A Road Map to New Product Success: Warranty, Advertisement and Price

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Annals of Operations Research






In today’s hyper-competitive marketplace, new product introduction is commonly viewed as a vehicle for profitably growing businesses, yet market success remains rare and new innovative products fail at stunning rates. Current corporate thinking identifies a number of potential reasons, one of which lies in the poor execution of marketing-mix strategies. In this paper, we analyze how best to structure the marketing strategy of a company to foster and leverage his innovative new product with a focus on three variables—namely warranty duration, advertising spending and selling price—and attempt to provide a theoretical explanation for factors that affect optimal trajectories of these variables over time. We also conduct a detailed numerical study in order to test which market- and product-related factors have the most influence on and best explain the company’s new product introduction strategy, and illustrate the associated profit impacts. Our analysis proposes a time-variant threshold on advertising spending that structures the company’s marketing strategy over time. Secondly, we point out that warranty duration and price collectively follow the pattern of the diffusion curve of the new product, but reach their maximum levels before the new product matures. We also provide guidance about the effect of such market- and product-related factors as referral power, failure rates and effectiveness of advertising spending on a company’s new product introduction strategy.