• Strategic Allocation of Marketing Resources: Methods and Managerial Insights


    by Venkatesh Shankar

    This artcle was published as MSI Report, 08-207.

    This article discusses how firms strategically allocate their resources between marketing and non-marketing variables, across products, markets, channels, customers and over the product life cycle.  It presents resource allocation processes, models, and insights with examples drawn from different companies and industries.  It highlights emerging methods and research directions in strategic resource allocation and planning for both executives and researchers.

  • Pioneers’ Marketing Mix Reactions to Entry in Different Competitive Game Structures: Theoretical Analysis and Empirical Illustration


    by Venkatesh Shankar

    This article was published in Marketing Science, 16 (3, 1997), 271-293.

    Pioneers’ marketing mix reactions to new entries are recognized as important determinants of the outcome of pioneer-late mover competition, particularly in price-inelastic markets such as those for pharmacueticals, cigarettes and luxury goods.  Managers in such markets are interested in better understanding when to accommodate (i.e., decrease marketing spending) or retaliate (i.e., increase spending) in non-price marketing variables such as advertising and salesforce.  In addition, the reallocation of marketing resources toward advertising (indicated by a pull strategy) or salesforce (indicated by a push strategy) upon entry is strategically important to managers. Previous theoretical research shows that pioneers should retaliate rather than accommodate in both static and growing markets.  Results from empirical research are mixed in that they support both accommodation and retaliation in growing markets.  Empirical research also shows that a pioneer accommodates (retaliates) with its low (high) elasticity marketing mix variable. Contrary to prior research, however, some pioneers have successfully accommodated late movers in growing markets, and in some cases, have accommodated with their stronger marketing mix variables and also retaliated with their weaker marketing mix variables.  For example, Bristol Myers Squibb’s Capoten accommodated the entry of Merck’s Vasotec in the growing ace-inhibitors market with its more powerful variable, salesforce, but also retaliated with its less potent variable, advertising, and has been very successful.  Moreover, not much is known about how the pioneer’s marketing mix allocation should change (i.e., toward pull vs. push strategies) in response to new entries.  We seek to better explain the pioneer’s reactions to new entries and predict its shift in marketing mix allocation upon new entry. We note that prior research’s predictions on the pioneer’s marketing mix reactions are based on a limited number of key factors such as product-market characteristics and the pioneer’s elasticities prior to a new entry.  In this paper, we extend previous research by adding two other critical factors, namely, the impact of new entry on the pioneer’s elasticities and margin, and different competitive game structures (e.g., leader-follower competition) to better predict and explain the pioneer’s marketing mix reactions. We develop analytical results on the pioneer’s reactions in price, advertising and salesforce in different competitive games (both Nash and different leader-follower games) between the pioneer and a late mover.  In these results we identify the conditions under which the pioneer should accommodate, or retaliate, or not react to a late mover’s entry, and shift its marketing mix allocation toward pull vs. push strategies.  We empirically illustrate some of the analytical results using data from a pharmaceutical category.

  • Proactive and Reactive Product Line Strategies: Asymmetries between Market Leaders and Followers


    by Venkatesh Shankar

    This article was published in Management Science, 52 (February 2006), 276-292.

    To what extent do firms increase (product proliferation strategy) or decrease (product pruning strategy) their product line? Do they change their product line simultaneously with changes to their prices and distribution levels? What drives these changes to product line? To what extent are they proactive versus reactive? Are product line changes similar for market leaders and followers? The answers to these questions can help managers develop more effective product line strategies.  We present a framework and model to answer these questions and analyze product line strategies of firms using data from the computer printer market comprising the market leader, Hewlett Packard (HP) and followers, Epson, Canon and Lexmark.  The results show that the market leader practices a product proliferation strategy and rarely fights on price. In contrast, market followers adopt a price fighting strategy.  A firm is more likely to engage in product line actions when its competitors changed their product lines in the past, when the firm is large, and when its price is high.  Product line reaction elasticities (percentage change in product line length with respect to percentage past change in competitor’s marketing variable) are different from product line anticipation elasticities (percentage change with respect to percentage anticipated future change).  They are also different for market leaders and followers.  For the market leader (followers), product line reaction elasticity is higher (lower) than product line anticipation elasticity.  These differences are related to product line demand elasticities, which are higher for the market leader than they are for the followers.  Managers of market leaders (followers) can formulate better product line strategies based on these likely proactive and reactive actions of market followers (leaders).  They can use our model to estimate reaction, anticipation and demand elasticities of the different firms in their markets and develop a decision support system for effective product line decisions.

  • Relating Price Sensitivity to Retailer Promotional Variables and Pricing Policy: An Empirical Analysis


    by Venkatesh Shankar and Lakshman Krishnamurthi

    This article was published in the Journal of Retailing, 72 (3, 1996), 249-272.

    There is substantial evidence for variation in price sensitivity of products across stores and chains.  Understanding the relationships between price sensitivity and promotional variables (such as price cut, feature advertising, and display), and between price sensitivity and pricing policy (Everyday Low Pricing [EDLP] and High Low Pricing [HLP]) is particularly important to retailers.  We develop hypotheses on the relationships between regular price elasticity and retailer promotional variables, and between regular price elasticity and retailer pricing policy.  We test these hypotheses by analyzing the variation of regular price elasticity of a frequently purchased consumer packaged brand across stores, both within and across chains, through a multistage regression analysis.  In the first stage of our analysis, we use a mixed double-log model to estimate the sales response function for the brand in each store using time series data.  In the second stage, we explain the differences in the estimated regular price elasticities across stores within a chain by a process function model.  In the final stage, the differences across all stores and chains are explained through an aggregate process function model.  We extend the literature by separating regular (long-run) price elasticity from promotional (short-run) elasticity, and by studying the influence of both strategic and tactical retailer variables on regular price elasticity in a single framework within and across chains.  Our results for the brand analyzed show that a higher level of display and feature advertising together is associated with a lower level of regular price elasticity in EDLP stores and that an EDLP policy is associated with a higher level of regular price elasticity, whereas an HLP policy is related to a lower level of regular price elasticity.

  • New Product Introduction and Incumbent Response Strategies: Their Interrelationship and the Role of Multimarket Contact


    by Venkatesh Shankar

    This article was published in Journal of Marketing Research, 36 (August 1999), 327-344.

    In this paper, we study the determinants of both new product introduction and incumbent response strategies in a single integrated framework.  Building on previous research in strategic management, industrial organization, and marketing, we first conceptually identify the factors that potentially influence these strategies.  We develop hypotheses on the impact of the key factors on these strategies. We focus on the interrelationship between new product introduction and incumbent response strategies and on the role of multimarket contact in these strategies.  To test these hypotheses, we formulate models of introduction and response strategies, which include an anticipated incumbent reaction formation model.  We estimate the models using cross-sectional and time-series data comprising 23 new product entries and responses of 59 incumbents to these entries in six leading pharmaceutical markets. Our results significantly extend previous research.  They show that new product introduction strategy is significantly influenced by incumbent reaction strategy and vice-versa. The relationship of a new product’s marketing spending with the anticipated incumbent reaction is different for incumbents of different sizes.  A new product’s spending is negatively related to the anticipated reactions of large incumbents, but is unrelated to those of small incumbents.  Our analysis shows that higher spending by a new brand results in incumbent response that is significantly lower in magnitude. Our results also show that multimarket contact results in both lower introduction spending and incumbent response.  We discuss the managerial implications of these results.


  • First Mover Advantage in an Internet-enabled Environment: Conceptual Framework and Propositions

    Varadarajan Yadav Shankar JAMS 2008

    by Rajan Varadarajan, Manjit Yadav, and Venkatesh Shankar

    This article was published in the Journal of Academy of Marketing Science, 36 (2008), 293-308.

    The competitive market environment has evolved from a physical market environment (PME) to an Internet-enabled market environment (IME) encompassing the physical and electronic marketplaces. At the same time, an increasing number of information products are available in both analog and digital forms. For information products in digital form, the IME also serves as a distribution channel. Such developments raise questions concerning the extent to which extant perspectives on first-mover advantage developed in the context of the PME hold in the IME, generally, and for information products specifically. We address this issue by developing a conceptual framework that focuses on selected sources of first-mover advantage delineated in the extant literature and advance propositions concerning sources that will have a greater or lower effect in the IME relative to the PME. A central message for first-movers in the IME that emerges from our conceptual analysis is to focus on achieving superior positions in resources that would enable them to get close to the customers fast, create switching costs, and retain them though ongoing investments in multi-faceted innovations. A second message that emerges for first-movers in the IME is they must take note of and make strategic adjustments for the potentially diminished significance of some traditional sources of first-mover advantage. These sources include spatial preemption, preemptive investment in capacity, and consumers’ choice behavior under conditions of uncertainty about product quality. We discuss the implications for further conceptual and empirical work in this area of increasing significance.

  • New Product Preannouncements and Shareholder Value: Don’t Make Promises You Can’t Keep


    by Alina Sorescu, Venkatesh Shankar, and Tarun Kushwaha

    This article was published in Journal of Marketing Research, 44 (August 2007), 464-489.

    New product preannouncements are strategic signals that firms direct at their customers, competitors, channel members, and investors. They have been touted as effective means of deterring competitor entry, informing potential customers, and even tipping the balance of technological standard battles in favor of the preannouncing firms. However, preannouncements also carry the risks of unwanted competitive reaction and the negative consequences of undelivered promises. From a shareholder value standpoint, do the benefits outweigh the risks of preannouncing? To address this question, the authors build on agency and signaling theories to develop hypotheses about the effects of preannouncements on shareholder value, and they empirically test these hypotheses on a sample of software and hardware new product preannouncements. The findings indicate that the financial returns from preannouncements are significantly positive in the long run. They show that preannouncements generate positive short-term abnormal returns only for firms that offer specific information about the preannounced product. The authors also show that firms earn positive long-term abnormal returns after a preannouncement if they continue to update the market on the progress of the new product. Both the short-term and the long-term returns are further magnified if the reliability of the preannouncement (i.e., the credibility of the preannouncing firm) is high. The findings offer executives of preannouncing firms clear guidelines on how to manage communications in the market to extract financial value from new product preannouncements.

  • Online Trust: A Stakeholder Perspective, Concepts, Implications, and Future Directions


    by Venkatesh Shankar, Glen L. Urban, Fareena Sultan

    This article was published in Journal of Strategic Information Systems, 11 (2002), 325-344.

    Online trust is important in both business-to-business (B2B) and business-to-consumer (B2C) e-business.  Consumers and businesses, feeling the pressure of economic downturn and terrorism, increasingly look to buy from and do business with organizations with the most trusted Web sites and electronic networks.  Companies’ perception of online trust has steadily evolved from being a construct involving security and privacy issues on the Internet to a multidimensional, complex construct that includes reliability/credibility, emotional comfort and quality for multiple stakeholders such as employees, suppliers, distributors and regulators, in addition to customers.  Further, trust online spans the end-to-end aspects of e-business rather than being just based on the electronic storefront.  Based on a review of selected studies, we propose a stakeholder theory of trust, articulate a broad conceptual framework of online trust including its underlying elements, antecedents, and consequences, and propose some promising future research avenues in online trust.  This paper will help information systems professionals better understand the online trust perspectives of multiple stakeholders, the antecedents and consequences, thereby enabling them to build more trustworthy Web sites.

  • The Wireless Industry’s Killer ‘B’


    by Venkatesh Shankar, Tony O’Driscoll, and David Reibstein

    This article was published in Strategy+Business, 31 (Summer 2003), 68-77.

    We suggest a strategic approach and offer examples of firms successfully using m-business can provide an understanding how mobile technology will impact a firm’s business model and organization. An understanding of where monies are being spent in m-business in the industry as well as in complementary and competitive industries may be valuable as mobile technology’s core value proposition of anything, anywhere, anytime is hacking at the root of the industry-segmented mental model. The future opportunity for m-business truly lies in the cross-industry context rather than within the context of any given industry. Cultivation of the capability to recognize and act upon cross-industry value networks aimed at constantly enhancing customer value may the hallmark of successful firms in the wireless world. While firms need to grab the low-hanging fruits of wireless now, they also should look at changing the ways of doing business in the future mobile environment characterized by cross-industry coordinated value bundles for customers.

  • Online and Mobile Advertising: Current Scenario, Emerging Trends, and Future Directions


    by Venkatesh Shankar and Marie Hollinger

    This article was published as MSI Report 07-206.

    Online advertising expenditures are growing rapidly and are expected to reach $37 billion in the U.S. by 2011. Mobile advertising or advertising delivered through mobile devices or media is also growing substantially. Advertisers need to better understand the different forms, formats, and media associated with online and mobile advertising, how such advertising influences consumer behavior, the different pricing models for such advertising, and how to formulate a strategy for effectively allocating their marketing dollars to different online advertising forms, formats and media. In this article, we address these issues. We provide an overview of the current scenario with regard to online and mobile advertising. We discuss the emerging trends in these areas and offer our view of the future directions.