• 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.


  • Asymmetric New Product Development Alliances: Win-Win or Win-Lose Partnerships?

    Kalaignanam_Shankar_Varadarajan_ MgtS_2007

    by Karthik Kalaignanam, Venkatesh Shankar, and Rajan Varadarajan

    This article was published in Management Science, 53 (March, 2007), 357-374.

    Inter-organizational alliances are widely recognized as critical to product innovation, particularly in high technology markets. Many new product development (NPD) alliances tend to be asymmetric, that is, they are formed between a larger firm and a smaller firm. As is the case with alliances in general, asymmetric alliances also typically result in changes in the shareholder values of the partner firms. Are the changes in shareholder values of partner firms significant? Are asymmetric NPD alliances win-win or win-lose partnerships? Are the gains or losses symmetric for the larger and smaller partner firms? What factors drive the changes in shareholder values of the partner firms? These important questions remain largely unexplored as evidenced by the dearth of empirical research on the effect of asymmetric NPD alliances on shareholder value and on the apportionment of this value between the partner firms. We develop and empirically test a model of short-term changes in shareholder values of larger and smaller firms involved in NPD alliances, using the event study methodology on data covering 167 asymmetric alliances in the information technology and communication industries. In this model, we examine alliance, firm, and partner characteristics as potential determinants of the changes in shareholder values of the partner firms due to a NPD alliance announcement. Our model accounts for selection correction, potential cross-correlation across the residuals from the models of firm value changes for the larger and smaller firms, and unobserved heterogeneity. The results suggest that both the partners experience significant short-term financial gains, but there are considerable asymmetries between the larger and smaller firms with regard to the effects of alliance, partner and firm characteristics on the gains of the partner firms. The results relating to alliance characteristics suggest that while a broad scope alliance enhances the financial gains for the larger firm, a scale R&D alliance (relative to a link alliance) contributes positively to the financial gains for the smaller firm. With regard to partner characteristics, while partner alliance experience positively influences the financial gains for the larger firm, it has no significant effect on the financial returns for the smaller firm. Further, partner innovativeness is positively associated with the financial gains for the larger firm, but partner reputation is unrelated to the financial gains of the smaller firm. As regard firm characteristics, the magnitude of the financial gains accruing from a firm’s own alliance experience is considerably higher for the smaller firm than it is for the larger firm. We outline the implications of the research findings for future research and management practice.