Product positioning and pricing decisions in a two-attribute disruptive new market

Abstract

In disruptive innovation, a new entrant firm with fewer resources challenges the established incumbent firms. The new entrant firm offers an innovative product that is considered superior in new features appealing to a group of new customers, but inferior along the traditional performance attributes valued by mainstream customers. Previous research primarily focuses on the product strategies that could benefit the incumbent firms, thus, it is less unclear how the new entrant firm should strategize the innovative product. This article investigates the product pricing and positioning strategies for the new entrant firms who wholly invest in a single product. Our analytical model incorporates two horizontally distinct product attributes, where potential consumers have different preferences and reservation prices toward the two product attributes. We identify four product pricing and positioning strategies, and their corresponding optimal conditions. Our analysis shows that the product position is closely related to the customer valuation gap between the two attributes. As the innovative product will improve sufficiently on the traditional performance attributes, results from this study can be applied at different stage of product development by the new entrant firm.

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