What Are We Really Good At? Product Strategy with Uncertain Capabilities

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Firms often learn about their own capabilities through their products' successes and failures. This paper explores the interaction between learning about capabilities and product strategy in a formal model. We consider a firm that can launch a sequence of products, where each product's success probability depends on the fit between the firm's capabilities and the product. A successful new product always causes the firm to become more optimistic about the capability most relevant for that product; however, it can also cause the firm to become less optimistic about some of its other capabilities, including capabilities the new product does not use. The firm's optimal forward-looking product strategy accounts for short-run expected products as well as for the information value of learning for future decisions. We find that a product sharing few or even no capabilities with potential future products can have a greater information value than a product that shares more capabilities with future products and that learning about capabilities can affect the optimal sequence of product launch decisions.


This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Marketing Science, volume 37, issue 2, in 2018 following peer review. The definitive publisher-authenticated version is available online at DOI:10.1287/mksc.2017.1068.

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