such relationships?

Product

 – Which bundle of additional adds-on, services and functionalities surrounding

the ‘core’ innovation will be included in the basic configuration of the new

product?

Distribution

 – Which type of distribution strategy (e.g., push or pull) will be needed to

streamline the market penetration of the innovation?

 – Which types of distribution channels will be chosen to deliver the innovation

to market (e.g., retail or specialized distributors)?

 – Which critical functions (e.g., customer education) will they be required to

perform?

Advertising

and

promotion

 – Which message will be communicated during the pre-announcement and

post-launch advertising campaign?

 – Which types of communication channels will be employed for these

advertising and promotion initiatives (e.g., mass or specialized channels)?

Pricing

 – Which pricing strategy (e.g., skimming or penetration) will be used for the

market introduction of the new product?

 – Which pricing strategy will be adopted for complementary goods and

additional services?

The commercialization 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

Radical innovations Systemic innovations

Unsuccessful

innovations

Apple Newton

IBM PC-Junior

Sony Betamax

3DO Interactive Multiplayer

Sony MiniDisc

Apple Newton

Sony Betamax

Successful

innovations

Tom Tom GO

Sony Walkman

RIM BlackBerry

Palm Pilot

Nintendo NES

Apple iPod

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, specialized, complementary devices or pieces of software). This is what

Palm did, in 1996, when commercializing 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 maximizing 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 commercialization 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 the target market.

This is what happened in the commercialization 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 commercialization 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 announced 18 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 fueled the curiosity, rumors 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 behavior 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 commercialization

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 developer’s 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 organizers.

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 realized 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

commercializing 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 commercialization 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 commercialization 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 synchronization 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, organizer, synchronization 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 generates great 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 commercialization of the Apple Newton and the IBM PC-Junior.

Case Questions

 1. What are the respective roles of early adopters and network development in the market

acceptance of innovations?

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

unsuccessful innovations?

 3. Product and Promotion are standard parts of the ‘Marketing Mix’. How do these contribute

to market acceptance of an innovation?

Source: Federico Frattini (2010) Achieving adoption network and early adopters acceptance for technological

innovations, in Tidd, J. (ed.) Gaining Momentum: managing the diffusion of innovations. Imperial College Press,

London.