Optimal competitive marketing response to entry: Theoretical and empirical analyses
Gruca, Thomas
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https://hdl.handle.net/2142/19966
Description
Title
Optimal competitive marketing response to entry: Theoretical and empirical analyses
Author(s)
Gruca, Thomas
Issue Date
1989
Doctoral Committee Chair(s)
Sudharshan, Devanathan
Department of Study
Business Administration
Discipline
Business Administration
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Marketing
Language
eng
Abstract
An important problem in marketing that has received little attention is the reaction to entry of new brands by incumbent firms. In this thesis, the marketing mix reaction to entry under different managerial objectives is studied though the formulation of a marketing interaction model and the estimation of the model from empirical data.
A market interaction model is developed from previous empirical research. This model of segment-level brand choice incorporates joint-space modeling of product positions and consumer ideal points, market segmentation and response function modeling of advertising and distribution expenditures into a market share attraction formulation. This model is used to develop the objective functions faced by managers who are assumed to pursue one of three goals: market share, sales revenue or profit maximization.
The Nash equilibrium solution to an N-person game using the managerial objective functions as payoff functions is shown to exist. The before and after entry Nash equilibrium strategies can be computed for all brands. Any change in the marketing mix (price, advertising and distribution expenditures) of a brand with the introduction of a new brand is assumed to be the optimal response to entry under the given managerial objective.
The entry of a new brand of ground coffee into two retail markets served as the empirical application of the model. The market interaction model and managerial objective functions were estimated from empirical sources including scanner panel data.
The expected marketing mix for each brand was computed for the before and after entry periods under three managerial objectives. The predicted changes in the marketing mix of each brand were compared to the changes observed in the marketplace. It was found in the two markets studied that the objective which best captures actual reaction to entry is sales revenue maximization.
The model developed in this research can represent a wide range of consumer choice behavior and can be estimated from readily attainable data and methodologies. The managerial model allows for varying managerial objectives. This research provides a firmer foundation upon which to base future work toward understanding competitive marketing strategy.
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