This content relates to : MARKETING INNOVATION
HIGHLIGHTS
Tradeshows can be used to communicate firms’ innovations to the outside world and can effectively signal the financial market.
Tradeshows are particularly well suited for industries with a high rate of innovation.
They are also appropriate for industries that are represented by active trade organizations hosting periodic tradeshows generally open to industry experts for free movement of information to the financial market.
Tridib Mazumdar
Professor Emeritus, Past Director, Snyder Innovation Management Center, Syracuse University
Most innovative firms often pursue a portfolio of new products that are at different stages of completion. Tradeshows offer a setting where firms signal their internal innovative activities by demonstrating products and prototypes at different stages of innovation in the same event. For instance, in auto shows a firm may reveal a concept car to market participants for the first time even though it is at a very early stage of development. In the same auto show the same firm may demonstrate advanced concepts” that have been demonstrated before and are further along the product development funnel. Finally, the auto show may additionally demonstrate “market-ready” automobiles that are available at the retailers.
The main research question that article addresses is whether a firm should reveal its internal innovative activities to the outside world or keep it a secret. If yes, what stage of product development is it optimal for a firm to reveal its innovation? Since revealing innovative activities hitherto unknown to the world has the strongest information content, a firm should favor “sooner the better” strategy. However, two factors complicate the adoption of this perspective. First, there is considerable uncertainty about the early stage concepts will be eventually introduced to the market. Second, competitors may learn for the demonstrated concepts and leapfrog by introducing a better product and sooner than the demonstrating firm. Other related questions addressed include the types of innovations that are appropriate to reveal to the market and the effects tradeshow locations (domestic versus international) where the innovations are demonstrated.
Because innovative activities are unknown to the outside world, there is considerable information asymmetry between the firm and the investors. Demonstrations of new products and new product concepts serve as a signal of potential cash flows resulting from these ventures. Following tradition to assess such signaling effects, this study utilizes an Event Study methodology to estimate the abnormal returns, i.e., average cumulative abnormal return (ACAR) and demeaned ACAR (dACAR), to the firm stocks during an empirically determined window around the tradeshow events.
Auto shows are utilized as a context of the study. Data for six automobile firms and 78 major auto shows spanning 12 years from the January 6, 2002 Detroit Auto Show until the November 20, 2013 Tokyo Motor Show are compiled from www.conceptcarz.com. Total observations are 468 information release events. Firms’ stock prices come from the WRDS, CRSP. ACAR (and dACAR) are regressed against types of early stage innovations demonstrated, stages of development of the concepts, firm dummies, and other relevant covariates, with appropriate correction for event (i.e., trade show) and time clusters that may have unique signaling effects.
The main findings are as follows:
• Firm value increases with the demonstrations of early-stage concepts for the first time as well concepts that were previously demonstrated and have survived the product development hurdles.
• The effects of concept (and product) demonstration on firm value bear an inverted U-shape. Advanced-stage concepts have a stronger signaling effect on firm value than early-stage concepts and market-ready product.
• With regards to early-stage concepts, the effects are present when the concepts incorporate new technologies or new designs but not when the newness comes from styling of external improvements. The effect of displaying advance-stage concepts is present in all types of innovation and when the trade show venues are within as well as outside the firm’s home country locations.
ACAR: Average Cumulative Abnormal Return; dACAR: Demeaned ACAR (source: Journal of Marketing)
Author:
Tridib Mazumdar
Professor Emeritus of Marketing, Syracuse University
Past Director, Snyder Innovation Management Center
To learn more, read:
Kim, Taewan and Tridib Mazumdar (2016), “Product Concept Demonstrations and Firm Value, Journal of Marketing, 80 (4), 90-108.