How Broadly Do Product Preannouncement Performance Effects Generalize? Product Life Cycle and Switching Cost Perspectives

Abstract

Firms use preannouncements to inform customers about the impending introduction of a new product or service. These preannouncements are significant events because they provide customers with product specific information while signaling the health, strategic intent, and future of a company. One important area of research in this field investigates the performance consequences of product preannouncements (PPA). However, a notable gap in our knowledge exists because the focus of past research has been on studying wealth effects rather narrowly in certain industries, e.g., high-tech, or under certain contingencies. This restrictive approach is surprising because PPA are observed in a broad range of product categories. Moreover, product life cycle and consumer switching cost theories predict performance effects of PPA irrespective of category or context. We address this lack of generalizability by using switching cost and life cycle theories to hypothesize positive performance effects of PPA independent of context and contingencies. We use the event study method from finance to empirically test the relationship between PPA and stock prices in a broad sample of events comprising multiple product categories. Using events reported in the Wall Street Journal, we find evidence of a positive effect of PPA on stock prices irrespective of the type of product or context involved. We note several managerial implications of the study and outline avenues for further research.

Keywords: product pre-announcements, product life cycle, switching cost, information asymmetry, event study

JEL Classification: M31, M37, M38, G140