1. Delegated Concept Testing in New Product Development.
- Author
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Schlapp, Jochen and Schumacher, Gerrit
- Subjects
NEW product development ,COMMERCIAL product testing ,INFORMATION asymmetry - Abstract
How should a firm structure its concept testing processes when testing efforts must be delegated to self-interested testing agents? In "Delegated Concept Testing in New Product Development," J. Schlapp and G. Schumacher analyze different configurations of testing processes and compare their relative benefits. The authors show that the optimal number of agents to be involved in a testing process critically depends on the costs of testing, the informational quality of test outcomes, and the agents' tendency to strategically prolong the testing process. The authors also provide guidelines on how to manage the testing process: which product concepts a firm should test (or not), and how it should structure the incentives of agents. Rather surprisingly, the authors also find that the delegation of testing activities can increase a firm's chances of successful concept selection. The article thus provides a comprehensive analysis of a key organizational issue that firms encounter during their concept testing processes, and it challenges some common decision rules. Testing a large variety of different product concepts is an integral part of nearly all new product development initiatives—especially in the concept selection phase, where firms seek to identify the most promising concept for further development. Test results are usually collected by agents, who must be incentivized not only to exert effort in testing the concepts but also to report their findings truthfully. We ask: How should a firm structure its concept testing processes when testing efforts must be delegated to self-interested agents? To answer this question, we devise a principal–(multi)agent model that allows us to analyze different testing processes and to compare their relative benefits. We find that several factors determine how the firm should construct its testing processes: the efficiency of concept testing, the extent of heterogeneity in the quality of test outcomes, and the severity of information asymmetry between agents and the firm. Finally, we determine how the firm should adjust agents' incentives to reflect its chosen testing process and which product concepts should (or should not) be tested. [ABSTRACT FROM AUTHOR]
- Published
- 2022
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