About AMA

Alina Sorescu, Venkatesh Shankar, and Tarun Kushwaha

Executive Summary
New product preannouncements are strategic signals that firms direct at their customers, competitors, channel members, and investors. They have been touted as effective means of deterring competitor entry, informing potential customers, and even tipping the balance of technological standard battles in favor of the preannouncing firms. However, preannouncements also carry the risk of unwanted competitive reaction and the negative consequences of undelivered promises. From a shareholder value standpoint, do the benefits outweigh the risks of preannouncing?

The authors identify determinants of financial returns to preannouncements and test the effects of these determinants on short- and long-term stock market returns to software and hardware preannouncements. The results offer notable insights. The financial returns from preannouncements are significantly positive in the long run, averaging approximately 13% in one year after the preannouncement or up to introduction, whichever comes first. These long-term returns are higher if specific information about the preannounced product is provided, if the firm's preannouncements are considered reliable (based on its record of delivering on its prior preannouncement promises), and if the firm continues to update the market with information about the new product's progress. Preannouncements generate positive short-term abnormal returns only for firms that offer explicit information, such as price and expected time to introduction for the preannounced product. Both the short-term and the long-term returns are enhanced if the reliability of the preannouncement is high.

Whereas previous research argues that intentional vaporware can be used to deter entry, this study's findings suggest that doing so is likely to reduce the abnormal returns to future preannouncements for a typical firm. When a firm is known to have produced vaporware, positive financial returns to its future preannouncements may not materialize. Therefore, although vaporware can deter entry in the short run, it might be detrimental to firm value in the long run.

This study, which focuses on two controllable managerial variables (i.e., the specificity of the preannouncement message and the reliability of the preannouncements) offers a set of managerial guidelines for successful preannouncements. First, managers should wait to preannounce their new products until they are reasonably certain that they can fulfill their promises. Second, they should wait to preannounce until they have accurate information about the new product, particularly if the firm failed to deliver on any previous preannouncement promise. To realize any short-term abnormal returns, managers should provide investors with truthful information about the product, such as details about its price and introduction date. Third, after the preannouncement, they should provide periodic updates so that market participants can adjust their expectations about the upcoming product.

Biography
Alina Sorescu is Assistant Professor of Marketing in the Mays Business School at Texas A&M University. Her research interests lie in the marketing–finance interface, particularly in measuring the effect of marketing assets and activities on shareholder value. She is also interested in new product development and valuation in both high-tech and consumer packaged goods industries. Her publications have appeared in Journal of Marketing Research, Journal of Marketing, Journal of Advertising, and Journal of Advertising Research. She has received several awards for her research, including the American Marketing Association John A. Howard Dissertation Award and the Academy of Marketing Science Mary Kay Dissertation Award.

Venkatesh Shankar is Professor of Marketing and Coleman Chair in Marketing in the Mays Business School at Texas A&M University. His research areas include e-business, competitive strategy, international marketing, branding, pricing, innovation management, and supply chain management. His research has been published in Journal of Marketing Research, Marketing Science, Management Science, Strategic Management Journal, and Journal of Marketing. He is coeditor of Journal of Interactive Marketing and associate editor of Management Science and is on the editorial boards of Marketing Science, International Journal of Research in Marketing, Journal of Retailing, and Journal of the Academy of Marketing Science. He is a winner of the Green and Lehmann best-paper awards and is a two-time finalist for the Marketing Science practice prize.

Tarun Kushwaha is a doctoral candidate in marketing in the Mays Business School at Texas A&M University. Tarun's research interest lies in customer relationship management, e-commerce, and new product management. In his dissertation, Tarun investigates the factors that drive customers' multichannel shopping behavior and identifies its consequences for retailers. He also develops a resource allocation model that enables firms to optimize their allocation of marketing resources across different customer channel segments. Tarun has presented his work at the INFORMS Marketing Science Conference, the Haring Symposium at Indiana University, and the University of Houston Doctoral Symposium.