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Defensive Marketing Strategies: An Equilibrium Analysis Based on Decoupled Response Function Models

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  • K. Ravi Kumar

    (Department of Decision Systems, University of Southern California, Los Angeles, California 90089-1421)

  • D. Sudharshan

    (Department of Business Administration, University of Illinois, Urbana-Champaign, Champaign, Illinois 61820)

Abstract

The entry of a new product (attacker) into a competitive market is likely to provoke responses from some or all of the existing products (defenders). This paper investigates the development of optimal defensive strategies based on an understanding of the possible reactions of all the defenders to an optimal attack. Following Lane (Lane, W. J. 1980. Product differentiation in a market with endogenous sequential entry. Bell J. Econom. 11(1, Spring) 237--260.) we assume that N products each enter sequentially with perfect foresight on subsequent entry. Then, based on new technology, an unanticipated attacker enters. The N defenders respond in price but not position according to Lane's model. Once this equilibrium is obtained, advertising and distribution response functions scale sales. We show that under these decoupled response function models of advertising and distribution, uniformly-distributed tastes, and nonincreasing market size, the optimal defense for all existing brands is to decrease their respective prices, advertising, and distribution. Those qualitative results are consistent with recommendations by Hauser and Shugan (Hauser, J. R., S. M. Shugan. 1983. Defensive marketing strategies. Marketing Sci. 2(4, Fall) 319--360.) who used related, but different, consumer response models and a different equilibrium assumption.

Suggested Citation

  • K. Ravi Kumar & D. Sudharshan, 1988. "Defensive Marketing Strategies: An Equilibrium Analysis Based on Decoupled Response Function Models," Management Science, INFORMS, vol. 34(7), pages 805-815, July.
  • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:7:p:805-815
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    File URL: http://dx.doi.org/10.1287/mnsc.34.7.805
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    Cited by:

    1. 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.
    2. Steven M. Shugan, 2004. "Editorial: Consulting, Research, and Consulting Research," Marketing Science, INFORMS, vol. 23(2), pages 173-179.
    3. 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.
    4. 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.
    5. 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.
    6. John H. Roberts & Charles J. Nelson & Pamela D. Morrison, 2005. "A Prelaunch Diffusion Model for Evaluating Market Defense Strategies," Marketing Science, INFORMS, vol. 24(1), pages 150-164, August.
    7. Juan Luis Martinez, 2002. "Linking Marketing And Manufacturing Strategies: Unifying Approach Using QFD," Working Papers Economia wp02-30, Instituto de Empresa, Area of Economic Environment.
    8. Marks, Ulf G. & Albers, Sönke, 1995. "Experiments in competitive product positioning: An equilibrium analysis," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 364, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    9. Nicholas Economides & Joel Steckel, "undated". "The Max-Min Principle of Product Differentiation," Networks, Compatibility 94-16, Economics of Networks.
    10. John R. Hauser & Steven M. Shugan, 2008. "Commentary—Defensive Marketing Strategies," Marketing Science, INFORMS, vol. 27(1), pages 85-87, 01-02.
    11. Niladri B. Syam & Nanda Kumar, 2006. "On Customized Goods, Standard Goods, and Competition," Marketing Science, INFORMS, vol. 25(5), pages 525-537, September.
    12. Ajay Kalra & Surendra Rajiv & Kannan Srinivasan, 1998. "Response to Competitive Entry: A Rationale for Delayed Defensive Reaction," Marketing Science, INFORMS, pages 380-405.
    13. Suman Basuroy & Dung Nguyen, 1998. "Multinomial Logit Market Share Models: Equilibrium Characteristics and Strategic Implications," Management Science, INFORMS, vol. 44(10), pages 1396-1408, October.

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    Keywords

    marketing; competition; new products; pricing;

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