Timing Product Replacements under Uncertainty: The Importance of Material' Price Fluctuations for the Success of Products That Are Based on New Materials

• Main Authors: Fisch, Jan Hendrik, Ross, Jan-Michael
• Format: Others
• Language: en
• Published: Wiley-Blackwell 2014
• Online Access: http://epub.wu.ac.at/4386/1/TimingMarketLaunch%2Dfinal.pdf; http://dx.doi.org/10.1111/jpim.12145

Being first to market with new products is one of the most enduring pieces of strategic advice handed to managers. This view also emphasizes the importance of launching new products that are based on new materials as soon as possible. However, when the input costs of products that embody new materials are uncertain because of volatile material prices, the advantage of being an early mover comes along with the risk of paying unexpectedly high material prices. Real-option theory suggests delaying material substitution under uncertainty even if the new material enables superior product performance. Firms who have created the flexibility to switch between alternative inputs can benefit from responding to opportunities or threats that arise from changes in the environment. The current study formalizes this logic in a switching-option model and tests it on a sample of material substitution projects from the manufacturing sector. Our findings shed light on how input-cost fluctuations influence the timing' performance relationship and bring into question the common advice to launch new products as soon as possible. Instead, our results suggest that firms who align the timing of market launch to trends and fluctuations of material prices improve their competitive positions. These insights suggest novel ways for new product development (NPD) managers how to successfully use external information at the back-end of the NPD process and how to compete in an era defined by volatile material prices and technological change. (authors' abstract)