To Innovate or Imitate? Entry Strategy and the Role of Market Research

Abstract

A firm planning market entry can attempt to develop a product that is either similar to the incumbent's existing offering (imitation) or entirely novel (innovation). The authors establish that when the incumbent is more aggressive in research and development (R&D), this negatively affects the entrant's marginal return on R&D. Thus, if greater profits produce a strong (weak) desire for the incumbent to increase its R&D level, the entrant will respond by sharply decreasing (increasing) its R&D level. As a result, the incumbent's likelihood of retaining the lead position will exhibit an inverse U-shaped pattern as a function of monopoly and duopoly profits. The authors then examine the impact of uncertainty about the rewards from new products and allow firms to conduct market research to resolve the uncertainty. They characterize the conditions for the entrant's innovation versus imitation decision to reveal information about future rewards to the incumbent. When duopoly profits are uncertain and can be either high (upside potential) or low (downside potential), the entry strategy will be revealing if the upside potential is attractive enough relative to monopoly profits. In contrast, when innovation has uncertain commercial potential (i.e., either valued or not valued by consumers), the entry strategy will be revealing if duopoly profits are unattractive relative to monopoly profits. In these cases, the entrant's innovation–imitation decision is driven by market research; this allows the incumbent to forgo market research and infer the true state of demand from the type of entry strategy it observes.

The role of organizational learning in stakeholder marketing

“…Bundy et al 2013;Eesley and Lenox 2006;Kohli and Jaworski 1990). Interestingly, research has found that the information an organization gathers through market research may affect its decision to pursue a strategy of either innovation or imitation (e.g., Ofek and Turut 2008). This suggests that the way the organization responds to the knowledge gained through the different knowledge acquisition mechanisms varies in the degree to which its stakeholder practices are characterized as innovative or imitative.…”

Is Product Imitation Good for Firm Performance? An Examination of Product Imitation Types and Contingency Factors

“…First, imitation allows the firm to react quickly to competitors' appealing products (Shenkar 2010b). Second, because the firm duplicates its rivals' products, it saves substantial resources in R&D, which often prove unrewarding (Ofek and Turut 2008;Shankar, Carpenter, and Krishnamurthi 1998). Third, by imitating competitors' products, the firm can learn from others' mistakes in product design and gain a better chance of success (Lieberman and Asaba 2006).…”

When Imitation Doesn’t Flatter: The Role of Consumer Distinctiveness in Responses to Mimicry

“…In doing so, we highlight important boundary conditions for our findings and show that, when the product is nonsymbolic in nature or when little effort was expended to acquire the product, consumers for whom distinctiveness is particularly relevant do not exhibit negative reactions to being mimicked by a similar other Our final contribution lies in the broader focus of the research. Although work has examined consumer responses to marketers consciously imitating others' product offerings (Ofek and Turut 2008;Wariop and Alba 2004;Wilcox, Kim, and Sen 2009), to our knowledge, our research is the first to examine consumer reactions to being copied by another individual in their product choices.…”