Market effects of new product introduction: Evidence from the brew‐at‐home coffee market

Abstract

The introduction of new products has always been an important source of economic development and improvement in consumer welfare. With retail coffee data spanning 5 years after the single-cup brew coffee pods were introduced to grocery chains, this paper empirically studies the market effects of new product introduction in the brew-at-home coffee market. We use a structural model of demand and supply to capture the changes in consumers' preference for this new product over time. The demand estimates suggest that consumers' relative preference and willingness-to-pay for the new product grew substantially over the sample periods. The analysis reveals the extent to which the introduction and growing presence of the new product simultaneously expanded the relevant market and cannibalized the sales of preexisting substitute products (traditional auto-drip brew coffee products). Furthermore, we quantify the annually expanding welfare gains of the average consumer attributable to the new product.

Using demand transfer ratios to infer market impacts of new goods

“…Depending on the sign and size of the demand transfer ratio estimates, one may infer whether the new goods have an aggregate demand expansionary effect and/or a demandcannibalization effect on substitute pre-existing products. In an application, we use the data from Gayle and Lin (2022) and find demand transfer ratio estimates that support the key empirical findings related to the introduction of single-cup coffee products in the retail packaged coffee products sector.…”

“…The above-mentioned results were obtained under several assumptions made in Gayle and Lin (2022). Here, we change some of the assumptions to determine the extent to which our demand transfer ratio estimates are robust to these changes.…”

“…In this section, we apply the analysis of the demand transfer ratios to Gayle and Lin (2022), which studies the market effects of the introduction of single-cup coffee pods in the retail packaged coffee products sector. The Information Resources Inc. (IRI) retail scanner data used (Bronnenberg et al, 2008) cover sales of traditional auto-drip brew ground coffee and single-cup brew coffee products in a cross section of 6,002 markets over 60 year-month periods from 2008 through 2012.…”

“…Therefore, using this 𝐷𝑇𝑅 measure, on the one hand, we can quickly identify the key market impacts of the introduction of single-cup brew coffee products: an aggregate demand expansionary effect and a demand-cannibalizing effect on the pre-existing auto-drip coffee products as shown and discussed in Gayle and Lin (2022). On the other hand, the measure also effectively conveys the respective magnitude of the demand transference that is attributed to consumers of the pre-existing products as well as to consumers who initially chose not to consume brew-at-home coffee products.…”

Biorefinery and Stepwise Strategies for Valorizing Coffee By-Products as Bioactive Food Ingredients and Nutraceuticals

“…This involves assessing consumer preferences and trends, as well as the availability and cost of raw materials and the processing methods [160]. By taking these factors into account, the development of functional food ingredients and nutraceuticals from coffee by-products can be guided by market demand and feasibility, leading to more successful and sustainable products [161].…”