Managing Competitive Response to New Product Introductions: Making Use of Effective Market Signals

Abstract

The marketplace abounds in examples of competitive new product introductions that have been neutralized or even destroyed by counteractions by competitors. It is known that the communication around an introduction influences competitive responses. The ‘signaling’ theory posits that competitive actions are perceived by competitors as a bundle of signals which have to be interpreted before deciding on a reaction. Hence, firms should be aware of the signals they broadcast to their publics, including their competitors. Yet, competitor-management by using market signals seems to be a somewhat neglected area. In the present study, the focus is on understanding the cognitive processes of defending managers who are confronted with a new product introduction by a competitor. In particular, this paper investigates the key characteristics defending managers look at to evaluate a competitive introduction for deciding on counteracting. It distinguishes between characteristics related to the new product itself (eg, its innovativeness), and characteristics related to the company behind the new product (eg, its reputation). Theoretical insights are tested using interviews conducted among a sample of managers operating in fast moving consumer good markets. The interviews included both real-life experiences and field experiments. Several factors are found to be important reaction decision aspects. Firms can use this knowledge for selecting effective signals to manage competitive response.