New Product Development Under Channel Acceptance

Authors:
Lan Luo;P. K. Kannan;Brian T. Ratchford
Affiliations:
Marshall School of Business, University of Southern California, 3660 Trousdale Parkway, Los Angeles, California 90089;Robert H. Smith School of Business, University of Maryland, 3461 Van Munching Hall, College Park, Maryland 20742;School of Management, University of Texas at Dallas, P.O. Box 830688, SM 32, Richardson, Texas 75083
Venue:
Marketing Science
Year:
2007

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Abstract

In channel structures characterized by a powerful retailer (e.g., Wal-Mart, Home Depot), the dominant retailer's acceptance of a manufacturer's new product often determines the success of the new offering. Focusing on a manufacturer in such a market, we develop an approach to positioning and pricing a new product that directly incorporates the retailer's acceptance criteria into the development process. Our method also accounts for the retailer's product assortment and the competing manufacturers' potential reactions in wholesale prices. Our method merges individual-level conjoint models of preference with game-theoretic models of retailer and manufacturer behavior that are specific to the institutional setting of the focal manufacturer. The application of our approach in the context of a new power tool development project undertaken by this manufacturer also highlights the potential of our approach to other analogous institutional settings.