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Defensive marketing stategies

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Author Info

  • Hauser, John R.
  • Shugan, Steven.

Abstract

This paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product. Our focus is to provide usable managerial recommendations on the strategy of response. In particular we show that if products can be represented by their position in a multiattribute space, consumers are heterogeneous and maximize utility, and awareness advertising and distribution can be summarized by response functions, then for the profit maximizing firm: - it is optimal to decrease awareness advertising, - it is optimal to decrease the distribution budget unless the new product can be kept out of the market, - a price increase may be optimal, and - even under the optimal strategy, profits decrease as a result of the competitive new product. Furthermore, if the consumer tastes are uniformly distributed across the spectrum - a price decrease increases defensive profits, - it is optimal (at the margin) to improve product quality in the direction of the defending product's strength and - it is optimal (at the margin) to reposition by advertising in the same direction. In addition we provide practical procedures to estimate (1) the distribution of consumer tastes and (2) the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available. Competitive diagnostics, such as the angle of attack, are introduced to help the defending manager. This article was originally published in , Volume 2, Issue 4, pages 319–360, in 1983.

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File URL: http://hdl.handle.net/1721.1/1997
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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 1243-81..

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Date of creation: 1981
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Handle: RePEc:mit:sloanp:1997

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: 617-253-2659
Web page: http://mitsloan.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Related research

Keywords: HD28 .M414 no.1243-; 81;

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Citations

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Cited by:
  1. Hauser, John R., 1983. "Price theory and the role of marketing science," Working papers 1403-83., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Nicholas Economides & Asim Ansari & Joel Steckel, 1994. "The Max-Min Principle of Product Differentiation," Working Papers 94-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Makoto Abe, 2001. "Investigating Behavioral Explanations for Asymmetric Price Competition," CIRJE F-Series CIRJE-F-125, CIRJE, Faculty of Economics, University of Tokyo.
  4. Ulrike Schuster & J?rgen W?ckl, 2005. "Optimal Defensive Strategies under Varying Consumer Distributional Patterns and Market Maturity," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 1(2), pages 187-206, July.
  5. Chang, Shih-Chia & Yang, Chen-Lung & Cheng, Hsin-Chia & Sheu, Chwen, 2003. "Manufacturing flexibility and business strategy: An empirical study of small and medium sized firms," International Journal of Production Economics, Elsevier, vol. 83(1), pages 13-26, January.
  6. Shriver, Scott K. & Srinivasan, V. Seenu, 2011. "What If Marketers Put Their Customers ahead of Profits?," Research Papers 2091, Stanford University, Graduate School of Business.
  7. Ansari, A. & Economides, N. & Steckel, J., 1996. "The Max-Min-Min Principle of product Differentiation," Working Papers 96-10, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Michael, Steven C., 2002. "Can a franchise chain coordinate?," Journal of Business Venturing, Elsevier, vol. 17(4), pages 325-341, July.
  9. Ikuo Ishibashi & Noriaki Matsushima, 2009. "The Existence of Low-End Firms May Help High-End Firms," Marketing Science, INFORMS, vol. 28(1), pages 136-147, 01-02.
  10. Ravi Kumar, K. & Hadjinicola, George C., 1996. "Resource allocation to defensive marketing and manufacturing strategies," European Journal of Operational Research, Elsevier, vol. 94(3), pages 453-466, November.
  11. Riemer, Hila & Mallik, Suman & Sudharshan, Devanathan, 2002. "Market Shares Follow the Zipf Distribution," Working Papers 02-0125, University of Illinois at Urbana-Champaign, College of Business.
  12. Wayne DeSarbo & Kamel Jedidi & Joel Steckel, 1991. "A stochastic multidimensional scaling procedure for the empirical determination of convex indifference curves for preference/choice analysis," Psychometrika, Springer, vol. 56(2), pages 279-307, June.
  13. Toshihiro Matsumura & Noriaki Matsushima, 2010. "Patent licensing, bargaining, and product positioning," ISER Discussion Paper 0775, Institute of Social and Economic Research, Osaka University.
  14. Rust, Roland T. & Metters, Richard, 1996. "Mathematical models of service," European Journal of Operational Research, Elsevier, vol. 91(3), pages 427-439, June.
  15. Covin, Jeffrey G. & Slevin, Dennis P. & Heeley, Michael B., 2000. "Pioneers and followers: Competitive tactics, environment, and firm growth," Journal of Business Venturing, Elsevier, vol. 15(2), pages 175-210, March.
  16. Raphael Thomadsen, 2007. "Product Positioning and Competition: The Role of Location in the Fast Food Industry," Marketing Science, INFORMS, vol. 26(6), pages 792-804, 11-12.
  17. Wilhelm, Wilbert E. & Xu, Kaihong, 2002. "Prescribing product upgrades, prices and production levels over time in a stochastic environment," European Journal of Operational Research, Elsevier, vol. 138(3), pages 601-621, May.
  18. Jordi Sintas & Ercilia Álvarez, 2002. "The Consumption of Cultural Products: An Analysis of the Spanish Social Space," Journal of Cultural Economics, Springer, vol. 26(2), pages 115-138, May.
  19. A. de Palma & C. Fontan & O. Mekkaoui, 2000. "Trip Timing for Public Transportation : An Empirical Application," THEMA Working Papers 2000-19, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  20. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
  21. Hauser, John R., 1987. "Existence and uniqueness of price equilibria in Defender," Working papers 1878-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  22. Christian Jaag & Helmut Dietl & Urs Trinkner & Oliver Fürst, 2011. "Defending Mail Markets against New Entrants: An Application of the Defender Model," Working Papers 0027, Swiss Economics.

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