, Volume 30, Issue 2, pp 103-118

Escalation of commitment during new product development

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Abstract

Although periodic review is a prominent feature of new product development (NPD) processes, important questions about how managers make critical continuation/termination decisions in risky NPD projects remain unanswered. The authors test whether factors unrelated to a new product's forecasted performance cause managers to continue NPD projects into subsequent stages of development at rapidly accelerating costs. The results show that managers who initiate a project are less likely to perceive it is failing, are more committed to it, and are more likely to continue funding it than managers who assume leadership after a project is started. There is also the tendency toward increased commitment for more innovative products compared with less innovative ones. The results suggest that simply giving managers better information will not necessarily lead to better decisions. Finally, the results show that escalation of commitment is a more serious problem during NPD than after the product is commercialized.

Jeffrey B. Schmidt is an assistant professor of marketing at the University of Illinois at Urbana-Champaign. He received his Ph.D. from Michigan State University. His primary research interests are new product development and product strategy, particularly managerial decision making during product development. Some of his other work appears inDecision Sciences, theJournal of International Marketing, theJournal of Product Innovation Management, theJournal of the Academy of Marketing Science, Marketing Science, and others, as well as various conference proceedings. This article is based on his dissertation.
Roger J. Calantone is the Eli Broad Chaired University Professor of Marketing and Product Innovation, Eli Broad Graduate School of Business, Michigan State University. He received his Ph.D. from the University of Massachusetts-Amherst and has published numerous articles in theJournal of the Academy of Marketing Science, Decision Sciences, theJournal of Applied Psychology, theJournal of Marketing, theJournal of Marketing Research, Management Science, andMarketing Science. His current interests are new product development and normative market segmentation.