A Prelaunch Diffusion Model for Evaluating Market Defense Strategies

This paper describes the development and application of a marketing model to help set an incumbent's defensive marketing strategy prior to a new competitor's launch. The management problem addressed is to assess the market share impact of a new entrant in the residential Australian long di...

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Veröffentlicht in:Marketing science (Providence, R.I.) R.I.), 2005-01, Vol.24 (1), p.150-164
Hauptverfasser: Roberts, John H, Nelson, Charles J, Morrison, Pamela D
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description This paper describes the development and application of a marketing model to help set an incumbent's defensive marketing strategy prior to a new competitor's launch. The management problem addressed is to assess the market share impact of a new entrant in the residential Australian long distance telephone call market and determine the factors that would influence its dynamics and ultimate market appeal. The paper uses probability flow models to provide a framework to generate forecasts and assess the determinants of share loss. We develop models at two levels of complexity to give both simple, robust forecasts and more detailed diagnostic analysis of the effect of marketing actions. The models are calibrated prior to the new entrant's launch, enabling preemptive marketing strategies to be put in place by the defending company. The equilibrium level of consideration of the new entrant was driven by respondents' strength of relationship with the defender and inertia, while trial was more price-based. Continued use of the defender depends on both service factors and price. The rate at which share loss eventuates is negatively related to the defender's perceived responsiveness, saving money being the only reason to switch, and risk aversion. Prelaunch model forecasts, validated six months after launch using both aggregate monthly sales data and detailed tracking surveys, are shown to closely follow the actual evolution of the market. The paper provides a closed-form multistate model of the new entrant's diffusion, a methodology for the prelaunch calibration of dynamic models in practice, and insights into defensive strategies for existing companies facing new entrants.
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source Jstor Complete Legacy; Informs; RePEc; EBSCOhost Business Source Complete
subjects Analysis
Australia
brand choice
Business forecasts
Calibration
Case studies
Communications industry
Competition
Decision making
Defense
defensive strategy
diffusion
Dynamic modeling
Econometrics
Empirical research
Flow velocity
forecasting
Forecasting models
Forecasts
Game theory
Incumbency
Incumbents
Industrial economics
Inertia
Market entry
Market prices
Market share
Market shares
Market strategy
Marketing
Marketing management
Modeling
Modelling
Monopolies
Optus
Parametric models
Product development
Strategic planning
Studies
Telecommunications services industry
Telstra
title A Prelaunch Diffusion Model for Evaluating Market Defense Strategies
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