BI research: Marketing
Many firms aim to create buzz when launching new products. Long before the launch date, they issue press releases, they announce and talk about the product on social media, and they create all kinds of promotional content, all to create awareness about the upcoming product and get people talking.
Brands like Apple have taken this to another level. They introduce their new products during dedicated events, demonstrating the products’ use and benefits in front of a physical and online audience. This generates large amounts of news coverage and consumer chatter online.
As it turns out, the conventional wisdom of pre-launch marketing to create demand and buzz for new products may have unintended negative consequences for the firm. Furthermore, not all marketing activities are equal in their effectiveness for promoting new products before and after launch.
The video game industry
As part of my doctoral project at BI Norwegian Business School, I wanted to shed light on these issues. We conducted two studies in the video game industry: a dynamic, billion-dollar industry, where new product introductions are frequent and online communications abundant.
The first study looks into how consumer anticipation of an upcoming product influences purchases of substitutes (other games) and complementary products (add-ons for a specific game) from the same firm. On the one hand, pre-launch marketing communications make consumers aware of the upcoming product. This helps create demand for the product, which translates to new product sales. On the other hand, when consumers become aware of an upcoming new product, they become less likely to purchase from substitute or complementary product categories to save up their money.
In this study, we find that consumers are less likely to purchase such products as the new product launch date draws closer; this suggests consumers behave strategically when made aware of new product launches. More than that, the amount of consumer buzz about the products also reduces current purchases, but only for certain consumer segments.
Own media vs. sponsored tweets
The second study focuses on how different marketing communications affect firm stock market performance pre-launch vs. post-launch. We investigate the use of firm’s own social media (tweets), press releases, and paid social media (sponsored tweets), while accounting for the effects of consumer buzz and news coverage. We find that firm tweets and press releases are particularly effective at reducing risk pre-launch, and they generally increase firm returns.
The surprise is that sponsored tweets, which include dedicated content for the new products, do not have a notable effect on stock market performance pre-launch. Sponsored tweets do increase firm returns on average, suggesting investors appreciate the firm’s use of sponsored tweets in general, but investors do not reward firms who use them particularly for new product launches.
Advice to marketers
If your firm engages in pre-launch marketing, research indicates that you need to balance the benefits and risks.
- Pre-launch buzz can help the firm by creating demand and new product sales, but it can also hurt the firm by decreasing sales of other products the firm sells.
- Pre-launch marketing communications indicate product quality and the firm’s confidence in the product, which leads investors to increase their appreciation of the firm performance. However, firms should be mindful not to create “too much” buzz, because this may create unrealistic expectations of the products and backfire.
- While providing more information about the upcoming product helps reduce consumers’ uncertainty about the new product’s performance and increase willingness to purchase, this can also tip off competitors, enabling them to speed up their own product development and potentially beat you to the market.
- Marketers should be aware that different marketing communications have varying roles and effects pre- vs. post- launch. In our research, we find firms are better off using their owned tweets and press releases rather than sponsored tweets in the pre-launch, because they have a stronger positive effect on firm performance pre-launch.
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- Sorescu, A., Shankar, V., & Kushwaha, T. (2007). New Product Preannouncements and Shareholder Value: Don't Make Promises You Can't Keep. Journal of Marketing Research, 44(3), 468-489.
- Xiong, G., & Bharadwaj, S. (2014). Prerelease Buzz Evolution Patterns and New Product Performance. Marketing Science, 33(3), 401-421. doi:10.1287/mksc.2013.0828.
The article was written for BI Marketing Magazine.