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Structuring the New Product Development Pipeline

Listed author(s):
  • Ming Ding

    ()

    (Department of Marketing, Smeal College of Business Administration, Pennsylvania State University, University Park, Pennsylvania 16802)

  • Jehoshua Eliashberg

    ()

    (Marketing Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Registered author(s):

    In many new product development (NPD) situations, the development process is characterized by uncertainty, and no single development approach will necessarily lead to a successful product. To increase the likelihood of having at least one successful product, multiple approaches may be simultaneously funded at the various NPD stages. The managerial challenge is to construct ex ante an appropriate NPD pipeline by choosing the right number of approaches to be funded at each stage. This so-called pipeline problem is also present in, among others, advertising copy selection and new products test markets problems. We describe here a normative model for structuring pipelines for such situations. The optimal structure of the pipeline is driven by the cost of the development approach, its probability of survival, and the expected profitability. We illustrate the workability and implications of the model by applying it to some real-world scenarios in the pharmaceutical industry, and by comparing its normative pipeline recommendations against actual pipelines. Our results suggest that, for the cases we studied, firms tend to use narrower pipelines for their new drug development than they should, and thereby they underspend on research and development. We also present general qualitative insights for one- and two-stage NPD optimal pipeline structures.

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    File URL: http://dx.doi.org/10.1287/mnsc.48.3.343.7727
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 48 (2002)
    Issue (Month): 3 (March)
    Pages: 343-363

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    Handle: RePEc:inm:ormnsc:v:48:y:2002:i:3:p:343-363
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    1. Fred M. Feinberg & Joel Huber, 1996. "A Theory of Cutoff Formation Under Imperfect Information," Management Science, INFORMS, vol. 42(1), pages 65-84, January.
    2. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G. & Lasagna, Louis, 1991. "Cost of innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 10(2), pages 107-142, July.
    3. Weber, R. & Werners, B. & Zimmermann, H. -J., 1990. "Planning models for research and development," European Journal of Operational Research, Elsevier, vol. 48(2), pages 175-188, September.
    4. Glen L. Urban & Theresa Carter & Steven Gaskin & Zofia Mucha, 1986. "Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications," Management Science, INFORMS, vol. 32(6), pages 645-659, June.
    5. Shantanu Bhattacharya & V. Krishnan & Vijay Mahajan, 1998. "Managing New Product Definition in Highly Dynamic Environments," Management Science, INFORMS, vol. 44(11-Part-2), pages 50-64, November.
    6. William J. Abernathy & Richard S. Rosenbloom, 1969. "Parallel Strategies in Development Projects," Management Science, INFORMS, vol. 15(10), pages 486-505, June.
    7. Henry Grabowski & John Vernon, 1990. "A New Look at the Returns and Risks to Pharmaceutical R&D," Management Science, INFORMS, vol. 36(7), pages 804-821, July.
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