Summary
Articles
Marketing and
Innovation
1
,Contents
Lecture 1 .................................................................................................................................................. 3
Gourville, J.T. (2006), Eager Sellers, Stony Buyers: Understanding the Psychology of New-Product
Adoption, Harvard Business Review, June, 99-106 ............................................................................ 3
Woodruff, R. (1997) Customer Value: The Next Source for Competitive Advantage ....................... 6
Lecture 2 ................................................................................................................................................ 14
Homburg, C., Theel, M., and Hohenberg, S. (2020). Marketing Excellence: Nature, Measurement,
and Investor Valuations, Journal of Marketing, 84(4),1-22 .............................................................. 14
Verhoef, Peter C. & Peter S. Leeflang (2009), Understanding the Marketing Department’s Influence
Within the Firm, Journal of Marketing, 73 (March), 14-37 .............................................................. 17
Lecture 3 ................................................................................................................................................ 20
Ernst et al. (2010) impact of sales-marketing-R&D cooperation across the NPD process ............... 20
De Luca & Atuahene Gima (2007) importance of knowledge integration mechanisms ................... 25
Lecture 4 ................................................................................................................................................ 30
Tripsas & Gavetti (2000) manager belief and response to market change ........................................ 30
Lecture 5 ................................................................................................................................................ 33
Arts, Frambach & Bijmolt (2011) Generalizations on consumer innovation adoption: A meta-
analysis on drivers of intention and behavior .................................................................................... 33
Rosa, J. A., & Spanjol, J. (2005). Micro-level product-market dynamics 'shared knowledge and its
relationship to market development'.................................................................................................. 37
Lecture 6 ................................................................................................................................................ 42
Coviello & Joseph (2012) Different roles customers can have in NPD ............................................ 42
Cui & Wu (2017) type of customer involvement .............................................................................. 48
Lecture 8 ................................................................................................................................................ 54
Lee & Colarelli O’Connor (2003) network effects ........................................................................... 54
Schuhmacher, Kuester & Hultink (2017) Appetizer or Main Course: Early Market vs. Majority
Market Go-to-Market Strategies for Radical Innovations. ................................................................ 61
Lecture 9 ................................................................................................................................................ 65
De Wulf, K., Odekerken-Schröder, G., & Iacobucci, D. (2001). Investments in consumer
relationships....................................................................................................................................... 65
Sinapuelas, I.C.S., Wang, H.M.D., & Bohlmann, J.D. (2015). The interplay of innovation, brand,
and marketing mix variables in line-extensions ................................................................................ 70
Lecture 10 .............................................................................................................................................. 73
Rust, R.T., Lemon, K.N. & Zeithaml, V.A. (2004), Return on Marketing 'Using Customer Equity to
Focus Marketing Strategy' ................................................................................................................. 73
Gupta, S., & Zeithaml, V. (2006). Customer Metrics and Their Impact on Financial Performance . 75
Lecture 11 .............................................................................................................................................. 78
Terho, H., Eggert, A., Ulaga, W., Haas, A. & Böhm, E. (2017). Selling Value in Business Markets
Individual and Organizational Factors for Turning the Idea into Action .......................................... 78
2
,Lecture 1
Gourville, J.T. (2006), Eager Sellers, Stony Buyers: Understanding the Psychology of
New-Product Adoption, Harvard Business Review, June, 99-106
Introduction
Why do consumers fail to buy innovative products even when they offer distinct improvements over
existing ones? Why do companies invariably have more faith in new products than is warranted? Few
would question the objective advantages of many innovations over existing alternatives, but that’s often
not enough for them to succeed. To understand why new products fail to live up to companies’
expectations, we must delve into the psychology of behavior change. This article presents a behavioral
framework that explains why so many products fail and outlines some actions that companies can take
to improve their chances of success.
New products often require consumers to change their behavior. As companies know, those behavior
changes entail costs, such as transaction costs, learning costs, and obsolescence costs. All of these are
economic switching costs that most companies routinely anticipate.
What businesses don’t take into account, however, are the psychological costs associated with behavior
change. Many products fail because of a universal, but largely ignored, psychological bias: People
irrationally overvalue benefits they currently possess relative to those they don’t. The bias leads
consumers to value the advantages of products they own more than the benefits of new ones. It also
leads executives to value the benefits of innovations they’ve developed over the advantages of
incumbent products. That leads to a clash in perspectives: Executives, who irrationally overvalue their
innovations, must predict the buying behavior of consumers, who irrationally overvalue existing
alternatives. The results are often disastrous: Consumers reject new products that would make them
better off, while executives are at a loss to anticipate failure. This double-edged bias is the curse of
innovation.
The Psychology of Gains and Losses
Relative advantage assumes that companies make unbiased assessments of innovations and of
consumers’ likelihood of adopting them. Although compelling, the theory has one major flaw: It fails to
capture the psychological biases that affect decision making.
Gains and losses
Human beings’ responses to the alternatives before them have four distinct characteristics. First, people
evaluate the attractiveness of an alternative based not on its objective, or actual, value but on its
subjective, or perceived, value. Second, consumers evaluate new products or investments relative to a
reference point, usually the products they already own or consume. Third, people view any
improvements relative to this reference point as gains and treat all shortcomings as losses. Fourth, and
most important, losses have a far greater impact on people than similarly sized gains, a phenomenon
that Kahneman and Tversky called “loss aversion”.
The endowment effect
Consumers value what they own, but may have to give up, much more than they value what they don’t
own but could obtain. Thaler called that bias the “endowment effect.”. People demand two to four times
more compensation to give up products that they already possess than they are willing to pay to obtain
these items in the first place. This shows that people irrationally overvalue goods in their possession
over those they don’t have by a factor that is very close to three.
Status quo bias
3
, People tend to stick with what they have even if a better alternative exists. While Thaler and his
colleagues estimated the extent of loss aversion to be approximately a factor of two when students had
owned the coffee mugs for a short while, other researchers have found that the magnitude of the bias
rises, over time, to a factor of approximately four.
Building a Behavioral Framework
By applying the endowment effect and the status quo bias, I have built a behavioral framework around
the three entities that drive the market potential of any innovation: the new product or technology itself,
the consumer who must adopt it, and the company that designs it.
Innovations and behavior change
The successful adoption of an innovation often involves trade-offs. While consumers may obtain highly
desirable new features by buying an innovation, they often must give up some of the benefits of the
incumbent product. Consumers rarely view these trade-offs as simple behavior changes; they see them
as gains and losses. Provide a consumer with a new benefit, and she will see it as a gain. Take away a
benefit, and she will see it as a loss.
Consumers and behavior change
Consumers view products they own or use regularly as part of their endowment. As a result, they assess
innovations in terms of what they gain and lose relative to those existing products. As pointed out earlier,
consumers overvalue losses by a factor of roughly three. Therefore, it’s not enough for a new product
simply to be better. Unless the gains far outweigh the losses, consumers will not adopt it.
Companies and behavior change
Executives are also biased – in favor of new products. Having worked on a new product for months, if
not years, developers operate in a world where their innovation is the reference point. They’re convinced
that the product works, they recognize the need for it, and they are keenly aware of the shortcomings of
existing alternatives. Not having the features that their innovation provides seems to the developers like
a shortcoming, and having the features that the incumbent provides doesn’t seem essential.
Several problems arise when executives’ reference points shift, and they adopt the innovation-as-status-
quo perspective. They fall victim to the endowment effect just as consumers do. They overvalue the
benefits of their innovations by a factor of three. Due to the “curse of knowledge,” as behavioral
scientists call it, developers expect consumers to see the same value in their innovations that they see.
To sum up, consumers overvalue the existing benefits of an entrenched product by a factor of three,
while developers overvalue the new benefits of their innovation by a factor of three. The result is a
mismatch of nine to one, or 9×, between what innovators think consumers desire and what consumers
really want. (See the exhibit “The 9× Effect.”) Left unchecked, this mismatch is a recipe for disaster.
Balancing Product and Behavior Changes
What can companies do to ensure that consumers will adopt new products? The first step is for them to
ask what kind of change they are demanding of consumers. The bigger the behavior change,the bigger
the resistance from consumers is likely to be. Comparing product and behavior change yields a certain
tension: Companies create value through product change, but they capture that value best by minimizing
behavior change. That results in a simple but powerful matrix. (See the exhibit “Capturing Value from
Innovations.”) Companies must identify where their innovations fall in the matrix because each cell has
different implications for the likelihood that consumers will adopt those products as well as the time
acceptance might take.
Easy sells
4
Articles
Marketing and
Innovation
1
,Contents
Lecture 1 .................................................................................................................................................. 3
Gourville, J.T. (2006), Eager Sellers, Stony Buyers: Understanding the Psychology of New-Product
Adoption, Harvard Business Review, June, 99-106 ............................................................................ 3
Woodruff, R. (1997) Customer Value: The Next Source for Competitive Advantage ....................... 6
Lecture 2 ................................................................................................................................................ 14
Homburg, C., Theel, M., and Hohenberg, S. (2020). Marketing Excellence: Nature, Measurement,
and Investor Valuations, Journal of Marketing, 84(4),1-22 .............................................................. 14
Verhoef, Peter C. & Peter S. Leeflang (2009), Understanding the Marketing Department’s Influence
Within the Firm, Journal of Marketing, 73 (March), 14-37 .............................................................. 17
Lecture 3 ................................................................................................................................................ 20
Ernst et al. (2010) impact of sales-marketing-R&D cooperation across the NPD process ............... 20
De Luca & Atuahene Gima (2007) importance of knowledge integration mechanisms ................... 25
Lecture 4 ................................................................................................................................................ 30
Tripsas & Gavetti (2000) manager belief and response to market change ........................................ 30
Lecture 5 ................................................................................................................................................ 33
Arts, Frambach & Bijmolt (2011) Generalizations on consumer innovation adoption: A meta-
analysis on drivers of intention and behavior .................................................................................... 33
Rosa, J. A., & Spanjol, J. (2005). Micro-level product-market dynamics 'shared knowledge and its
relationship to market development'.................................................................................................. 37
Lecture 6 ................................................................................................................................................ 42
Coviello & Joseph (2012) Different roles customers can have in NPD ............................................ 42
Cui & Wu (2017) type of customer involvement .............................................................................. 48
Lecture 8 ................................................................................................................................................ 54
Lee & Colarelli O’Connor (2003) network effects ........................................................................... 54
Schuhmacher, Kuester & Hultink (2017) Appetizer or Main Course: Early Market vs. Majority
Market Go-to-Market Strategies for Radical Innovations. ................................................................ 61
Lecture 9 ................................................................................................................................................ 65
De Wulf, K., Odekerken-Schröder, G., & Iacobucci, D. (2001). Investments in consumer
relationships....................................................................................................................................... 65
Sinapuelas, I.C.S., Wang, H.M.D., & Bohlmann, J.D. (2015). The interplay of innovation, brand,
and marketing mix variables in line-extensions ................................................................................ 70
Lecture 10 .............................................................................................................................................. 73
Rust, R.T., Lemon, K.N. & Zeithaml, V.A. (2004), Return on Marketing 'Using Customer Equity to
Focus Marketing Strategy' ................................................................................................................. 73
Gupta, S., & Zeithaml, V. (2006). Customer Metrics and Their Impact on Financial Performance . 75
Lecture 11 .............................................................................................................................................. 78
Terho, H., Eggert, A., Ulaga, W., Haas, A. & Böhm, E. (2017). Selling Value in Business Markets
Individual and Organizational Factors for Turning the Idea into Action .......................................... 78
2
,Lecture 1
Gourville, J.T. (2006), Eager Sellers, Stony Buyers: Understanding the Psychology of
New-Product Adoption, Harvard Business Review, June, 99-106
Introduction
Why do consumers fail to buy innovative products even when they offer distinct improvements over
existing ones? Why do companies invariably have more faith in new products than is warranted? Few
would question the objective advantages of many innovations over existing alternatives, but that’s often
not enough for them to succeed. To understand why new products fail to live up to companies’
expectations, we must delve into the psychology of behavior change. This article presents a behavioral
framework that explains why so many products fail and outlines some actions that companies can take
to improve their chances of success.
New products often require consumers to change their behavior. As companies know, those behavior
changes entail costs, such as transaction costs, learning costs, and obsolescence costs. All of these are
economic switching costs that most companies routinely anticipate.
What businesses don’t take into account, however, are the psychological costs associated with behavior
change. Many products fail because of a universal, but largely ignored, psychological bias: People
irrationally overvalue benefits they currently possess relative to those they don’t. The bias leads
consumers to value the advantages of products they own more than the benefits of new ones. It also
leads executives to value the benefits of innovations they’ve developed over the advantages of
incumbent products. That leads to a clash in perspectives: Executives, who irrationally overvalue their
innovations, must predict the buying behavior of consumers, who irrationally overvalue existing
alternatives. The results are often disastrous: Consumers reject new products that would make them
better off, while executives are at a loss to anticipate failure. This double-edged bias is the curse of
innovation.
The Psychology of Gains and Losses
Relative advantage assumes that companies make unbiased assessments of innovations and of
consumers’ likelihood of adopting them. Although compelling, the theory has one major flaw: It fails to
capture the psychological biases that affect decision making.
Gains and losses
Human beings’ responses to the alternatives before them have four distinct characteristics. First, people
evaluate the attractiveness of an alternative based not on its objective, or actual, value but on its
subjective, or perceived, value. Second, consumers evaluate new products or investments relative to a
reference point, usually the products they already own or consume. Third, people view any
improvements relative to this reference point as gains and treat all shortcomings as losses. Fourth, and
most important, losses have a far greater impact on people than similarly sized gains, a phenomenon
that Kahneman and Tversky called “loss aversion”.
The endowment effect
Consumers value what they own, but may have to give up, much more than they value what they don’t
own but could obtain. Thaler called that bias the “endowment effect.”. People demand two to four times
more compensation to give up products that they already possess than they are willing to pay to obtain
these items in the first place. This shows that people irrationally overvalue goods in their possession
over those they don’t have by a factor that is very close to three.
Status quo bias
3
, People tend to stick with what they have even if a better alternative exists. While Thaler and his
colleagues estimated the extent of loss aversion to be approximately a factor of two when students had
owned the coffee mugs for a short while, other researchers have found that the magnitude of the bias
rises, over time, to a factor of approximately four.
Building a Behavioral Framework
By applying the endowment effect and the status quo bias, I have built a behavioral framework around
the three entities that drive the market potential of any innovation: the new product or technology itself,
the consumer who must adopt it, and the company that designs it.
Innovations and behavior change
The successful adoption of an innovation often involves trade-offs. While consumers may obtain highly
desirable new features by buying an innovation, they often must give up some of the benefits of the
incumbent product. Consumers rarely view these trade-offs as simple behavior changes; they see them
as gains and losses. Provide a consumer with a new benefit, and she will see it as a gain. Take away a
benefit, and she will see it as a loss.
Consumers and behavior change
Consumers view products they own or use regularly as part of their endowment. As a result, they assess
innovations in terms of what they gain and lose relative to those existing products. As pointed out earlier,
consumers overvalue losses by a factor of roughly three. Therefore, it’s not enough for a new product
simply to be better. Unless the gains far outweigh the losses, consumers will not adopt it.
Companies and behavior change
Executives are also biased – in favor of new products. Having worked on a new product for months, if
not years, developers operate in a world where their innovation is the reference point. They’re convinced
that the product works, they recognize the need for it, and they are keenly aware of the shortcomings of
existing alternatives. Not having the features that their innovation provides seems to the developers like
a shortcoming, and having the features that the incumbent provides doesn’t seem essential.
Several problems arise when executives’ reference points shift, and they adopt the innovation-as-status-
quo perspective. They fall victim to the endowment effect just as consumers do. They overvalue the
benefits of their innovations by a factor of three. Due to the “curse of knowledge,” as behavioral
scientists call it, developers expect consumers to see the same value in their innovations that they see.
To sum up, consumers overvalue the existing benefits of an entrenched product by a factor of three,
while developers overvalue the new benefits of their innovation by a factor of three. The result is a
mismatch of nine to one, or 9×, between what innovators think consumers desire and what consumers
really want. (See the exhibit “The 9× Effect.”) Left unchecked, this mismatch is a recipe for disaster.
Balancing Product and Behavior Changes
What can companies do to ensure that consumers will adopt new products? The first step is for them to
ask what kind of change they are demanding of consumers. The bigger the behavior change,the bigger
the resistance from consumers is likely to be. Comparing product and behavior change yields a certain
tension: Companies create value through product change, but they capture that value best by minimizing
behavior change. That results in a simple but powerful matrix. (See the exhibit “Capturing Value from
Innovations.”) Companies must identify where their innovations fall in the matrix because each cell has
different implications for the likelihood that consumers will adopt those products as well as the time
acceptance might take.
Easy sells
4
