Viewing New Product Development Through The Real Options Lens: An Empirical Investigation Of The Market Reaction And The Role Of Contextual Factors
Natarajan, Vivek Shankar
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New product development is an important strategic decision for marketing managers. This study examined new product development related decisions by employing a real options framework. Specifically, new product development decisions are viewed as either an options creation or options exercise process. It evaluated the various types of new product decisions- development of new products, launching of new products, delaying launch of new products and exiting the market by using a real options lens. In doing so, the study sought to answer two research questions: 1. How does the market react to creation and exercise of real option? 2. How do contextual factors such as industry, firm and innovation factors impact the real option process? 3. How do the antecedent industry factors affect the choice of options? The study examined the real options process beginning with the options creation to the subsequent exercise along with the market reaction following the announcements of these events. The direct and moderating effects of industry, and firm factors were tested.