Riding the Saddle: How Cross-Market Communications Can Create a Major Slump in Sales

Abstract

Using data on a large number of innovative products in the consumer electronics industry, the authors find that between one-third and one-half of the sales cases involved the following pattern: an initial peak, then a trough of sufficient depth and duration to exclude random fluctuations, and eventually sales levels that exceeded the initial peak. This newly identified pattern, which the authors call a “saddle,” is explained by the dual-market phenomenon that differentiates between early market adopters and main market adopters as two separate markets. If these two segments—the early market and the main market—adopt at different rates, and if this difference is pronounced, then the overall sales to the two markets will exhibit a temporary decline at the intermediate stage. The authors employ both empirical analysis and cellular automata, an individual-level, complex system modeling technique for generating and analyzing data, to investigate the conditions under which a saddle occurs. The model highlights the importance of cross-market communication in determining the existence of a saddle. At low levels of this parameter, more than 50% of the cases of new product growth involved a saddle. This percentage gradually decreased as the parameter increased, and at values close to the within-market parameters, the proportion of saddle occurrences dropped below 5%.

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