Vol. 2, No. 4, 1983
Defensive Marketing Strategies
John R. Hauser and Steven M. Shugan
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’s 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 the 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 managers.
(Competition; Pricing; Product entry; Defensive Marketing)
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