Product Quality and New Product Performance: The Role of Network Externalities and Switching Costs^*

Abstract

Research about the critical drivers of new product success is perhaps one of the thorniest issues confronting academic research in the field. Among them, product quality is considered a crucial element to obtain a competitive advantage. However, empirical evidence suggests low returns on product quality investments in new products, and consequent manager claims for an explanation of whether quality investments are fruitful for the firm. Recently, a new research stream has suggested that the role of other complementary products (indirect network externalities) and the critical mass of adopters (direct network externalities) lead to higher market returns than quality itself. Moreover, researchers disagree about the perverse or positive effects that the switching costs associated with the product have on the short-and long-term performance of the firm. In this paper, we propose that, as products and technologies become more interconnected, the associated network effects and switching costs will play an important role with regard to new product performance, both independently and in conjunction with its quality. We empirically test a model that relates product quality, network effects, and switching costs to short-term/long-term new product performance, using data collected from 255 innovative products. The data analysis indicates that network effects, and consumers' switching costs, can modify previous findings with regard to the isolated product quality consequences concerning new product performance. Overall, the results of this study may help firms manage the relationship between quality, network externalities, and switching costs more efficiently, both in the short term and in the long term.

Networks for the commercialization of innovations: A review of how divergent network actors contribute

“…Distributors are crucial as they make the product available to users (e.g., Perks & Moxey, 2011). Producers of complementaries, and even competitors, are potential sources of strategic collaboration that can fortify demand for a new product (e.g., Molina-Castillo, Munuera-Alemán, & Calantone, 2011;Snow, Fjeldstad, Lettl, & Miles, 2011). Public organizations and educational institutions can contribute to commercialization by, for example, envisioning the use of an innovation in society (e.g., Troshani & Hill, 2009).…”

Do Network Externalities Increase Customer’s Recommendation to Others? Empirical Comparative Study of Luxury and Necessity Products?

“…First, network externalities have an impact on customer attitudes and behaviors. For example, network externalities will increase increase customers' perceived switching costs [1] and have an impact on customers' continuous intention [11], behavioral intention [12], payment intention [3] and loyalty [2]. Second, existing studies have shown that network externalities have an impact on the survival of pioneers [13] and the new products performance [3].…”

“…A common finding from these studies is that network externalities positively related to performance. For example, direct network externalities have a positive impact on long-term new product performance, while indirect network externalities have a positive impact on short-term new product performance [1].…”

Disentangling the emergence of perceived environmental uncertainty among technology entrepreneurs

“…Network externality not only influence to product attributes (Basu et al, 2003) and performance (Molina-Castillo et al, 2011), but also its impact on entrepreneurs success (Acs et al, 2016) and firms survival (Srinivasan et al, 2004). Pervious works more especially in marketing literature reveals that existence of network externality has potential to causes of fluctuations and variations in demand and makes changes the behaviors of customers (Hellofs and Jacobson, 1999), even it influence on the time of market entry decisions (Shankar and Bayus, 2003).…”