Agenda

1
Agenda

• Summary of Finding
• Key Assumptions
• Insights Gained
• Possible Extensions

2
Graphic Summary
Product attribute offered
Product attribute offered
High
Low
Neither does MR
No MR
Both do MR
MR
One does MR
Market Research Costs
3
Summary of Finding

• Finding Firms that are originally symmetric can
  evolve to have different MR and RD strategies.
• Implication 1) Dont need to have different
  core competencies to have firms take
  different strategies.
• 2) An explanation for how firms develop
  different core capabilities.

4
Summary of Finding

• Finding When all firms are uninformed a firm is
  better off announcing its RD strategy.
• Implication Some firms need not keep strategy a
  secret.

5
Summary of Finding

• Finding Asymmetric RD strategies more likely
  when large uncertainty about the market exists,
  RD costs are high and cost of MR is high.
• Implication More likely to get different RD
  approaches when consumers have difficulty
  stating preferences, i.e., technologies are
  really new.

6
Summary of Finding

• Finding When both firms are highly uncertain the
  firm that announces first will spend more on
  RD.
• Implication Firm that announces first is more
  likely to get a viable product.

7
Summary of Finding

• Finding There will not be diversity in RD
  efforts when MR costs are low.
• Implication 1) As MR costs decrease we should
  expect to see less diversity in product
  offerings.
• 2) Firms less likely to earn monopoly profits
  when it is easy to determine consumer
  tastes.

8
Key Assumptions

• All consumers have identical tastes and WTP.
• Basic Marketing Knowledge One of the basic
  premises of marketing is that there exists
  different market segments, i.e., consumers are
  heterogeneous.
• Implications Assumed payoff matrix may be
  incorrect. If so, firms may be able to make a
  profit even though they offer the inferior
  product, either because some consumers prefer
  inferior attribute or because some consumers
  are not willing to pay for the quality.

9
Key Assumptions

• Consumers have well-established ideal points.
• Carpenter and Nakamoto First entrant often
  influences consumers ideal points, especially
  for a really new product attribute (i.e., one for
  which consumers have no prior experience.
• Implication Speed to market is important.
  Could change the perceived value of
  each attribute.
• MR may be fallible, i.e., consumer preferences
  are not fixed.

10
Key Assumptions

• Firm gets zero profit when
• Both firms introduce same product.
• It offers inferior product, and other firm offers
  superior product.
• It fails to develop attribute.
• Implications Not immediately clear, but
  relaxing this assumption would definitely change
  the breakpoints (but not necessarily the order)
  of when second firm would choose attribute a
  (versus attribute b).

11
What have we learned?

• Symmetric firms can evolve to be different
• Firms can be better off if the cost of
  understanding consumer tastes is high.
• Market orientation (understanding consumer
  tastes) is not always best. Depends on
  competitions market orientation.
• Most likely to get variation in product design
  when
• MR is costly
• RD costs are low
• Prior uncertainty about market is high
• Signalling RD strategy can be beneficial.
• When no one does MR
• When you do MR, but your opponent is clueless.

12
Smart MBA test

• Basic Findings
• 1) When firms are unsure about consumer tastes
  and it is hard to get information
• Firms are more likely to go in different RD
  directions
• There will be more product variation
• Firms more likely to earn monopoly rents
• It is beneficial to provide credible signals
• 2) A firms market orientation (like other
  marketing activities) tends to have more value
  when this attribute is unique to firm.