New Products - From Ideas to Markets at LMU München

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Study with flashcards and summaries for the course New Products - From Ideas to Markets at the LMU München

Exemplary flashcards for New Products - From Ideas to Markets at the LMU München on StudySmarter:

Reasons for New Product Development

Exemplary flashcards for New Products - From Ideas to Markets at the LMU München on StudySmarter:

Common Understanding od digital goods and software

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Network effects in general and its two specific types

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Example for Path Dependences: The most popular Social Media Networks

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Limitations of Network Effect Theory II

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Limitations of network effect theory I

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Basics of the Standardization Problem: Background and solutions

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Solutions of the Standardization Problem

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What are the strategies and tactics in Standardization? Short overview.

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Describe Strategy 1: Tweedledum and Tweedledee

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Explain Strategy 2: Battle of Sexes

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Explain Strategy 3: Pesky Little Brother

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Exemplary flashcards for New Products - From Ideas to Markets at the LMU München on StudySmarter:

New Products - From Ideas to Markets

Reasons for New Product Development

  • Innovativeness as a competitive advantage
  • Replace products at the end of their life cycle
  • Changing customer needs

New Products - From Ideas to Markets

Common Understanding od digital goods and software

Digital goods...

- can be presented in binary format (0/1)

- can be offered as a product or as a service 

- are special and are important in today´s economy 


Software as an important category of digital goods 

- is executable code 

- used by users in a company or private customer 

- needs hardware and needs data 


Important categories of software: 

- Application software, system software 

- Package software, specialized software 

- Software on premise, SaaS

New Products - From Ideas to Markets

Network effects in general and its two specific types

Network effects: 


“The utility […] a user derives from consumption of the good increases with the number of other agents consuming the good”


“Network effect goods are goods, whose functionality depends on the size of the network. They represent single components of a whole system. [...] Formally spoken we find network effect goods, if their consumption causes positive externalities for other individuals.”


Direct network effects: 

- Network effect goods 

- Spread of the good determines its value 

- E.g. Facebook 


Indirect Network effects: 

- System goods 

- Spread of good dtermines supply of complementary products 

- E.g. Windows

New Products - From Ideas to Markets

Example for Path Dependences: The most popular Social Media Networks

Success of a Social Media network depends on the number of Social Media networks and the amount of users, not only on its technical features or its price

New Products - From Ideas to Markets

Limitations of Network Effect Theory II

Type of network effect utility:

- No concretization of the abstract construct of network utility 

- What could be a concrete utility in networks? 


Normative implications: 

- Macroeconomic perspective: Explanation on how users make standardization decisions 

- No concrete recommendations for action (no practical advice on how to achieve network effects)


--> Applicability of network effects in practice?

New Products - From Ideas to Markets

Limitations of network effect theory I

Homogeneous network effects and costs of network size: 

- Assumption about dependence of network effect utility on the number of users: linear function 

- But what about degressive or progressive utility functions? 


Network effects depend on: 

- market structure

- local network effects 

- technological features 

--> not always exponential growth


Not only positive network effects (e.g. parents or ads on social media)


Network costs occur: another way to think about networks 

- supply chain: economies of scale and scope: the more products, the lower the MC

- demand side: scale effects in networks: More users lead to lower MC

New Products - From Ideas to Markets

Basics of the Standardization Problem: Background and solutions

Background: 

- Diverse landscape of application systems lead to heterogenous IT environment 

- Incompabilities which hinder information flows between different departments of the firm 

- Costs for maintaining interfaces between the systems account for up to half of the IT budget 


Summary: Diverse application systems --> heterogenous IT environments --> Incompatibilities within a firm --> Costs for maintaining interfaces very high

New Products - From Ideas to Markets

Solutions of the Standardization Problem

1. Standardization: 

- Standardization: The use of common rules for communication 

- Two systems are compatible if they can communicate through a chosen standard 

- Examples: EDI standards and SOA platforms 

-> Avoid incompatible solutions by prior design rules 


2. Converters: 

Option to bridge interfaces

- Higher costs than standards due to the amount of needed converters 

- Reduced flexibility in the IT department 

--> Find a solution to work with existing incompatible solution

New Products - From Ideas to Markets

What are the strategies and tactics in Standardization? Short overview.

Situation: 

Two companies A and B are on the market

Question: 

How can standards help companies to compete for their market shares? 

With two firms there are three possible strategies:

1. Tweedledum and Tweedledee 

2. Battle of Sexes 

3. Pesky little brother

New Products - From Ideas to Markets

Describe Strategy 1: Tweedledum and Tweedledee

Situation: 

- Firms have the same market share 

- Firms are symmetric in their technological positions 

- A standards battle does not greatly delay the adoption of the technology by consumers 

- Intra-technology competition is likely to dissipate potential industry profits 


Tactic: 

1. Building an Early lead (e.g. penetration pricing) 

2. Attracting the suppliers of complementary components (e.g. through special tools for software developers) 

3. Product Pre-announcements (discourage users form buying competitor´s product but watch out for Osborne Effect) 

4. Price commitments (offering low prices over the long term --> be credible, dont abuse market power)  

New Products - From Ideas to Markets

Explain Strategy 2: Battle of Sexes

Situation: 

- Compatibility is overwhelmingly important for both firms 

- The lack of compatibility will dissipate a large proportion of potential profits for both firms 


Tactic: 

- Agree to adopt the same industry format/standard

- Adopt actions that make your standard more attractive to the other firm such as: 

  • low cost licensing
  • hybrid standards
  • commitment to joinm future development
  • shifting standards development to third parties
  • Promising timing information to rivals


New Products - From Ideas to Markets

Explain Strategy 3: Pesky Little Brother

Asymmetric Situation: One of the frims has: 

- a large installed customer base 

- a particularly good technology 

- a powerful repuation 


Tactic for the inferior firm (little brother): 

- Aim at compatibility by adopting established standards


Tactics for the superior firm (big brother) 

Resist compatibility by:

- asserting intellectual property rights 

- by changing technology frequently

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