Showing papers by "Gerard J. Tellis published in 2008"

Do Innovations Really Payoff? Total Stock Market Returns to Innovation

Abstract: Critics often decry an earnings-focused short-term orientation of management that eschews spending on risky, long term projects such as innovation in order to boost a firm's stock price The critics' assume that stock markets respond to announcements of earnings that report immediate earnings and not of innovation that have a long-term payoff Contrary to this position, the authors argue that the market's true appreciation of innovation can be estimated by assessing the total market returns to the entire innovation project The authors demonstrate this approach via the Fama-French 3 Factor Model (including Carhart's Momentum Factor) on 5481 announcements from 69 firms in 5 markets and 19 technologies, during the period 1977-2006 The authors find that total market returns to an innovation project are $643 million, more than 13 times the $49 million due to an average innovation event Returns to negative events are higher in absolute value than those to positive events Returns to development activities are higher than returns to either the setup or market activities Returns are higher for smaller firms than larger firms Returns to the announcing firm are substantially greater than those to competitors across all stages The authors discuss the implications of the results

Drivers of Success for Market Entry into China and India

Abstract: China and India are the fastest-growing major markets in the world and the most popular markets for foreign entrants. However, no study has examined the success or failure of these entries. Using a new definition of success and a uniquely compiled archival database, the authors analyze whether and why firms that entered China and India succeeded or failed. The most important findings are rather counterintuitive: Smaller firms are more successful than larger firms, and firms entering more open emerging markets have less success. Other findings are that success is greater with earlier entry, greater control of entry mode, and shorter cultural and economic distances between the home and the host countries. Importantly, with or without control for these drivers, firms have less success in India than in China. The authors discuss the reasons for and implications of these findings.

Does Quality Win? Network Effects versus Quality in High-Tech Markets

Abstract: Researchers disagree about the critical drivers of success in and efficiency of high-tech markets. On the one hand, a few researchers assert that high-tech markets are efficient with best quality brands dominating. On the other hand, many authors suspect that network effects lead to perverse markets in which the dominant brands do not have the best quality. We develop scenarios about the relative importance of these effects and the efficiency of markets. Empirical analysis of historical data on 19 categories shows that while both quality and network effects affect market share flows, markets are generally efficient. In particular, market share leadership changes often, switches in share leadership closely follow switches in quality leadership, and the best quality brands, not the first to enter, dominate the market. Network effects enhance the positive effect of quality.

Global Takeoff of New Products: Culture, Wealth, or Vanishing Differences?

Abstract: The authors study the takeoff of 16 new products across 31 countries 430 categories to analyze how and why takeoff varies across products and countries. They test the effect of 12 hypothesized drivers of takeoff using a parametric hazard model. The authors find that the average time to takeoff varies substantially between developed and developing countries, between work and fun products, across cultural clusters, and over calendar time. Products take off fastest in Japan and Norway, followed by other Nordic countries, the United States, and some countries of Midwestern Europe. Takeoff is driven by culture and wealth plus product class, product vintage, and prior takeoff. Most importantly, time to takeoff is shortening over time and takeoff is converging across countries. The authors discuss the implications of these findings.

The Value of Quality: Stock Market Returns to Published Quality Reviews

Abstract: Product quality is probably under-valued by firms because there is little consensus about appropriate measures and methods to research quality. The authors suggest that published ratings of a product's quality are a valid source of quality information with important strategic and financial impact. The authors test this thesis by an event analysis of abnormal returns to stock prices of firms whose new products are evaluated in the Wall Street Journal. Quality has a strong immediate effect on abnormal returns, which is substantially higher than that for other marketing events assessed in prior studies. In dollar terms, these returns translate into an average gain of $500 million for firms that got good reviews and an average loss of $200 million for firms that got bad reviews. Moreover, there are some important asymmetries. Rewards to small firms with good reviews of quality are greater than those to large firms with good reviews. On the other hand, large firms are penalized more by poor reviews of quality than they are rewarded for good reviews. The authors discuss the research, managerial, investing, and policy implications.

Functional Regression: A New Model and Approach for Predicting Market Penetration of New Products

Abstract: The Bass (1969) model has been a standard for analyzing and predicting the market penetration of new products. The authors demonstrate the insights to be gained and predictive performance of Functional Data Analysis (FDA), a new class of non-parametric techniques that has shown impressive results within the statistics community, on the market penetration of 760 products drawn from 21 products and 70 countries. The authors propose a new model called Functional Regression and compare its performance to over several models including the Classic Bass model, estimated means, last-observation projection, a meta-Bass model and an augmented meta-Bass model for predicting eight aspects of market penetration. Results a) validate the logic of FDA in integrating information across categories b) show that Functional Regression is superior to the above models and c) product specific effects are more important than country-specific effects when predicting penetration of an evolving new product.

Why and How Quality Wins over Network Effects and What it Means

Abstract: Networks are an important and very interesting phenomenon, which is increasingly prevalent in contemporary high-tech markets. Many papers in the literature have explored how network effects can lead to perverse markets. Contrary to this position, Tellis, Yin and Niraj (2009) suggest that quality is important even in the presence of network effects, which enhances rather than overwhelms the role of quality. The insightful commentaries of Brown and Morgan (2009), Ratchford (2009), Rossi (2009), Reibstein (2009), and Shugan (2009) seem to concur that the evidence of Tellis, Yin and Niraj (2009) is persuasive. However, the commentaries raise a number of important issues that enrich the meaning of the constructs and the interpretation of the findings. They provide a wealth of directions for future research.

Important Research Questions in Innovation and Technology

Abstract: Researchers in a variety of disciplines have studied various aspects of technological innovation. However, those in marketing have a unique advantage. Adopting a consumer orientation helps in understanding technological innovation because all innovations ultimately aim to produce better products for consumer welfare. Thus researchers in marketing have a unique vantage point in researching and understanding this phenomenon. This essay outlines ten important research questions in technological innovation from a marketing perspective.