Understanding New Markets for New Products

Abstract

A comprehensive understanding of customer needs contributes significantly to the commercial success of new products. While product innovators are exhorted to understand their markets, they often fail to do so. This paper develops an empirically grounded theory of why understanding new markets is difficult for innovators in large firms. The findings suggest that organizational factors strongly affect the development of a market understanding. Three distinct cycles of market knowledge creation are found to operate at the departmental, interdepartmental, and project-to-firm levels. Each cycle generates a unique stratum of market knowledge, but each can also filter or limit the overall market understanding, depending on how it is managed. Successful product cases worked through each cycle thoroughly, while failed ones did not. The analysis details each cycle, identifies the organizational factors which enhance or impede market understanding both within and between the cycles, and examines the relationship between new products and current strategy. Implications for practice and further research are drawn.