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.