Correlation between new product introduction and share of market

Lot of companies use new product introduction as their key strategy to increase there market share. Recently two companies LG and SONY announced same strategy. (You may refer following links from Economic Times for the news: LG and SONY) . Though the strategy is commonly use by various companies, I tried to validate the hypothesis that new product introductions boost market share and found following parameters (related with new product introduction only ) determine correlation between new product introduction and market share growth:

1. New product introduction helps in companies top line growth as product realization increases with speed of introduction. It is simply correlated with the differentiation till the point when the new variant becomes commodity in market. Companies with strong R&D leverage it with new products all time. Because of differentiation they fetch better price too. However, competition catches very fast especially in consumer durable industry and so the price advantage of innovation starts eroding. New product introduction should be a continuous process for the companies having strong R&D.

2. Even though top line grows in revenue term in point no. 1 above, it does not guarantee growth in market share in terms of volume of turnover. Two factors determine change in market share. One the selling capability of the channel which could be measured by working capital of sellers which in totality remains constant. If working capital of a dealer is constant it will cannibalize existing product in very first stage itself. Two is the cannibalization, which if planned properly, can help to reduce competitors’ shelf share in multi franchise sellers’ network. To increase working capital of selling network, companies should focus on wider distribution by exploring new markets through efficient supply chain management.

3. Whether the new product is introduced in one of the existing categories in which company is present or in a new category itself. If it is in existing categories it should be targeted for better profit than market share. Introduction in new category can give incremental revenue subject to capability of selling network including the organization itself in terms of knowledge, experience, working capital, coverage and branding.

4. It’s not only quantity of new introduction which matters but also the speed at which it is introduced to end consumer. Assuming if the period required by competition to replicate the product after announcement of launch is fixed, a better speed of sampling, consumer awareness activities and distribution will uplift the revenue in launch to uptake period of product life before maturity, the point at which competitor enters with similar product.

There could me many more strategies to define growth in market share, however; the above argument is only limited to issues related with new product introduction only.

Published by Santosh Srivastava

"Jack of all, master of some"

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