Measuring the effects of new brand introduction on inter-brand strategic interaction

Abstract

This paper empirically investigates the effects of a new brand introduction on the market structure of a product market, i.e., the nature of competition among existing brands. The model is based on the discrete choice multinomial logit model in which the household-specific brand intercepts are decomposed into brand locations in attribute space and households' importance weights for these attributes. The formulation also incorporates the effects of marketing variables on brand choice behavior. The relative proximity of brands in the attribute space provides a measure of the intensity of competitive rivalry among brands. A new brand introduction results in an additional location in this space. Three consequences of the introduction are investigated. (i) Impact on brand locations of extant brands. (ii) Change in the importance weights assigned by households to the attributes. (iii) Effects on households' sensitivities to marketing activities. As some or all of the above could change, these three effects result in eight combinations that need to be studied. The general model is one in which all three components are allowed to change and this nests the remaining seven specifications. The specification that is most consistent with the data can, therefore, be isolated via a statistical test of nested hypotheses. Identifying the consequences of the introduction for market structure has implications for managerial action. An empirical application of the model to household scanner panel data using liquid laundry detergents is provided.