Incumbent defense strategies against new product entry

Abstract

The objective of this study is to estimate the effectiveness of different defense strategies when faced with a new product introduction by a competitor. Using a sample of in cumbentsacross a wide range of industries, we find that faster reactions to the new entrant have a positive impact on the perceived success of the defense strategy. However, the greater the breadth of reaction (number of marketing mix instruments used), the less successful is the defense. The ability of an incumbent to maintain its market position is also significantly affected by industry characteristics and the degree of competitive threat posed by the new product entry. A working paper in the INSEAD Working Paper Sertes is intended as a means whereby a faculty researcher's thoughts and findings may be communicated to interested readers. The paper should be considered preliminary in nature and may require révision. INCOMBENT DEFENSE STRATEGIES AGAINST NEW PRODUCT ENTRY AbstractThe objective of this study is to estimate the effectiveness of different defense strategies when faced with a new product introduction by a competitor. Using a sample of incumbents across a wide range of industries, we find that faster reactions to the new entrant have a positive impact on the perceived success of the defense strategy. However, the greater the breadth of reaction (number of marketing mix instruments used), the less successful the defense. The ability of an incumbent to maintain its market position is also significantly affected by industry characteristics and the degree of competitive threat posed by the entrant. INCOMBENT DEFENSE STRATEGIES AGAINST NEW PRODUCT ENTRYThe focus of this research is on the defense strategies that incumbents use when confronted with new competitive products. The goal is to explain the success of reaction strategies, radier than to explain the likelihood of reaction, which is the more prevalent research objective in the extant literature. In other words our concem is not with whether incumbents react, but given that they react, how successful will their responses be? In particular, are faster responses likely to be more successful? Which marketing instruments should be used? Are broad responses (in ternis of number of marketing mix instruments) more successful than narrow responses?The issue of market defense has considerable managerial relevance. In general, as the success of incumbents increases within a product category, the likelihood of new entry increases and with it the need for incumbents to defend their position. In many firms, however, the bias is to develop elaborate new product launch plans but seldom to proactively specify defense plans in advance of a competitive threat (Bazerman and Carroll 1987, Robertson and Gatignon 1991).The bottom line question for managers is what defense strategies will be most effective. More specifically, the question is what responses will be most successful given a certain set of procluct category characteristics and the nature of the competitive threat. It is these mana...

The impact of market characteristics and innovation speed on perceptions of positional advantage and new product performance

“…In rapidly growing markets, consumer have not yet established brand loyalties or supplier commitment (Aaker & Day, 1986), customer needs are emerging and open to definition (LaBahn, Ali, & Krapfel, 1996), and it is more likely that a meaningful advantage is present in the product. From a retaliatory standpoint, Gatignon, Robertson, and Fein (1997) contend that because of the attractiveness of growing markets, firms are more likely to invest and defend their positions. Consequently, competitors who want to survive have to establish their position early in the product life cycle.…”

Efeitos em preço do compartilhamento de voos de companhias aéreas como reação à presença de um competidor de baixo custo

“…Apesar de ser uma das estratégias mais exploradas como resposta à entrada de Low Cost Carriers, a redução de preços não está necessariamente relacionada com a obtenção de sucesso no combate ao novo entrante em distintos setores (aviação, telecomunicações, medicamentos, entre outros), pois pode ser considerada uma estratégia simples para empresas incumbentes que não são capazes de aplicar vantagens competitivas de outras naturezas, como: inovação, diferenciação do produto ou ações de marketing (Gatignon et al, 1997).…”

“…Para Gatignon et al (1997), que analisa a efetividade das reações estratégicas após a introdução de novos produtos pelos competidores, idealmente, a reação precisa ser implementada rapidamente, e identificou-se que a estratégia de redução de preço apesar de ser a mais explorada, não está relacionadas com o sucesso no combate ao novo entrante em longo prazo, pois não é uma estratégia sustentável. E sugere que a exploração de vantagens competitivas de outras naturezas, poderia ser mais eficiente, como a diferenciação de produto através de características inovadoras que destacam o produto ou serviço ofertado.…”

Modeling Competitive Reaction Effects

“…Pauwels and Srinivasan (2004) also demonstrate that store brand entry strengthens a retailer's bargaining position with regard to national brand manufacturers, though reactions to new entries have been studied in many other articles as well. A detailed description of the methods used in this context would require at least another article, so I mention only a few of the most important studies in this arena: Robinson (1988), Gatignon et al (1989), Gatignon et al (1997), Shankar ((1997; (1999)), Kalra et al (1998), Narasimhan and Zang (2000), Waarts and Wierenga (2000), Deleersnijder et al (2001), Debruyne and Reibstein (2005), Roberts et al (2005), and Kornelis et al (2008).…”