Radical product innovations : competitive responses along marketing expenditure and pricing dimensions.

• Main Authors: Heng, Zu Xian., Ho, Dawn Pingping., Loke, Wai Mun.
• Other Authors: Lim Kui Suen, Lewis
• Format: Final Year Project
• Language: English
• Published: 2009
• Subjects: DRNTU::Business::Marketing::Pricing
• Online Access: http://hdl.handle.net/10356/15253
• Institution: Nanyang Technological University

Radical product innovations yield market expansion opportunities and possess great profit potential. Their introductions are also riskier compared to incremental product introductions. Managers must thus learn to foresee competitors’ reactions to radical innovations with precision and accuracy to develop the most effective marketing strategy for their own radical products. Given the lasting impact of marketing expenditure increments and the ease and speed with which prices can be varied, competitors’ marketing expenditure and price reactions pose major threats to firms and are important to predict. However, few studies of radical product introductions focus specifically on competitive reactions along the marketing expenditure and price dimensions. Hence, our research examines how firms react along the marketing expenditure and price dimensions when introducing their own radical products and why they do so. We extracted marketing expenditure and pricing decisions of participants of Markstrat – a marketing strategy simulation game – and examined factors influencing the magnitude of competitive reactions using relevant industry benchmarking data, consumer-related data and competitive intelligence data. Results show that firms responding to radical product innovations targeted at the ‘Innovators’ spend more on advertising and set lower prices than firms introducing the radical products. The average marketing expenditure of introducing firms and industry position of reacting firm have a significant impact on marketing expenditure reactions; likewise, consumers’ ideal price and the average price level of radical products by introducing firms on price reactions. Our study thus helps managers accurately predict competitor reactions and take pre-emptive measures against them. Managers in reacting firms can also make effective marketing-mix decisions for successful radical product launches.