Balancing Market Exploration and Market Exploitation in Product Innovation: A Contingency Perspective

Abstract

This paper examines three different ways to balance market exploration and market exploitation in product innovation. First, following the knowledge-based view, we examine whether market exploration and market exploitation have differential effects on various new product outcomes based on their different learning mechanisms. We find that market exploration facilitates new product innovativeness, whereas market exploitation is more beneficial for new product development speed. This indicates that market exploration and market exploitation influence new product financial performance via distinct paths. Second, we examine the interaction between market exploration and market exploitation on new product outcomes. Our findings indicate that the joint effects of market exploration and market exploitation reduce new product development speed but have no significant impact on new product innovativeness. Third, we examine the contingent role of customer need tacitness in influencing the effects of market exploration and market exploitation. Our results show that customer need tacitness strengthens the effects of market exploration on both new product innovativeness and new product development speed. In contrast, it weakens the effect of market exploitation on new product innovativeness, and has no significant influence on new product development speed. Our results provide specific guidelines for managers regarding how to achieve a balance between market exploration and market exploitation in product innovation.

Keywords: Market Exploration, Market Exploitation, Customer Need Tacitness, New Product Innovativeness, New Product Development Speed, New Product Financial Performance