Staying Ahead in the Innovation Race: New-Product Introductions and Relative Firm Value

While product innovation is a key contributor to long-term firm performance, newproduct failure rate remains high, especially in the face of intense competition. Therefore, marketers need a better understanding of how and why firms benefit from new product activity relative to industry competitors. Which types of innovations have the greatest impacts on relative firm value? In particular, which innovation, brand, firm and market characteristics influence the long-term performance effects of new product introductions? This paper addresses these questions with a large-scale empirical study on newproduct introductions in the economically important automobile industry. First, vectorautoregressive models quantify the over-time impact of product introductions and promotional incentives on relative financial performance and firm value. Second, weighted least squares regression assesses the moderating role of innovation, brand, firm, and market characteristics. A key finding is that new-product introductions can be managed strategically for competitive advantage in investor markets. Indeed, their relative performance impact is higher in growth categories, and especially for pioneering innovations that are highly advertised. In contrast, sales promotions do not offer such strategic benefits, as we find no meaningful moderators of their impact on relative market value.