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Defensive Marketing Strategies

Author

Listed:
  • John R. Hauser

    (Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, Massachusetts 02139)

  • Steven M. Shugan

    (Graduate School of Business, University of Chicago, Chicago, Illinois 60637)

Abstract

This paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product. Our focus is to provide usable managerial recommendations on the strategy of response. In particular we show that if products can be represented by their position in a multiattribute space, consumers are heterogeneous and maximize utility, and awareness advertising and distribution can be summarized by response functions, then for the profit maximizing firm: it is optimal to decrease awareness advertising; it is optimal to decrease the distribution budget unless the new product can be kept out of the market; a price increase may be optimal; and, even under the optimal strategy, profits decrease as a result of the competitive new product. Furthermore, if the consumer tastes are uniformly distributed across the spectrum: a price decrease increases defensive profits, it is optimal (at the margin) to improve product quality in the direction of the defending product's strength, and, it is optimal (at the margin) to reposition by advertising in the same direction. In addition we provide practical procedures to estimate (1) the distribution of consumer tastes and (2) the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available. Competitive diagnostics, such as the angle of attack, are introduced to help the defending manager.

Suggested Citation

  • John R. Hauser & Steven M. Shugan, 1983. "Defensive Marketing Strategies," Marketing Science, INFORMS, vol. 2(4), pages 319-360.
    • Handle: RePEc:inm:ormksc:v:2:y:1983:i:4:p:319-360
    DOI: 10.1287/mksc.2.4.319
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    References listed on IDEAS

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    1. John R. Hauser & Patricia Simmie, 1981. "Profit Maximizing Perceptual Positions: An Integrated Theory for the Selection of Product Features and Price," Management Science, INFORMS, vol. 27(1), pages 33-56, January.
    2. Schmalensee, Richard, 1981. "Economies of Scale and Barriers to Entry," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1228-1238, December.
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    4. Hauser, John R. & Urban, Glen L., 1982. "Prelaunch forecasting of new consumer durables : ideas on a consumer value - priority model," Working papers 1270-82., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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    Keywords

    competition; pricing; product entry; defensive marketing;
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