The impact of new product launch strategies on competitive reaction in industrial markets

Abstract

The importance of successful innovation for the long-term performance of companies can hardly be exaggerated. However, we need to consider this in a dynamic setting, in which competitors do not remain passive. We find that two thirds of new product launches meet reaction by competitors after their launch. We also empirically demonstrate that the strategic launch decisions that managers take have an effect on future reaction by competitors. Following an extensive review of the literature, a propositional model is developed. In order to test this theoretical model, an ex post facto field study was designed, in which the authors obtained comprehensive information on 509 new industrial products launched in the US, the UK and the Netherlands. Competitive reaction is diagnosed in terms of changes in the marketing instruments of the competitor. A logistic regression model is estimated on the occurrence of competitive reaction with any marketing instrument. We also look at the occurrence of individual marketing instrument reactions. The data show that competitors react primarily by means of price changes. Product assortment and promotional changes are less frequent, whereas distribution policy modifications occur very rarely. The characteristics of the new product launch strategy were found to have a significant impact on both the occurrence and nature of competitive reactions. We claim that the competitive effect of radically new products and incrementally new products greatly differs. The results show that competitors fail to respond to radical innovations and to new products that employ a niche strategy. They do react if a new product can be assessed within an existing product category and thus represent an unambiguous attack. Both innovative and imitative new products meet reaction in this case. The results also demonstrate that competitors are more inclined to react to the introduction of new products that are supported by extensive communication by the innovating firm. The likelihood of reaction is also higher in high growth markets than in low growth markets. The article discusses theoretical and managerial implications of these results, as well as thoughts for future research that may add more insight.

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