Riding the saddle: How cross-market communications can create a major slump in sales

Using data on a large number of innovative products in the consumer electronics industry, the authors find that between one-third and one-half of the sales cases involved the following pattern: an initial peak, then a trough of sufficient depth and duration to exclude random fluctuations, and eventually sales levels that exceeded the initial peak. This newly identified pattern, which the authors call a "saddle," is explained by the dual-market phenomenon that differentiates between early market adopters and main market adopters as two separate markets. If these two segments-the early market and the main market-adopt at different rates, and if this difference is pronounced, then the overall sales to the two markets will exhibit a temporary decline at the intermediate stage. The authors employ both empirical analysis and cellular automata, an individual-level, complex system modeling technique for generating and analyzing data, to investigate the conditions under which a saddle occurs. The model highlights the importance of cross-market communication in determining the existence of a saddle. At low levels of this parameter, more than 50% of the cases of new product growth involved a saddle. This percentage gradually decreased as the parameter increased, and at values close to the within-market parameters, the proportion of saddle occurrences dropped below 5%.