For most firms, new products are growth engines, despite the fact that by some accounts as many as 60% of them fail. And even when a novel product or feature is a hit with consumers, the benefits accruing to the innovator may quickly evaporate as competitors rush to emulate. So most firms combine product innovation with promotional incentives to maintain consumer interest and stimulate sales. But what is known about their actual impact on corporate financial well-being?Typically, marketing managers measure new-product success by assessing whether the product or new feature has achieved its objectives. Prone to self-reporting bias, such analyses are of questionable use in justifying product-innovation investments to CEOs and CFOs, because they lack objective measures of short- and long-term financial performance and firm-value effects.However, a recent econometric study of the automobile industry addresses these shortcomings by measuring the short- and long-term impact of new-product introductions and promotions on top-line (revenues) and bottom-line (income/ profit) financial performance and stock-market value. Issued in February 2003 as a working paper of Dartmouth's Tuck School of Business, the study is “The Long-Term Impact of New-Product Introductions and Promotions on Financial Performance and Firm Value,” written by Koen H.
