A survey of emerging technologies for pricing new‐to‐the‐world products
| Pages | 303-319 |
| Date | 01 September 2002 |
| Published date | 01 September 2002 |
| DOI | https://doi.org/10.1108/10610420210442184 |
| Author | Heather Bergstein,Hooman Estelami |
| Subject Matter | Marketing |
A survey of emerging
technologies for pricing
new-to-the-world products
Heather Bergstein
Research Associate, Fordham Pricing Center, Graduate School of
Business, Fordham University, New York, NY, USA
Hooman Estelami
Assistant Professor, Fordham Pricing Center, Graduate School of
Business, Fordham University, New York, NY, USA
Keywords Pricing, Product development, Marketing research
Abstract New-to-the-world products are innovations that represent leapfrogging
advancements in product design, which often result in significant gains in consumer
utility. Such new products are critical not only because of their ability to become a means
for market share gain and revenue growth, but also because they often change the
competitive landscape of the markets they are launched in. A fundamental concern in
developing new-to-the-world products is the appropriate pricing of these products. In this
paper, we will first review the traditional methods used in determining the prices of new-
to-the-world products. We will then profile emerging technologies that have found
extensive use in recent years and are helping accelerate the pricing process of new-to-
the-world products. The paper will conclude with a discussion of the implications of these
emerging technologies on the practice of pricing.
Introduction
Technological and societal forces are propelling change in the methods used
to develop and manufacture new products. New product development has
traditionally represented a company's diversification attempts in improving
existing products to meet changing consumer needs. However, a unique
category of new products, the ``new-to-the-world'' product, is becoming
much more central in ensuring long-term corporate success (Cooper, 2000;
Urban and Hauser, 1993). New-to-the-world products are innovative new
products that due to their unique attribute mix or technological features have
provided leapfrogging increases in consumer utility, to the point that new
product categories have emerged as a result of their introduction. Examples
would be the Sony Walkman (introduced in 1979), the 3M Post-it Notes
(introduced in 1980), and the first Xerox photocopier (introduced in1952).
Such new-to-the-world products have become critical in maintaining revenue
levels and market share in increasingly competitive markets. Moreover, the
combination of new technologies and competitive pressure is forcing product
managers to aggressively pursue, develop, and launch new products in record
times (Perrault and McCarthy, 1997). The implementation of this practice is
evident in the significantly shortened product development time of
innovative organizations such as 3M, Apple, and GM, whose product
development cycles are now measured in months rather than in years
(Quittner, 2002; Whiting, 2001). At the same time it is estimated that, of the
approximately 16,000 new products introduced each year, less than one in
ten are successful (Ayers et al., 1997). It is therefore no surprise that a
growing product management concern is in finding ways to reduce the risks
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New product development
Maintaining revenue levels
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 11 NO. 5 2002, pp. 303-318, #MCB UP LIMITED, 1061-0421, DOI 10.1108/10610420210442184 303
An executive summary for
managers and executive
readers can be found at the
end of this article
associated with new product launches, by improving the quality of related
decisions.
One of the fundamental decisions which helps determine the success of a
new-to-the-world product is the correct pricing of the product on market
introduction. While traditional methods of setting prices have been used for
decades, the emergence of new information-based technologies has enabled
new approaches to this fundamental aspect of new product development.
Electronic commerce and communications, and the creative use of the
Internet now provide brand managers with the ability to quickly gauge the
potential for new product success, at speeds that far exceed traditional
market research techniques. The tools of the new economy, for example,
enable test marketing of new product prices, segment-based pricing, and
instantaneous competitive price benchmarking, at a fraction of the time and
cost associated with these activities in traditional new product development
practice (Aaker et al., 2001; Cortese and Stepanek, 1998; Nelson, 1998). The
emerging technologies are also enabling consumers to better visualize and
experience new products prior to their introduction to the marketplace, and
electronic delivery has made it possible for products to be created, modified,
and delivered in record times. The objective of this paper is therefore to
provide an overview of the emerging technologies utilized in the pricing of
new-to-the-world products. We will first examine the traditional approaches
to new product pricing. We will then examine how the practice of new
product pricing is evolving due to the emergence of information-based
technologies. The paper will conclude with a discussion of the potential
impact of these technological advancements on the practice of pricing in the
decades to come.
Traditional approaches to pricing new products
The notion of a ``new'' product can take on many different forms in the
product management arena. Most products introduced to the market are not
necessarily entirely new. Some may be considered new, simply because the
company itself has had no prior experience marketing it. Many other new
products are minor modifications or improvements to existing product
designs, which do not necessarily represent leapfrog advances in the product
itself. However, a unique category of new products, known as the new-to-
the-world product, is one that has intrigued practitioners and academics for
decades (Moreau et al., 2001; Urban and Hauser, 1993). A new-to-the-world
product is a novelty, which has no clear substitute on the market at the time
of introduction. A prime example would be the Sony Walkman, introduced
in 1979. At the time of its introduction, no existing product could provide
high-quality portable stereo audio. The introduction of the Walkman not only
helped serve a strong latent market demand, but it also provided Sony with a
profitable pioneering advantage in the category, and the association of the
Walkman name with the category it helped create. One of the biggest
challenges facing developers launching such new-to-the-world products is
the determination of the launch price. The price of the new-to-the-world
product largely depends on the incremental utility provided by the unique
aspects of the product, over any comparable old technologies. This can be
formalized as:
Pnew Pcomp Vnew;
where P
comp
is the comparable price of the product with old technologies
(e.g. a portable cassette player), V
new
represents the incremental value the
consumer places on the unique features of the new-to-the-world product (e.g.
high-quality stereo sound, light weight, etc.), and P
new
is the fair market price
Correct pricing of the
product
Not necessarily entirely
new
304 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 11 NO. 5 2002
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