How Quality Drives the Rise and Fall of High-Tech Products (Continued from page 15)
speed with which good-quality products
assume market leadership.
At the brand level, our theory helps explain why late entrants such as Apple’s iPod
and Microsoft’s Word can be successful.
When the iPod was introduced in 2001, it
was a late entrant in the MP3 player market.
It went up against earlier MP3 players, including one by Sony, which had a good
reputation for music players because it had
pioneered the Walkman. Prior to the iPod,
Apple had no significant experience, users or
reputation in music. However, the iPod succeeded because of the superior convenience
of the product, software and accessories relative to prevailing competitors. Once it built a
cadre of users, Apple was able to leverage the
user network to spread good word of mouth.
Even though our study was conducted
in the context of high-tech products, the
findings have wide implications and applications to other areas. As technologies
advance, human society is increasingly
wired through new social networks using
Implications for Managers
Managers in high-tech industries frequently
need to balance product quality and time-to-market. The current practice, influenced by a
belief in network effects, often is to rush to
market even at the cost of quality, in order to
gain an early advantage by building a network
of users. This practice may contribute to the
high failure rate of new high-tech products.
Based on our research, we recommend a very
different approach. First, managers need to
put more emphasis on the quality of their
new products than on the speed to market.
Second, they should attempt to generate
positive word of mouth about their products
among users — especially influential and
quality-conscious users — through mechanisms now offered by the Web and
user-generated social media.
new media. Our findings suggest that networks enhance rather than stymie the role
of quality — and argue against rushing
products to market.
Gerard J. Tellis is a professor of marketing,
Neely Chair of American Enterprise and the
director of the Center for Global Innovation
at the University of Southern California’s
Marshall School of Business in Los Angeles.
Eden Yin is a university senior lecturer in
marketing at Cambridge Judge Business
School, University of Cambridge, Cambridge, United Kingdom. Rakesh Niraj is an
assistant professor of marketing and policy
studies at the Weatherhead School of Management at Case Western Reserve University
in Cleveland, Ohio. The authors’ research
study was supported by a grant from Don
Murray to the USC Marshall Center for
Global Innovation. Comment on this article
at http://sloanreview.mit.edu/x/52403, or contact the authors at email@example.com.
Reprint 52403. For ordering information, see page 10.
Copyright © Massachusetts Institute of Technology,
2011. All rights reserved.
[PRICING] The Big Difference a Penny Makes
Should you price a consumer product at a
price that ends in 99 cents — or price it at
a round dollar amount?
What’s the difference between
$9.99 and $10.00? Not much, objectively. There’s little you can
buy with a penny these days. But
a study by three researchers
finds that many restaurant
managers believe that
price endings such as
99 cents or a round
dollar number communicate a
Robert M. Schindler,
a professor of marketing at the
School of Business at Rutgers
University-Camden; H.G. Parsa, a
professor at the Rosen College of
Hospitality Management at the
University of Central Florida; and
Sandra Naipaul, an assistant
professor at the Rosen
College of Hospitality
veyed 112 U.S.
The researchers found
that a large majority
of restaurant managers believe
that consumers pay less atten-
tion to the right-hand digits in a
price and instead pay more at-
tention to the digits to the left of
the decimal point. What’s more,
the majority of the restaurant
managers surveyed believed
that consumers associate prices
ending in 99 cents with good
value. (And, in fact, some previ-
ous research has found that
using price endings that are just
below a round number — such
as 99 cents — can lead to in-
creased sales.) Nonetheless, the
professors found that almost
one-third of the restaurant man-
agers surveyed use “round”
price endings (such as $10.00 or
$7.50) more often than prices
that have “just-below” endings
such as 99 cents or 95 cents.
Reprint 52404. For ordering information, see page 10. Copyright © Massachusetts Institute of Technology, 2011. All rights reserved.
16 MIT SLOAN MANAGEMENT REVIEW SUMMER 2011