Order of Entry as a Moderator of the Effect of the Marketing Mix on Market Share

Abstract

Order of entry has been demonstrated to have a significant effect on market share. A number of explanations for this effect have been suggested in the marketing and strategy literatures. To date, the market share advantage gained by pioneers has typically been treated as a main effect—an automatic regularity. Treating order-of-entry as a main effect implies that there is no penalty on the effectiveness of a brand's marketing instruments for late entry and that a late entrant can compensate for being late by dedicating sufficient marketing resources to their product. In this study, we investigate the influence of order-of-entry into a market on the effectiveness of a firm's marketing mix decisions by asking the question, “Can followers compensate for not being first by their marketing mix decisions?” Also, even if they can compensate for being late, does this effort become increasingly more difficult with later entry? That is, are there asymmetries in the effectiveness of a brand's marketing mix variables that relate to its order of entry into the market, or as has been typically assumed to date, is order of entry strictly a main effect? An asymmetry exists, for example, if the market response to advertising is different for the first entrant versus the second or third entrant. An asymmetry also exists if the effects of, say, a price change by the first entrant on the second entrant are different than the effects on the third entrant. We develop a market share attraction model where the parameters vary as a function of order-of-entry. Our main contribution is in modeling the sources of order-of-entry advantage as asymmetries in the effectiveness of a brand's marketing instruments. Hence, distinct from previous research we explain why there are inherent order-of-entry effects. This paper is potentially of interest to researchers developing market share models and studying the effectiveness of marketing-mix variables. The substantive implication of our results concern directly academics interested in marketing strategy as well as the practicing marketing strategists. We model asymmetries in the market response of early entrants versus late entrants using data from two durables and three nondurables categories. With one exception, all data sets are established from the inception of the category and hence do not suffer from the possible bias of excluding pioneers who have failed. Results show that asymmetries in the effectiveness of a brand's marketing mix variables are an essential source of order-of-entry effects; we find that the main effects of order of entry are minimal. Order-of-entry effects do not necessarily lead to lower shares, but overcoming these effects is not without substantial cost to the late entrant. Our results support previous research that has demonstrated advantages to early entry. In addition, we provide guidelines for how late entrants should compete. Later entry tends to reduce a competitor's price sensitivity, suggesting that they not instigate in a price war with earlier entrants in order to gain share. Order-of-entry tends to decrease response to quality and to promotion. To achieve the same impact on market share, later entrants need a bigger change in quality and need to spend more on promotion. Our data did not support an asymmetric effect on advertising.