This paper is a review of research in product development, which we define as the transformation of a market opportunity into a product available for sale. Our review is broad, encompassing work in the academic fields of marketing, operations management, and engineering design. The value of this breadth is in conveying the shape of the entire research landscape. We focus on product development projects within a single firm. We also devote our attention to the development of physical goods, although much of the work we describe applies to products of all kinds. We look inside the “black box ” of product development at the fundamental decisions that are made by intention or default. In doing so, we adopt the perspective of product development as a deliberate business process involving hundreds of decisions, many of which can be usefully supported by knowledge and tools. We contrast this approach to prior reviews of the literature, which tend to examine the importance of environmental and contextual variables, such as market growth rate, the competitive environment, or the level of top-management support.

Compared with other markets, those with competing technological standards exhibit certain fundamental characteristics that make a consumer’s decision to adopt a new product more risky and more complex. This article examines how standards competition affects consumer behavior, an issue that has been relatively neglected by previous research in this area. The results show that consumers depend on different types of information in their adoption decisions and respond differently to advertising. Specifically, the authors find that standards competition motivates consumers to pay more attention to information that is comparative in nature. Thus, information about the relative (absolute) performance of a product has a stronger (weaker) impact on a product’s share in markets with standards competition (Study 1). Standards competition also moderates the effectiveness of different advertising formats: It strengthens the effect of comparative advertisements but weakens the effect of noncomparative advertisements (Study 2). As a result, two commonly

This paper considers the pricing of durable products. We argue that the ownership of a product represents a bundle of options and we employ the real-options theory to model product value. At any given point in time, the owner of a product has the option to choose whether she wants to use the product or not. This option-like quality of products is important for valuation since future usage costs and benefits are uncertain, and hence the future usage is also uncertain. The model shows that the value of a product is sensitive to the changes in uncertainty, especially when the expected costs of use are high compared to the expected benefits, i.e., in cases where the product is used unpredictably and seldom. The uncertainty in the future benefits can be, e.g., due to the uncertainty in future product modules.

A substantial portion of information goods is sold through upgrades. I model a monopolist offering successive generations of an information good in a dynamic model. In each period, the monopolist offers up to two prices for each generation: a full price to those who have never purchased and a version upgrade price to consumers who own a previous generation. I employ an overlapping generations model with infinite-lived firms and consumers that reflects the effect of future profits on current decisions better than previous two-period models. The model’s predictions accord well with data from the PC software industry. The model explains why: 1) firms issued version upgrades with every new generation, 2) firms provided a discount to those upgrading relative to first-time buyers and 3) late adopters commonly purchased the latest version at full price even though some earlier adopters with higher valuations did not upgrade to the latest version.

The rapid rate of standard software development, and the need of users to stay current, has unleashed unprecedented levels of process and product innovations in the software industry. A new service model has emerged which delivers application software and services over the Web on a lease or subscription basis. Software vendors such as Sun, Oracle, and Microsoft have already adopted this innovative business model. They have expanded their sales offerings with lease contracts that augment their traditional one-time purchase transactions. Our paper studies the optimal licensing policy of a software vendor that uses that business model. We look at software vendors that are both selling (at a posted price) or leasing their products where as lessor they guarantee that the lessee will always have the latest version of the software on their desktop. We address some of the specific issues of implementing this policy at the packaged software market, including the impact of network externality, negligible marginal production costs, and upgrade compatibility. We show that by properly defining their pricing structure, software vendors can segment the market and realize effective seconddegree price discrimination and show how and when software vendors can maximize their profits through the