Competitive response to radical product innovations

This study represents an attempt to answer previous research calling for more analysis of the competitive response process (Gatignon et al. 1989; Bowman and Gatignon 1995). Our specific focus is on competitive response to new products that represent radical innovations. According to Chandy and Tellis (1998), radical innovations differ from other new products in that they have qualitatively different technology and qualitatively different benefits compared with existing products. Because of these characteristics, radical innovations are likely to be riskier than other product introductions (Sorescu, Chandy and Prabhu 2003), and to demand more resources. They also have high potential for destabilizing the market and causing customers to reconsider existing purchase patterns. They present substantial threat to existing competitive positions, but also opportunities for new market positions.; The basic premise of this study is that competitive response to radical innovations will be inherently different from response to incrementally innovative products as studied in prior research. We use both a resource based argument and a signaling argument to develop a theoretical structure that utilizes dominance and market dependence of both the introducing firm and the responding firm to explain competitive response to the introduction of radical innovations. Response is represented in the likelihood that competitors introduce their own products as a reaction to the introduction of a radical innovation.; Using data collected from a variety of sources in the pharmaceutical industry, we estimate a logistic regression model to explain the response of competitors to radical product introductions. Results show that characteristics of both the introducing and responding firms play an important role in the competitive response decision. These results also provide support to the proposition that the pattern of competitive response to radical innovations is different than response to incrementally innovative products.