Branding and The Development of Product Niches: Product Life Cycle and Product Characteristics
Cecilia Diaz
Branding And The Development Of Product Niches: Product Life Cycle And
Product Characteristics
ABSTRACT
This research will examine the key factors affecting consumer demand for mobile phones. The
topic is complicated because this is a combination good comprising services and hardware
features. There is an important gap in the literature regarding services/manufacturing
combination goods. To what extent are consumer decisions affected by brand, by new
technological features, new services, and by the purchasing decisions of other consumers? This
research critically applies and empirically tests existing theories of the product life cycle of
innovation, network externalities, and branding strategies. These include the work of Abernathy
and Utterback (1978), Utterback and Suárez (1991), Farrell, and Saloner (1985), Klepper (1996),
Keller (1993) and Aaker (1997) and Windrum (2005).
Keywords: Innovation life cycle, Combination goods (mobile phones), Network externalities,
consumer demand patterns, branding.
AIMS AND OBJECTIVES
a. Investigate the dynamics of the product life cycle in the mobile phone market and test
this against existing models of innovation and marketing theories.
b. Using hedonic price regressions on a dataset of handsets and services, empirically
estimate the shadow prices paid by consumers for key product characteristics and
estimate brand equity. This uses the established Saviotti-Metcalfe method for hedonic
price regression.
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Branding and The Development of Product Niches: Product Life Cycle and Product Characteristics
Cecilia Diaz
c. To develop a theoretical model that considers the specific factors affecting the mobile
phone market. This will address important aspects of consumer behaviour not covered
by existing theories. The theoretical model will provide insights for future policy and
practice.
LITERATURE REVIEW
The core research question of the PhD is an understanding of the key factors that affect consumer
purchases of mobile phones. To what extent are consumer decisions affected by brand, by new
technological features, new services, and by the purchasing decisions of other consumers? The
issue is complicated by the fact that the mobile phone is a combination good (or a ‘modular
system’, Langlois and Robertson 1992) that comprises two interdependent components - a
manufactured ‘product’ (the handset) and a set of ‘services’ (provided by telecom operators).
Services and handsets are provided by different sets of firms. This prompts the first important
questions: should the mobile phone industry be treated as a service industry, a manufacturing
industry, or a combination of the two? Researchers in services and services innovation have
argued that very different dynamics exist in services compared to manufacturing sectors. For
example, Barras (1986, 1990) has suggested that the innovation life cycle in services is the
reverse of that found in manufacturing and described by the conventional product life cycle
(PLC). The suggestion that services and manufacturing dynamics are fundamentally different has
been contested, however (see Drejer 2004). Given its mix of manufacturing and services, the
mobile phone industry is therefore a good case study in order to test rival theories and
explanations of the PLC.
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Branding and The Development of Product Niches: Product Life Cycle and Product Characteristics
Cecilia Diaz
A related literature that must be addressed is that of network externalities and individual
consumer choice. Papers by Katz and Shapiro (1985), Farrell and Saloner (1985), and Lee and
O’Connor (2005) highlight the importance of previous purchasing decisions on current choice.
The classic example that is often used is that of telecoms. It is therefore important to investigate
the extent to which mobile phone buyers are influenced by the previous choices and/or expected
future choices of other consumers. Of particular importance will be the issue compatibility
between rival products and how rival suppliers tie users into their own networks (Katz and
Shapiro 1985, Farrell and Saloner 1985). Linking this discussion with that on the PLC, this has
important implications for a potential market shake-out of firms (Klepper 1996). It may be the
case that a number of radical innovations have occurred and that more than one industry shakeout is possible (Windrum 2005). On the other hand, innovations currently occurring may be
incremental in nature – i.e. they have a significant impact on the range and quality of services
being made available but the underlying technological architecture remains is not changing (Dosi
1982, Henderson and Clark 1990). Using empirical data, the research will test the existence of
network externalities, past market shake-outs in the industry, and the likelihood of future shakeouts occurring.
Within this context, the PhD will address the impact of branding on consumer choice. Leading
suppliers with significant brand trust (and equity) can play an essential role in integrating
complex technologies (such mobile phones) by controlling technical standards and establishing
strategic innovation alliances. In terms of consumer demand, the presence of trusted brands can
allay fears regarding uncertainty about radically new technologies (Farrell and Saloner 1985).
Consumers may opt for a branded product in order to reduce perceived risk in buying new
technology. In turn, the ownership of brand equity is a key source of competitive advantage for
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Branding and The Development of Product Niches: Product Life Cycle and Product Characteristics
Cecilia Diaz
firms. Unlike products and services, brand equity cannot be copied and transferred by rivals
(Keller 1993, Aaker 1997). Investing in brand equity can therefore be a very important strategy
when the speed of technological development and market uncertainty is high.
METHODOLOGY
This study will empirically test the research issues by apply the Saviotti-Metcalfe (1984) method
for estimating product characteristics and services using hedonic price regressions on product
data As Windrum (2005) has shown, this can also be extended to test for brand equity. The data
set on the handset characteristics and services will be collected from the 3 main specialist
magazines in the UK: Total Mobile, What Mobile and Mobile Choice.
Year 1: Basic training and exploratory research. Expand understanding of the subject area and
write review of secondary data relevant to the PhD study.
Year 2: Empirical data collection and conduct more detailed literature review.
Year 3: Data testing.
Year 4: write up and complete PhD by addressing the research objectives.
CONTRIBUTION TO KNOWLEDGE
The research directly addresses the hotly debated issue of services versus manufacturing
innovation dynamics and at the same time examines the existing gap in the literature on
service/manufacturing combination goods. This requires a re-evaluation and development of
existing theories of consumer demand in relation to new technologies and innovation.
Understanding these dynamics provides important insights into business and market strategy.
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Branding and The Development of Product Niches: Product Life Cycle and Product Characteristics
Cecilia Diaz
REFERENCES
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Barras, R., 1986, Towards a theory of innovation in services, Research policy, 15, pp. 161-173.
Barras, R., 1990, Interactive innovation in financial and business services: the vanguard of the
service revolution, Research policy, 19, pp. 215-237.
Birke, D. and Swann, P., 2006, Network effect and the choice of mobile phone operators, Journal
of Evolutionary Economics, 16, pp. 65-84.
Dosi, G., 1982, Technological paradigms and technological trajectories, Research Policy, 11, pp.
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Drejer, I., 2004, ‘Identifying innovation in surveys of services: a Schumpeterian perspective’,
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Farrell, J and Saloner, G., 1985, Standardization, compatibility, and innovation, Rand journal or
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Henderson, R. and Clark, K., 1990, Architectural innovation: the reconfiguration of existing
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Keller, K., 1993, Conceptualizing, measuring and managing customer-based brand equity,
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Klepper, S., 1996, Entry, Exit, Growth and innovation over product life cycle, The American
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Lee, Y. and O’Connor, G., 2005, New product Launch Strategy for network effect products,
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Langlois R., and Robertson P., 1991, Network and innovation in a modular system: Lessons form
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Katz, M. and Shapiro, C., 1985, Network externalities, competition and compatibility, The
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Windrum, P., 2005, Heterogeneous preferences and new innovation cycles in mature industries:
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