How Customer Portfolio Affects New Product Development in Technology-Based Entrepreneurial Firms

Helena Yli-Renko and Ramkumar Janakiraman
Journal of Marketing
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Executive Summary
This article focuses on how the customer portfolios of technology-based entrepreneurial firms affect the firms’ new product development. Drawing on knowledge-based, resource dependence, and relational perspectives, the authors argue that the impact of a firm’s customers on new product development depends on the size and relational embeddedness of the customer portfolio and the extent to which a firm is dependent on one or a few dominant customers for a majority of its revenues. The authors test the research model using longitudinal data of entrepreneurial firms operating in business-to-business markets in six technology-based industries in the United Kingdom: pharmaceuticals, medical equipment, communications technology, electronics, energy, and environmental technology. The results of the study indicate that customer portfolio size has an inverse U-shaped relationship to the number of new products developed and that the more relationally embedded the customer set, the more new products the firm develops. Dependence stemming from revenue concentration has a negative impact on new product output. Furthermore, relational embeddedness can compensate for too small of a customer portfolio and help offset the negative effects of a highly concentrated portfolio. These results have several practical implications. First, entrepreneurs and marketing managers should strive to optimize portfolio size to a point at which the number of customers is as large as possible (to maximize revenues and enable access to a broad range of external knowledge) without becoming so large that it is too costly and cumbersome to manage. Second, entrepreneurs and managers should actively manage their firm’s level of revenue dependence because lock-in with dominant customers tends to constrain a firm’s new product development activities. Third, entrepreneurs and managers should treat customer relationships not just as sources of revenue but also as valuable learning opportunities and should strive to forge closer, more cooperative relationships with customers—particularly if the firm is dependent on key customers or has only a few customers.

Overall, the study offers a diagnostic framework for entrepreneurs and managers to evaluate their firm’s customer portfolio and its impact on new product development. Through a careful analysis of where a firm is positioned on the dimensions of portfolio size, revenue concentration, and relational embeddedness, entrepreneurs and managers can direct business development and marketing efforts to maximize benefits for new product development. A thorough evaluation of these dimensions can help entrepreneurs and managers make the difficult trade-offs between focusing their efforts on gaining new customers versus cultivating closer relationships with existing customers, thus helping them focus managerial attention on the customers so that the highest impact can be achieved.

Helena Yli-Renko is Assistant Professor of Entrepreneurship in the Lloyd Greif Center for Entrepreneurial Studies, Marshall School of Business, at the University of Southern California. Helena’s research focus is on the marketing–entrepreneurship interface, with a special interest in young, technology-based firms. In this context, she has examined topics such as customer relationships, innovation, internationalization, knowledge acquisition, and social capital. She has published in Strategic Management Journal, Journal of Business Venturing, and Research Policy, among other journals, and has won awards from the Academy of Management, the Babson-Kauffman Entrepreneurship Research Conference, and the International Council for Small Business. She is also an author of chapters in the Venture Capital Handbook and the Handbook on Techno-Entrepreneurship. Before joining the faculty at the University of Southern California, Helena worked in strategy consulting at McKinsey and as Research Fellow at London Business School. She received her doctorate from Helsinki University of Technology, Institute of Strategy and International Business.

Ramkumar Janakiraman is a currently Assistant Professor of Marketing in the Mays Business School at Texas A&M University. Ram has a PhD in Business Administration from the Marshall School of Business at the University of Southern California, Los Angeles. His research interests are primarily in the domain of econometric modeling of firm and consumer decision making. They include structural learning models, market response models, new product development and new product adoption. Ram has worked extensively on modeling physicians’ prescription behavior and physicians’ response to various promotional tools. His research is forthcoming in journals such as Management Science, Journal of Marketing, and Annals of Family Medicine. Ram’s teaching interests include marketing analytics, pricing, and marketing research. Ram has a BTech (Honors) in Materials Engineering from Institute of Technology, Varanasi (India), and a MS in Materials Science and Engineering from University of Pittsburgh.

Journal of Marketing, Volume 72, Number 5, September 2008
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Helena Yli-Renko and Ramkumar Janakiraman
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