New product entry and competitive response: an empirical investigation of incumbents' defence strategies

In recent years the marketing discipline has shown increasing interest in market defence strategies, one of the classic areas of research in industrial organisation and economics. Market defence strategies refer to the attempts of established competitors (the incumbents) to deter or slow down the entry of an actual or potential new competitor in their market. A range of defence mechanisms have been discussed in the literature, including price, costs, diversification and advertising. The focus of my study is on the investigation of how an incumbent will react to a competitor entering the market with a new product. The question of interest is how strongly the established competitor will retaliate against this new product. Marketing scholars have long been calling for more empirical research on competitive issues. My research is in line with this call for more empirical research on competitive response, as its main objective is to understand how established firms respond to a new product in their market. In addition to adding to the limited empirical base in this field my research attempts to make established firms more aware of the crucial role of competitive interplay in industries. This is important because strong competitors often experience reversals of their fortunes due to a failure in anticipating and counter-acting new competitive forces. Based upon the review of the relevant literature in economics, industrial organisation, strategy and marketing, I have generated a number of hypotheses that try to explain the strength of the incumbent's competitive retaliation. The explanatory variables fall into the following categories a) the type of innovation (incremental versus radical), b) industry characteristics (e.g., market concentration, growth, barriers to exit), c) incumbent characteristics (market size, buyers' price sensitivity) and d) the entrant's characteristics (e.g., competitive familiarity). To test these hypotheses, a cross-sectional mail survey was conducted to ask U.K. marketing executives about their response to an innovation in their market. Before testing the hypotheses an analysis of the data was conducted to assess the reliability of the measures that have been developed for the survey instrument