Khaled Aboulnasr, Om Narasimhan, Edward Blair, & Rajesh Chandy
Executive Summary
In this study, the authors examine how competitors respond to the introduction of radical product innovations. Such innovations often are agents of creative destruction. They threaten to destroy existing market positions, but they often yield vast new opportunities. The authors examine competitive response to 52 such innovations introduced in the pharmaceutical industry between 1997 and 2001. The results from the study contradict some common assumptions regarding competitive response.
Others have suggested that competitors will be less likely to respond to new products by larger than by smaller firms because of a fear of retaliatory behavior. However, the authors find that in the context of radical product innovations, competitors are more than twice as likely to respond to larger than to smaller firms. Others have also suggested that competitors are less likely to respond to product introductions in smaller than in larger markets. In contrast, this study finds that competitors are more likely to respond to radical innovations in smaller than in larger markets if the firm introducing the innovation is large.
The authors use the concepts of market expansion and entry thresholds to explain their findings. They argue that competitors are more likely to respond with their own products when some aspect of the radical innovation provides them with signals of market expansion. Some of the most credible signals in this context are related to the nature of the firms that introduce innovations. Response is especially likely when competitors observe product introduction by firms that have higher entry thresholds (i.e., firms that would introduce a product only if the market has high potential), especially when such firms introduce products in markets with previously low potential.
What is the profile of a firm with high entry thresholds? Large firms have high entry thresholds because as firms get larger, their reference points for what constitutes attractive markets also get larger. Likewise, market-dependent firms (firms that derive large parts of their revenue from the particular market) have high entry thresholds because the innovation is likely to cannibalize sales of their existing products.
The results from the study have several implications for managers:
Know thyself to predict thy opponent: Large and market-dependent firms should anticipate and account for greater competitive response to their radical product innovations.
Watch for trickles that can turn into gushers. Most analyses of the likelihood of competitive response to a particular market take the size of the market as a given. The results from this study emphasize the need to examine markets dynamically, not just as they are today but as they could be tomorrow. Radical product innovations can cause previously small markets to explode in size.
Do not assume that entry by giants will dissuade others from entering. Conventional wisdom suggests that entry into a market by large firms deters entry by competitors. This logic could lead to the conclusion that large firms are sanguine about competition. However, the results from this study suggest the opposite.
Biography
Khaled Aboulnasr is Assistant Professor of Marketing in the Lutgert College of Business at Florida Gulf Coast University. He has previously taught at Fairfield University in Connecticut. His areas of research include innovation, competitive and consumer response to new products, and international marketing. This is his first publication in Journal of Marketing. Dr. Aboulnasr received his PhD from the University of Houston.
Om Narasimhan is an associate professor in the Carlson School of Management at the University of Minnesota. His research interests lie in the exploration of sources of competitive advantage in high-technology markets, addressing questions related to channels of distribution using empirical industrial organization techniques, advertising, and new product development. This is his first publication in the Journal of Marketing.
Edward Blair is Michael J. Cemo Professor and Chair in the Department of Marketing and Entrepreneurship in the Bauer College of Business at the University of Houston. His research interests include survey research methods, behavioral pricing, and entrepreneurship and innovation. Dr. Blair is the author of numerous articles published in journals, such as Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, and Public Opinion Quarterly, among others. He has served on the editorial boards of Journal of Marketing Research, Journal of the Academy of Marketing Science, and Journal of Business Research and as national conference chair for the American Marketing Association Educators’ Conference. He has served as National Science Foundation panelist for Innovation and Organizational Change and as a member of the U.S. Census Bureau Advisory Committee, and he currently serves as a member of the American Statistical Association/Department of Energy Committee on Energy Statistics. Dr. Blair received his PhD from the University of Illinois.
Rajesh K. Chandy is James D. Watkins Professor of Marketing in the Carlson School of Management at the University of Minnesota. His research has received several awards, including Journal of Marketing Harold Maynard Award for contributions to marketing theory and thought, the American Marketing Association’s Early Career Award for Contributions to Marketing Strategy, and the Marketing Science Institute Alden Clayton Dissertation Award. Chandy teaches in the full-time MBA, part-time MBA, and executive education programs in the Carlson School of Management. His teaching awards include the Carlson School Outstanding Professor of the Year Award, the Carlson School Award for Excellence in Teaching, and the Outstanding Faculty Dedication Award. Chandy currently serves on the U.S. Commerce Secretary’s Advisory Committee on Measuring Innovation in the 21st Century Economy. He is also a member of the Academic Council of the American Marketing Association and the Knowledge Development Coalition of the American Marketing Association. Chandy received his PhD from the University of Southern California.
Journal of Marketing, Vol. 72, No. 3, May 2008
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