Post-Entry Product Introduction: Who Explores New Niches?

Abstract

Where do innovative products come from? Why do some firms address new market niches and others do not? The literature has rarely blended the concept of innovativeness of a product at the market level with the coherence of the product portfolio at the firm level. In this paper, we examine whether the introduction of products that are highly innovative occurs in firms that are very differentiated, both in terms of target niches and in terms of technological competencies, or rather in firms that focus on specific market segments and that have a limited technological capability. The results show that the introduction of products that are new to the market generally occurs in firms that introduce many products in few market segments and are characterized by a set of specialized technological and market competencies. At least in this industry, the myth of the small specialized niche player does not hold. Implications have a positive relevance to assess firms' behaviour in a given market. From the welfare point of view, this paper helps disentangle monopolistic power generated by truly new products and simple versioning of the product.

Keywords::

• product differentiation
• innovation
• ski industry
• market niches

JEL Classification::

• L23
• L25
• 031

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ If each firm produces only one variety, such as in a pure Dixit–Stiglitz framework, the production of each new variety requires the entry of a new firm, which produces negative effects on the other firms' profits, by increasing the competition. If, on the contrary, firms are allowed to produce more than one variety (up to an extreme case, where only one monopolist produces all the possible varieties), they are able to internalize those negative effects and thus reach a more profitable equilibrium (Vassilakis 1993).

² For instance, Markides and Williamson (1996) steer the attention towards the coherence of diversification which creates long-lasting competitive advantage. According to them, the creation of long-run strategic assets through relatedness requires the development of appropriate internal mechanisms for transferring competences and assets across business units in a more efficient way than can be achieved in the open market.

³ Because of some missing data, we perform the analysis on a set of 4,202 skis. In some cases, companies' websites have been used to complement the information available in the magazine.

⁴ The magazine reports all new products introduced in Europe, which accounts for more than 80 per cent of major resorts and for the majority of number of lifts worldwide (Vanat 2014).

⁵ We refer to “entry” and “exit” in terms of new product development. Note that a firm that “exits” the market in our terminology can still be present in the market with old models of skis.

⁶ The alpine and freeride submarkets constitute important exceptions, since the top producers are, respectively, Ski Trab and Scott USA.

⁷ Note that this categorization of service characteristics entails a smaller number of categories compared to the one previously discussed at the firm level (see Table 2). This is because some categories are mutually exclusive at the product level (e.g. a ski is either for special slalom races or for giant slalom races) and, therefore, it is possible to merge some of the categories into a single market segment.

⁸ If we consider fewer dimensions instead of considering all five service characteristics, the number of sub-markets decreases and the average size grows.

⁹ This variable can also be interpreted as a proxy for firm size.