Innovating firms often introduce new generations of a product to keep up with customer preferences and stay ahead of competition. But that comes at a cost. Upgrading a product may alienate existing users and puts the product at a disadvantage, unless it is already hugely popular or at early stages of its lifecycle. Our paper is one step toward understanding digital innovations.
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Article Abstract
Research Summary
Strategy research advises firms to capture generative value by continually introducing generational improvements on their existing products. This article considers a potential dark side of such strategy. We argue that generational innovation can elicit a negative near-term response from customers, as it distorts their ingrained behavioral patterns and imposes learning costs. Further, we propose that this negative effect of generational innovation will diminish when the product has a leading market position; and it will be more severe as the product's technological legacy lengthens. Using a difference-in-differences research design based on mobile game apps that multihome on two platforms, we find supportive evidence for our hypotheses and discuss the corresponding implications for strategy and technology innovation literature.
Managerial Summary
Firms are advised to capture the value in future innovations that are spawned from their existing innovation, and they can do so by releasing improved generations of current products. This article examines a potential dark side of such strategy—that generational innovation could alienate existing customers by unsettling their ingrained behavioral patterns. Utilizing a unique dataset of mobile game apps, we find evidence of this negative effect, which tends to be weaker for market leaders but more damaging for those having already experienced numerous generational changes.
Strategic Management Journal, 1– 30, September 2021
About the researcher
Liang Chen is Associate Professor of Strategic Management at the University of Melbourne and the Program Director for Master of International Business. His current research focuses on issues related to competition, innovation and internationalization in the digital economy.