New product introduction in lead markets

Abstract

This study explores the question of whether launching a new product in a lead market rather than the firm’s home market would pay off when the former and the latter are different. The result from simulation shows that the firm can benefit from launching a new product in a lead market because a higher adoption rate at the early market allows the firm to experiment with new features and functionality, subsequently leading to higher levels of equilibrium quality and penetration rate. This finding suggests that the probability of under-adoption will be smaller when the new product is launched in the lead market than when it is introduced in the home market. This study also finds that while high development costs can potentially result in low equilibrium quality and under-adoption, larger portions of early adopters in the market may overcome the negative consequences of high development costs. Furthermore, this suggests the firm can benefit from targeting lead market in product marketing even without the detail knowledge of social customer network structure. This study also explores the issue of whether early internationalization is always a viable option for small and startup firms with limited resources. Little systematic research has been done, and many of the claims are based on anecdotal evidence. Numerical results provide a logical validity of early internationalization by an innovation regime. In entrepreneurial regime, when development costs are low, early internationalization allows small firms to overcome their resource. On the other hand, in routinized regime, when development costs are high, small firms are unlikely to benefit from launching new products in lead markets. Also, this study reassures why large firms could be more likely succeed in internationalization.