No abstract

Considering the number of new product introductions and available product varieties today, the practice of product proliferation is visibly evident in many diverse industries. Given its prevalence in practice, understanding the determinants and implications of firm proliferation strategies clearly has important managerial relevance. Previous theoretical research has identified three primary effects of a proliferation strategy: (1) a broad product line can increase the overall demand faced by the firm, (2) a broad product line can affect supply by increasing costs, and (3) broad product lines can have strategic consequences (e.g., long product lines can deter entry, thereby allowing an incumbent firm to raise prices). However, despite the theoretical interest in this common business practice, there has been very little empirical research on this topic. Moreover, no empirical study has simultaneously considered all three of the possible effects associated with a proliferation strategy. Consequently, in this paper we propose a three-equation simultaneous system that captures both the determinants and market outcomes of a firm's product line decisions. In particular, we specify market share, price, and product line length equations, which are estimated by three stage least squares. Using this structure, we empirically study the personal computer industry over the period 1981–1992. Our empirical results demonstrate that proliferation strategies do not have a uni-dimensional explanation. We find that product proliferation decisions have both demand (market share) and supply (price) implications. Our empirical results also suggest that the firm-level net market share impact of product proliferation in the personal computer industry is negative (i.e., the cost increases associated with a broader product line dominate any potential demand increases). As expected, we find that structural competitive factors play an important role in the determinants and market outcomes of a firm's product line decisions. However, we do not find evidence of firms using proliferation strategies to deter entry in this industry. Finally, we also demonstrate that some of the empirical conclusions from previous research are reversed once product line length is specified as endogenous in the share and price specifications.Product Proliferation, Product Line Pricing, Entry Deterrence, Personal Computer Industry

Diffusion models represent one of the key successes in marketing science. We understand a great deal about what influences and shapes within-country diffusion patterns. However, we understand far less about what influences and shapes cross-country (or “inter-country”) diffusion patterns. Clearly, for firms operating in a truly global environment, understanding to what extent prior adoption in one country affects current (and consequently future) adoption in another country can be an important consideration. Further, understanding how the of interaction across countries impacts the diffusion process can have profound implications for product launch strategies for new durable products. In this paper, we address the extent to which prior adoption of a new product in one country affects adoption in other countries. In particular, we investigate the importance of the pattern of interaction (what we call “mixing”) across countries in the context of a new product diffusion model. More specifically, mixing refers to the pattern of communication within and across countries. For example, do Italians communicate only with other Italians or do they influence consumers in other countries? Understanding and empirically estimating how these mixing patterns across countries influence the subsequent diffusion process is the central research objective of this paper. While previous research in marketing addressing cross-country diffusion has assumed very specific forms of cross-country interaction, the present study develops and estimates a flexible form of mixing that allows for the simultaneous estimation of mixing patterns across multiple countries. In particular, we examine the effect of mixing behavior across populations on new product adoption, viewing mixing as occurring across a continuum with segregation (no mixing) at one end and random mixing at the other. Intermediate forms of mixing lie along this continuum and are called Bernoulli mixing. In order to produce generalizable results, we obtained sales data on four product categories in the European community (EC) nations: VCRs from 1977–1990, microwave ovens 1975–1990, compact disc players 1984–1993, and home computers 1981–1991. For each product, data were collected for 10 EC nations: Great Britain, Germany, France, Italy, Spain, Belgium, Denmark, Netherlands, Sweden, and Austria. A diffusion model that incorporates cross-country prior adoption, cross-country mixing patterns, and individual country covariates was estimated simultaneously across the 10 countries for each of the four products. On the basis of the empirical results, we conclude that mixing behavior across segments is an important consideration in new product diffusion. Specifically, the observed pattern of mixing and the strength of cross-segment influences are important considerations in allocating the marketing mix during product introduction stages. The practical implication of mixing behavior is that if one wishes to understand diffusion in Belgium (for example) it is important to not only know the dif...

Research addressing the diffusion of successive generations of technological innovations has generally ignored the impact of marketing-mix variables. As a result, there have been several calls for the development of multiple-generation models that incorporate marketing-mix variables. The authors develop a model of first-time sales and subscriptions for successive generations of a technological innovation, which explicitly captures the effects of marketing-mix variables through a proportional hazards framework. The empirical analysis estimates the impact of price for two generations of cellular telephones in a European country. The results suggest that there are important substantive insights to be gained from the parameter estimates for this marketing-mix variable when intergenerational interdependencies are considered. For example, although the time path of the estimated price elasticities in a multiple-generation setting closely follows those reported previously for single generations, the authors find evidence of an important interaction in price response across generations. Therefore, empirical estimates in single-generation models may be missing an important part of the pricing equation.

In contrast to single-equation cross-sectional studies of private label share, developing a complete understanding of the nature of the competitive interaction between national brands and private labels requires an understanding of the determinants of both demand and strategic pricing decisions by firms. Consequently, we estimate a simultaneous system of share and price for private labels and national brands. From the empirical results, two measures of market response are derived. The unilateral demand elasticity measures the pure "own" demand response, while the residual (or "total") elasticity also captures the impact of competitive price reaction (Baker and Bresnahan 1985). When taken together, these provide important strategic insights into the pricing interaction between national brands and private labels. In our empirical analysis, we employ a flexible, non-linear demand specification, the Linear Approximate Almost Ideal Demand System (LA/AIDS, Deaton and Muellbauer 1980a), and specify the price reaction equations derived under the LA/AIDS demand specification. Incorporating LA/AIDS demands into a structural equation framework represents an important departure from previous demand specifications in competitive analysis. Using the proposed LA/AIDS framework, we perform a detailed intra-category analysis using data on six individual categories: bread, milk, pasta, instant coffee, butter and margarine. In addition, in an attempt to generalize the results to a broader set of categories and in order to enable us to compare our results to previous cross-section studies, we also estimate using a sample pooled across 125 categories and 59 geographic markets. Consistent with our objectives, we find that consumer response to price and promotion decisions (demand) and the factors influencing firm pricing behavior (supply) jointly determine observed market prices and market shares. Further, estimates of residual demand elasticities suggest that examination of partial demand elasticities alone may provide an incomplete picture of the ability of brands to raise price. Managerial implications, limitations and suggestion for future research are discussed.