It’s a widely held belief in marketing that “the pioneer always wins the war.”
Until now, many believed that if a company launched a new product into the market, they were headed for success. Though other companies would follow suit and release similar products, it was thought that latecomers would not do as well as those pioneers.
But new research shows that companies that are late to the market can have their own successes in that market, as long as they pay attention to what features consumers value most.
Enhance or Differentiate
Ali Besharat, professor of marketing at the University of Denver Daniels College of Business, and his colleagues noticed that companies use one of two methods when they are entering a market pioneered by another company and found that they either use an “enhancing” strategy or a “distinctive” strategy.
For example, Apple’s iPhone was a pioneer in smartphone technology, and so Samsung’s Galaxy smartphones tried to improve aspects of the iPhone, such as battery life, to succeed in the market—an “enhanced” strategy. On the other hand, Motorola introduced a waterproof smartphone, a novel feature to the smartphone market. This move was what Besharat calls a “distinctive” strategy.
Higher price signals quality and novelty
They found that when the existing attributes are important, it’s better to differentiate—to add a new product with the same valued attributes as the existing product, plus new attributes.
“If the attributes are important, you have to make sure, as a late entrant, that you have those but also try to add another valuable attribute to your product,” Besharat explains. When a product has novel features that customers perceive as valuable to the product’s usability, a distinctive strategy can work better than an enhanced strategy.
A surprising finding, however, was that even a distinctive strategy with an irrelevant feature can be successful—if the product is more expensive.
“We found that when the attribute that you’re adding is irrelevant to the value, if you charge customers higher prices, they like it more than at a lower price,” he says.
“Higher price signals quality and novelty [to consumers]. If you can’t improve the attributes of the pioneer’s product, come up with an irrelevant attribute and then, if you have it and the pioneer’s product doesn’t, price your product higher.”
Examples of these strategies can be found in other industries, as well. For instance, food and beauty products can take advantage of “distinctive” strategies by labeling the package with irrelevant attributes—like “gluten-free apple juice” and “vitamin shampoo”—and make their product stand out among otherwise identical competitors.
For consumers, the takeaway is that deciding between products comes down to relevance and functionality.
“The most important step [consumers] have to take is to decide whether this attribute matters in the functionality of the product,” says Besharat.
“Any consumer goes through consideration sets, comparing a set of brands before making a decision. If they want to compare those brands, they have to first consider what the most critical factors are. Marketers actually like customers to make comparisons—but as a consumer, it’s best to look at them one at a time.”
The paper will be published in an upcoming edition of the Journal of Business Research and was co-authored by Ryan J. Langan, of Willamette University, and Carlin G. Nguyen, of the University of South Florida.