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Exploring Mediating and Moderating Influences on the Links among Cycle Time, Proficiency in Entry Timing, and New Product Profitability

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  • *The authors would like to thank the editor and two anonymous reviewers for their comments on the previous versions of this manuscript. They also appreciate the comments of seminar participants at the University of Groningen. The authors acknowledge the financial support from the Erasmus Research Institute of Management and the Goldschmeding Research Center.

Address correspondence to: Fred Langerak, Rotterdam School of Management, Erasmus University, Department of Marketing Management, Office T10-16, P.O. Box 1738, NL-3000 DR Rotterdam, The Netherlands. E-mail: f.langerak@rsm.nl.

Abstract

Development cycle time is the elapsed time from the beginning of idea generation to the moment that the new product is ready for market introduction. Market-entry timing is contingent upon the new product's cycle time. Only when the product is completed can a firm decide whether and when to enter the market to exploit the new product's window of opportunity. To determine the right moment of entry a firm needs to correctly balance the risks of premature entry and the missed opportunity of late entry. Proficient market-entry timing is therefore defined as the firm's ability to get the market-entry timing right (i.e., neither too early nor too late). The literature has produced divergent evidence with regard to the effects of development cycle time and proficiency in market-entry timing on new product profitability. To explain these disparities this study (1) explores the mediating roles of development costs and sales volume in the relationships among development cycle time, proficiency in market-entry timing, and new product profitability, respectively; and it (2) explores the moderating influence of product newness on the relationship between development cycle time and development costs and that of new product advantage on the link between proficiency in market-entry timing and sales volume. The results from a survey-based study of 72 manufacturers of industrial products in the Netherlands suggest that development costs mediate the relationship between development cycle time and new product profitability and that sales volume mediates the link between proficiency in market-entry timing and new product profitability. In addition, the findings indicate that new product advantage strengthens the positive relationship between proficiency in market-entry timing and sales volume. The results provide no evidence for a moderating effect of product newness. These results have important implications because to maximize new product profitability managers need to distinguish between costs and demand side effects of development cycle time and market-entry timing on new product profitability. Keeping this distinction in mind should help them to better determine the relative profit impact of investments in cycle time reduction or improved entry timing. Moreover, the findings suggest that highly advantaged products that enter the market at the right time may have a highly attenuated sales volume. It also implies that new products with lower advantage may have very little leeway in hitting the “sweet spot” in market. The message is that “doing the right thing” (i.e., to develop a highly advantaged new product) may be at least as important as correctly balancing the risks of premature entry and the missed opportunity of late entry.

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