launch strategy
Roger J. Calantone
Department of Marketing and Supply Chain Management, Michigan State University, East Lansing, Michigan, USA, and
C. Anthony Di Benedetto
Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA
Abstract
Purpose The purpose of this paper is to examine the interaction of pricing strategies with other aspects of launch, in particular, timing, logistics/
inventory strategy, and coordination with support organizations, and the effect on profit and competitive performance.
Design/methodology/approach The paper presents an empirical study of 215 recent new product launches, focusing on pricing and other strategic
and tactical launch decisions and the resulting profitability and competitive performance. Clusters of new product launches are identified and the
profitability and competitiveness of each cluster are discussed.
Findings The paper finds that some clusters are related to greater success than others. The most profitable and competitively successful cluster
contained launches supported by solid market research and marked by good timing decisions. By contrast, the least profitable/successful cluster were
higher price launches unsupported by adequate research.
Research limitations/implications The study is limited by the fact that the sampling frame is made up of members of a professional association of
product development and management, and may therefore be more representative of best practice in new product development (NPD) than of NPD
in general. The authors believe the use of the key informant method is justified in this study, however this method has been criticized in the past.
Originality/value The pricing decision for a new product is sometimes oversimplified as a high-low or skimming versus penetration choice. The
study finds that the actual effect of pricing on ultimate success is much more complex, and that one must consider not only price level, but also the
timing of the launch, the logistics and inventory strategy, the extent of market research, testing, and planning, and so forth.
Keywords Product launch, Pricing policy, Distribution management, Inventory management
Paper type Research paper
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Introduction
The best firms at new product development (NPD) depend
heavily on new products for continued sales revenues, and
effective product launch greatly improves the overall chances
of new product success (Maidique and Zirger, 1984;
Calantone and Di Benedetto, 1988; Cooper, 1979; Cooper
and Kleinschmidt, 1987, 1990; Griffin, 1997; Di Benedetto,
1999). Product launch is also financially risky, and in fact is
often the most costly stage in the NPD process (Booz, Allen
and Hamilton, 1982; Calantone and Montoya-Weiss, 1994;
Cooper and Kleinschmidt, 1987; Hultink, Griffin, Hart and
Robben, 1997; Guiltinan, 1999).
In spite of its managerial importance, launch has only
recently begun to attract much academic research attention.
Table I presents the most prominent empirical and review
articles on the subject of launch from the early 1990s to the
present day. Surprisingly, little empirical research had focused
Type of publication
Major topic
Review article
The launch plan, launch timing, launch strategies, control of launch process
Di Benedetto (1999)
Conceptual paper
Nagle (2005)
Review article
Review article
Note: a All empirical studies are cross-sectional surveys unless otherwise noted
Method
Data collection
We used a retrospective methodology in this study, in which
managers were asked to give their perceptions regarding
launch decisions and product performance. While there are
some limitations inherent in this methodology (MontoyaWeiss and Calantone, 1994; Brown and Eisenhardt, 1995)
that will be discussed later, it is relatively common in NPD
research (e.g. Cooper and Kleinschmidt, 1987, 1993). A mail
survey was developed for data collection (details on scales
included appear below).
Respondents were requested to provide detailed
information on one of their companys most recent new
product launches. They chose a single product launched no
more than five years ago, that could be considered to be
characteristic of their firm at the time of launch. A
characteristic new product was defined for the respondents
as one that is typical in that it required no unusual or new-tothe-firm skills or resources.
The survey was mailed to all practitioner members of the
PDMA. PDMA practitioner members were chosen as the
sampling frame, since they are representative of the most
knowledgeable managers active in new product development
and management. A follow-up telephone call and second
mailing were used to increase response rates. A key informant
method was used for data collection; this procedure is
frequently used in NPD research (e.g. Cooper, 1979; Cooper
and Kleinschmidt, 1987). Respondents were experienced
practicing managers in the area of product development, and
were the most knowledgeable sources of information on the
NPD project and on its launch (Phillips, 1981). Consumer as
well as B2B products (goods and services) were included
among the respondents. A total of 215 usable questionnaires
were returned, which represented a response rate of 13.4
percent. Demographics (functional area and job title/level) of
the sample were compared to the demographics of the PDMA
membership and the sample was very representative of the
sampling frame (details available from the authors on
request).
Split-half reliability was assessed by splitting the sample into
early versus late respondents, and the means of all variables
were calculated for each half. The two halves were found not
to be significantly different from one another.
Scales
Except where noted, all scale items are measured on 0-10
Likert-type scales. The full set of all scale items contained in
each scale is provided in the Appendix.
Pricing strategy
Based on the pricing-related literature cited above, a five-item
scale of Likert-type questions was developed to measure
pricing strategy and pretested (see pretesting procedure
below). This scale required respondents to state level of
agreement with statements regarding penetration pricing,
skimming pricing, pricing to encourage early adoption,
pricing to encourage channel acceptance, and alignment of
price with a differentiation strategy.
Launch timing
Based on the literature review, a fourteen-item scale of launch
timing was developed and pretested. Again using 0-to-10
Likert-type scales, respondents were asked to state the extent
to which they believed the timing was on target with respect to
business-unit goals, the competition, customers, top
management objectives, the distribution channels
requirements, channel coordination considerations, service
policies and training, and so on.
Industry structure
A 24-item scale of industry structure previously used in
studies of NPD by Song and Parry (Song and Parry, 1992,
1994, 1996, 1997a, b; Parry and Song, 1994) was used.
Respondents were asked several questions about the
bargaining power of suppliers and customers, the extent of
entry and exit barriers, the hostility of industry competition,
the sophistication of customers, the predictability of
technological, market, and competitive strategy changes,
and several other descriptors of industry structure and
environment.
Performance
A seven-item scale of performance was adapted from the
Project Newprod studies of Cooper and Kleinschmidt (1987,
1993). While overall profitability is an extremely important
measure of new product performance, a single-item scale of
performance is probably an oversimplification for most firms
(Cooper and Kleinschmidt, 1987, 1990; Griffin and Page,
1993; Hultink and Robben, 1995). A firm may consider a
new product a success if it, say, captures significant market
share even if it is not highly profitable. Therefore, seven items
capturing several dimensions of success (in terms of profit,
sales and market share) relative to the business units
objectives and other new product launches were developed.
These were measured on Likert-type scales ranging from 2 5
(far below objective) to 5 (far exceeded objective).
Pretesting
The questionnaire was pretested by practicing managers
participating in a university executive training program, and
by classes of evening MBA students. The pretest ensured that
all questions were clear and that the scale items adequately
represented the desired constructs. Only minor corrections
were made to the questionnaire based on the debriefing done
after the pretests.
Results
Identification of price strategy clusters
The SPSS based K-means clustering procedure was used to
group the new product launches into clusters, according to
their responses to the five scale items on strategic pricing,
which are:
1 Our firm launched the new product with a low
introductory (penetration) price.
Market orientation
A 14-item scale of market orientation was adapted from the
scales used by Narver and Slater (1990) in their research into
8
2
3
4
5
Inter-cluster differences
Cluster means were found for each of the individual scale
items included in the questionnaire (see the Appendix), and
analysis of variance and multiple range tests were used to find
significant differences among them. Table II shows the results
only for cases where significant differences (at the 0.05 level
except where indicated) across the cluster means were found.
Performance differences
Some significant performance differences between the three
clusters were found. In particular, Cluster 3 (good research/
good timing) rated its new product launch significantly more
successful than that of Cluster 2 in terms of market share
relative to objective (Cluster 3 and 2 means 1:439 and
0.356 respectively, significant at 0.05 level). Cluster 3
launches were also rated higher than those of Cluster 2 in
terms of sales relative to other new product launches
(means 1:899 and 0.978 respectively, significant at 0.10
level). No other significant differences in performance were
found. The results suggest the importance of considering
channel acceptance when setting a premium launch price: the
cluster that sets the highest price (Cluster 2) is significantly
less likely to consider channel acceptance when doing so, and
its launches are rated significantly lower in performance.
The inadequacy of launch strategies for the Cluster 2
(high price/poor support) launches is further confirmed by
consideration of the other variables in the analysis. In fact, the
most obvious result in Table II is that Cluster 2 is repeatedly
outperformed by Clusters 1 and 3 (low price/poor timing
and good research/good timing) in almost every case where
there are significant differences in means. These differences
are briefly summarized below.
0.766
1.213
1.652
5.596
8.404
0.978
0.356
4.681
7.044
6.213
7.043
5.804
5.478
4.386
4.476
3.857
5.978
3.727
4.409
4.795
4.326
3.791
1.266
0.688
4.871
7.937
7.892
6.578
6.839
6.712
5.803
5.969
4.603
7.000
4.951
5.934
6.049
6.017
5.475
Cluster 2
High price/
poor support
n 5 49
7.000
7.281
6.859
5.615
3.431
Cluster 1
Low price/
poor timing
n 5 70
10
(continued)
1 . 2, 1 . 3 * *
1 . 2, 3 . 2 * *
1.2
1.2
1 . 2, 1 . 3
1 . 2, 1 . 3
3 . 2**
1.3
1.2
1 . 2, 3 . 2
1 . 2*
3.1
3 . 2, 3 . 1 * *
1 . 2, 1 . 3 * *
1 . 2, 3 . 2
3.2
3 . 2**
2 . 3, 3 . 1, 2 . 1
1 . 3, 3 . 2, 1 . 2
1 . 3, 3 . 2, 1 . 2
1 . 3 *, 3 . 2, 1 . 2
Significant differences *
4.613
5.355
5.578
5.312
3.641
4.921
4.891
5.688
5.943
6.366
6.638
7.257
5.620
7.171
7.676
1.439
1.899
2.254
4.299
6.250
6.383
7.103
Cluster 3
Good research/
good timing
n 5 96
11
Note: * Sig. at 0.05 level except those marked; * * are sig. at 0.10 level
Table II
8.617
6.681
4.277
5.872
6.000
5.630
7.312
5.938
5.138
6.292
5.800
4.576
5.848
6.523
5.894
5.702
6.106
5.304
5.457
5.511
5.822
4.391
4.311
5.818
5.212
5.621
5.682
5.242
5.477
5.754
6.231
6.323
3.644
4.712
4.848
4.422
4.087
5.696
5.444
5.554
6.061
6.015
3.689
5.617
5.717
3.543
Cluster 2
High price/
poor support
n 5 49
5.557
6.769
6.742
5.016
Cluster 1
Low price/
poor timing
n 5 70
6.725
6.913
5.671
5.565
5.246
5.134
6.478
6.754
6.116
6.561
6.552
6.657
7.015
5.812
5.791
6.739
5.814
4.871
4.967
5.565
6.757
4.969
6.571
6.657
4.926
Cluster 3
Good research/
good timing
n 5 96
2 . 3**
3.1
3.2
1 . 3**
2 . 3**
2.1
3.1
3 . 1, 3 . 2
3 . 1**
3 . 1, 3 . 2
3 . 2, 3 . 1 * *
3.2
3 . 2, 3 . 1 * *
1 . 2, 3 . 2 * *
1 . 2, 3 . 2
3 . 2**
3 . 2, 1 . 2
1 . 2**
3 . 2, 1 . 2 * *
1 . 2, 3 . 2
3 . 1, 3 . 2
1 . 2, 3 . 2
1 . 2, 3 . 2
1 . 2, 3 . 2
1 . 2, 3 . 2
Significant differences *
Managerial implications
Proper coordination of all elements of launch (strategies and
tactics) is required to mitigate the risks of NPD. Price level at
the time of launch is clearly important, but launch pricing
decisions are often made simplistically set a low penetration
price or a high skimming price to achieve goals such as quick
payback or market share increase. Our findings show that
launch pricing decisions cannot be made separately from
other strategic and tactical decisions. Rather, they need to be
13
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PDMA Handbook of New Product Development, 2nd ed.,
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coping with turbulence, Sloan Management Review, Vol. 38
No. 2, pp. 69-82.
Cooper, R.G. (1979), Identifying industrial new product
success: Project NewProd, Industrial Marketing
Management, Vol. 8 No. 2, pp. 124-35.
Cooper, R.G. and Kleinschmidt, E.J. (1987), New products:
what separates winners from losers?, Journal of Product
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14
Pricing strategy
State your level of agreement with each of the following
(0 disagree strongly, 10 agree strongly):
Our firm launched the new product with a low
introductory (penetration) price.
We priced the product, at launch, to encourage early
adoption.
We priced the new product with great attention to channel
acceptance.
Differentiation strategy was a prime motivator in setting
price.
We charged a premium price for our new product.
Marketing mix support
Rate the quality of each of the following elements in the
launch of this product. (0 poor, 10 excellent):
Selling effort, e.g. the right people, properly trained, etc.
Advertising.
Promotion, e.g. discounts, trade shows, events.
Services and technical support for the customer, e.g. right
people, qualified, responsive.
Product availability: sufficient inventory available.
Product distribution: on-time delivery, quick response.
Pricing: appropriateness of pricing level(s).
Resources and skills
To what extent does each statement correctly describe this
selected product launch? (0 strongly disagree, 10
strongly agree).
For the selected product launch:
Our marketing research skills and resources were more
than adequate.
Our sales force skills and resources were more than
adequate.
Our distribution skills and resources were more than
adequate.
Our advertising and promotion skills and resources were
more than adequate.
Our R&D skills and resources were more than adequate.
Our engineering skills and resources were more than
adequate.
Our manufacturing skills and resources were more than
adequate.
Work group structure
Please indicate the extent to which the following are used.
(0 strongly disagree, 10 strongly agree).
For the selected product launch;
Interdepartmental committees are set up to allow
departments to engage in joint decision-making.
Task forces or temporary groups are set up to facilitate
interdepartmental collaboration on a specific project.
Liaison personnel exist whose specific job it is to
coordinate the efforts of several departments for
purposes of a project.
Further reading
Gupta, A.K. and Wilemon, D.L. (1986), The credibilitycooperation connection at the R&D-marketing interface,
Journal of Product Innovation Management, Vol. 5 No. 1,
pp. 20-31.
16
Performance
Please indicate how successful this market entry was or has
been. (25 far less than the objectives, 5 far exceeded
the objectives):
How successful was this market entry from an overall
profitability standpoint?
Relative to your business units other new product
launches, how successful was this market entry in terms
of profit?
Relative to your business units other new product
launches, how successful was this market entry in terms
of sales?
Relative to your business units other new product
launches, how successful was this market entry in terms
of market share?
Relative to your business units objectives for this product
launch, how successful was this market entry in terms of
profit?
Relative to your business units objectives for this product
launch, how successful was this market entry in terms of
sales?
Relative to your business units objectives for this product
launch, how successful was this market entry in terms of
market share?
Market orientation
All items are scaled: 0 stronglydisagree, 10 strongly
agree.
When developing this new product:
Our marketing people met with customers frequently to
find out what products or services they needed.
Individuals from our manufacturing department
interacted directly with customers to learn how to serve
them better.
Several of our departments generated competitive
intelligence independently.
We periodically reviewed the likely effect of changes in our
business environment (e.g. regulation) on customers.
A lot of informal hall talk in our business unit
concerned out competitors tactics or strategies.
We had frequent interdepartmental meetings to discuss
market trends and developments.
Marketing personnel in our business unit spent time
discussing customers future needs with other functional
departments.
Data on customer satisfaction were disseminated at all
levels in this business unit frequently.
We tended to ignore changes in our customers product or
service needs for one reason or another.
We periodically reviewed our product development efforts
to ensure that they were in line with what customers want.
If a major competitor had launched an intensive campaign
targeted at our customers, we would have implemented a
response immediately.
We were quick to respond to significant changes in our
competitors pricing structures.
19
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