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Strategic marketing articlesLecture 1:
Montgomery, D. B., Moore, M. C., & Urbany, J. E. (2005). Reasoning about competitive reactions:
Evidence from executives. Marketing Science, 24(1), 138-149:
Abstract: Much of the empirical research on competitive reactions describes how or why rivals react
to a firm’s past actions, but stops short of examining whether managers attempt to predict such
reactions, which we call strategic competitive reasoning. In three exploratory studies, we find
evidence of managers’ thinking about competitors’ past and future behavior, but little incidence of
strategic competitive reasoning. Competitive intelligence experts and other experienced managers’
assessment of the results suggests that the relatively low incidence of strategic competitor reasoning
is due to perceptions of low returns from anticipating competitor reactions more than to the high
cost of doing so. Both the difficulty of obtaining competitive information and the uncertainty
associated with predicting competitor behavior contribute to these perceptions. The paper suggests
both a need for research on competitive behavior and an opportunity to influence and improve
managerial judgment and decision making.
Thinking strategically is a foundation of modern business and competitive strategy, yet is increasingly
difficult in a dynamic environment. Day and Reibstein (1997) identify two strategic errors companies
often fall prey to in the face of a dynamic business setting, strategic interdependence
notwithstanding: “the failure to anticipate competitors’ moves and the failure to recognize potential
interactions over time” (p. 8). We characterize the first failure as managers’ failure to anticipate
competitors’ likely actions, and the second as managers’ failure to anticipate competitors’ likely
reactions to their own moves. Beginning with the work of Zajac and Bazerman (1991), a strong
conceptual case has developed suggesting decision makers often do not effectively conjecture about
their competitors’ future behavior, particularly their rivals’ reactions to their own decisions (see
Deshpande and Gatignon 1994, Hutchinson and Meyer 1994, Moore and Urbany 1994, Reibstein and
Chussil 1997, Urbany and Montgomery 1998). Anecdotes about failures in considering competitive
reactions abound, yet there is little or no evidence about how and to what extent managers account
for competitors in their decision making. Not reasoning about rivals’ reactions might be perceived as
harmless in the eyes of those who would contend that either (1) such “nonstrategic” behavior would
correct itself over time, or (2) the link between such conjecturing and performance is ethereal at
best. Here we explore two questions: (1) To what extent do practicing managers consider
competitors and their anticipated reactions when deciding on their own moves, and (2) how do
experienced managers account for the answer we get to Question (1)? Heeding Laurent’s (2000)
pleas for more concern about the external validity of marketing models and for more qualitative
input into those models, we went into the field to gather evidence from practicing executives. This
paper reports our results and provides food for thought regarding future research and pedagogy in
the area of competitive response.
In the field of competitor interaction, a developing body of literature seeks to explain competitive
reactions post hoc. This literature generally characterizes the likelihood of competitive reactions to a
firm’s action as a function of (a) the characteristics of the firm taking the action (e.g., market size,
reputation) (Bowman and Gatignon 1995, Venkataraman et al. 1997), (b) the characteristics of the
action (e.g., scale of entry, market responsiveness, visibility) (Chen et al. 1992, Dickson and Urbany
1994, Leeflang and Wittink 1992), (c) the characteristics of the rival (e.g., size, performance, desired
reputation, organizational responsiveness) (Smith et al. 1989, Gatignon and Reibstein 1997), and (d)
environmental characteristics (e.g., turbulence, market growth, industry concentration) (Ramaswamy
et al. 1994, Robinson 1988; see also Ailawadi et al. 2001).
,While this work illustrates that competitive reactions may be predictable to some degree, it provides
no insight into whether or how managers seek to predict competitor behavior in their decision
making. In the many contexts where competitor choices do affect firm outcomes, not considering
competitors’ actions ex ante is likely to lead to poorer decisions and poorer outcomes. For instance,
Clark and Montgomery (1996) found that 79% of actual competitor reactions were not even
perceived by a firm’s managers, and this oversight had significant negative consequences for
performance. Our goal here is to explore whether practicing managers incorporate competitor
behavior, particularly the prediction of future competitor reactions to their own moves, into their
own decision making in strategic marketing settings.
In this section we describe three studies that examine the incidence of competitive reasoning in
marketing decisions, based on responses from practicing managers. The goal of the first and second
studies was to find out whether managers who were asked to describe factors that were important in
past and prospective decisions would spontaneously mention considering any type of competitor
behavior, with a particular interest in the incidence of strategic competitive reasoning. The third
study addresses the perceived plausibility of the results of Studies 1 and 2 by soliciting the reactions
of a different group of practicing managers to the results observed in the earlier studies and their
explanations of these results.
Studies 1 and 2 examined managers’ reports of factors considered when making pricing, new
products, market entry, and advertising decisions. The data came from a wide variety of competitive
contexts, providing sample breadth. A more controlled environment in Study 2 provides depth. Both
studies yielded a similar conclusion: Although competitor considerations are fairly widespread,
strategic competitive reasoning is, relatively speaking, a very rare occurrence. As anticipated,
strategic competitive reasoning occurred more frequently in the pricing arena than the other
decision areas. In Study 3, two additional groups of executives, one more expert and one more
generalist, were asked to react to the results of Study 1 and Study 2 and offer reasons that might
explain these results. Overall, these executives were inclined to believe the results hold true in the
“real” world. They overwhelmingly felt (somewhat surprisingly) that explanations associated with
perceived low returns to competitor thinking were substantially more important in explaining limited
strategic competitive reasoning than perceptions of high perceived costs.
We began with the goal of exploring whether managers are inclined to consider competitive
reactions, and why. We do find a low incidence of strategic competitive reasoning. Based upon the
subsequent study of executives, the clearest explanation seems to center upon uncertainty and
decision justification. That is, there is a general tendency to weight more heavily (or rely on more
strongly) decision inputs that can be assessed more easily, predicted with greater confidence, are felt
to be more controllable, and provide a stronger basis for justifying decisions within the organization
(see Cyert and March 1992, Adams et al. 1998). Such behavior may be adaptive, even optimal. (For
instance, in markets with little competitive interdependence, Nash behavior is appropriate.) Our
interest is in situations when omitting strategic competitor reasoning from the decision making
process may be harmful, despite its inherent difficulty.
The studies presented here add to a recent stream of research that we hope gathers interest and
strength. Dekimpe et al. (2001) and Leeflang and Wittink (1996) each find that the most common
actual response to competitors is “no response.” Recall also that Clark and Montgomery (1996)
found that most competitive reactions were not even perceived by managers in a simulation and that
such underperception lowered performance. Our results reiterate that attention to competitor
reactions in decision making is limited, and suggest this may be driven largely by low perceived
returns from thinking strategically about competitors. It is heartening to note that respondents in the
, first two studies were more likely to consider competitor reactions in future decisions, perhaps
suggesting learning. Also, executives in Study 3 suggest that decision makers better understand the
positive returns from competitive intelligence as they become more experienced in using it.3 Thus,
instituting processes that address the low perceived returns side of the equation may have an
especially significant payoff. To do so, we need to remove the blinders from managers and academics
alike. We again second Laurent’s (2000) appeal for a part of the marketing research portfolio to be
devoted to enhancing the external validity of marketing models and frameworks. We hope that the
research presented here might modestly contribute to that objective.
ChatGPT: The paper explores how executives reason about competitive reactions in the context of
marketing strategies. The authors aim to understand how executives anticipate and respond to
competitive actions in order to gain insights into strategic decision-making processes.
The study uses survey data collected from executives across various industries. The participants were
presented with scenarios involving competitive interactions and were asked to assess the likelihood
and nature of competitors' reactions to their firm's strategic moves. The authors analyze the
executives' responses to gain insights into their reasoning and decision-making processes.
The findings of the study reveal that executives tend to exhibit three main patterns of reasoning
about competitive reactions: magnification, simplification, and mutual understanding. Magnification
refers to executives overestimating the likelihood and intensity of competitive responses.
Simplification occurs when executives oversimplify the competitive landscape and assume
competitors will respond similarly. Mutual understanding refers to executives accurately predicting
competitors' reactions based on their understanding of the market dynamics.
The paper also highlights the role of managerial experience and expertise in shaping executives'
reasoning about competitive reactions. Experienced executives with deep industry knowledge tend to
exhibit more accurate predictions and better reasoning abilities compared to their less experienced
counterparts.
Overall, the study provides insights into how executives reason about competitive reactions and how
their reasoning might influence strategic decision-making processes in the context of marketing
strategies.
Rust, R. T., Moorman, C., & Dickson, P. R. (2002). Getting return on quality: revenue expansion, cost
reduction, or both? Journal of Marketing, 66(4), 7-24:
Abstract: Financial benefits from quality may be derived from revenue expansion, cost reduction, or
both simultaneously. The literature on both market orientation and customer satisfaction provides
considerable support for the effectiveness of the revenue expansion perspective, whereas the
literature on both quality and operations provides equally impressive support for the effectiveness of
the cost reduction perspective. There is, however, little evidence for the effectiveness of attempting
both revenue expansion and cost reduction simultaneously, and some of what little empirical and
theoretical literature is available suggests that emphasizing both simultaneously may not work. In a
study of managers in firms seeking to obtain a financial return from quality improvements, the
authors address the issue of which quality profitability emphasis (revenue expansion, cost reduction,
or both) is most effective. The authors examine firm performance using managers' reports of firm
performance and longitudinal secondary data on firm profitability and stock returns. Although it is
clear that no company can neglect either revenue expansion or cost reduction, the empirical results
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