Tag Archives: pharmaceutical

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

    Shankar_MS_1997

    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.

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

    Shankar_JMR_1999

    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.

     

  • The Advantages of Entry in the Growth Stage of the Product Life Cycle: An Empirical Analysis

    Shankar_Carpenter_Krishnamurthi_JMR_1999

    by Venkatesh Shankar, Gregory S. Carpenter, and Lakshman Krishnamurthi

    This article was published in Journal of Marketing Research, 36 (May 2009), 269-276.

    Empirical research on sequential brand entry shows market share advantages for pioneers arising from a direct impact of order or timing of entry on market share and indirect effects of order of entry on a brand’s market response.  Analyses demonstrating these effects implicitly assume that a brand’s diffusion and market response parameters are independent of the stage of the life cycle in which a brand enters.  In this paper, we examine how the stage of market life in which a brand enters affects its sales through brand growth and market response, after controlling for the order of entry effect and time-in-market.  We develop a dynamic brand sales model in which brand growth and market response parameters vary by stage of life cycle entry, i.e., by pioneers, growth-stage and mature-stage entrants.  We estimate the model using data on 29 brands from six pharmaceutical markets. Our results reveal advantages associated with entering during the growth stage.  Brands that enter in the growth stage of the product life cycle reach their asymptotic sales level faster than pioneers or mature-stage entrants, are not hurt by competitor diffusion, and enjoy a higher response to perceived product quality than pioneers and mature-stage entrants. We find that pioneers reach their asymptotic sales levels more slowly than later entrants, and pioneer’s sales, unlike later entrants’ sales, are hurt by competitor diffusion over time.  On the positive side for pioneers, buyers are most responsive to marketing spending by pioneers.  Mature-stage entrants are most disadvantaged; they grow more slowly than growth-stage entrants, have lower response to product quality than growth-stage entrants, and have the lowest response to marketing spending.  We outline the implications of these results.

  • Late Mover Advantage: How Innovative Late Entrants Outsell Pioneers

    Shankar_Carpenter_Krishnamurthi_JMR_1998

    by Venkatesh Shankar, Gregory S. Carpenter, and Lakshman Krishnamurthi

    This article was published in Journal of Marketing Research, 35 (February 1998), 54-70.

    Although pioneers outsell late movers in many markets, in some cases, innovative late entry has produced some remarkably successful brands that outsell pioneers.  The mechanisms through which innovative late movers outsell pioneers are unclear.  To identify these mechanisms, we develop a brand-level model in which brand sales are decomposed into trials and repeat purchases.  The model captures diffusion and marketing mix effects on brand trials and includes the differential impact of innovative and non-innovative competitors’ diffusion on these effects.  We develop hypotheses on how the diffusion and marketing mix parameters of the brands will differ by market entry strategy (pioneering, innovative late entry, and non-innovative late entry).  We test these hypotheses using data from 13 brands in two pharmaceutical product categories.  The results show that an innovative late mover can create a sustainable advantage by enjoying a higher market potential and a higher repeat purchase rate than either the pioneer or non-innovative late movers, by growing faster than the pioneer, by slowing the pioneer’s diffusion, and by reducing the pioneer’s marketing spending effectiveness.  Innovative late movers are asymmetrically advantaged in that their diffusion can hurt the sales of other brands, but their sales are not affected by competitors’ diffusion.  In contrast, non-innovative late movers face smaller potential markets, lower repeat rates and less marketing effectiveness compared to the pioneer.