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

Abstract

In this article, the author studies 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, the author conceptually identifies the factors that potentially influence these strategies, develops hypotheses about the impact of the key factors on these strategies, and focuses 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, the author formulates models of introduction and response strategies, including an anticipated incumbent reaction formation model. The results of the empirical analysis show that new product introduction strategy is influenced significantly by incumbent reaction strategy, and vice versa. The relationship of a new product's marketing spending to the anticipated incumbent reaction is different for incumbents of different sizes. The analysis shows that higher spending by a new brand results in incumbent response that is significantly lower in magnitude. The results also show that multimarket contact leads to both lower introduction spending and milder incumbent response. The author discusses the managerial implications of these results.