36.1 Market Entry
Pioneering paradox
Market entry massively important
Big decision
Start of business strategy
Perennial conflicts:
Pioneer vs. 2nd move vs. late entry
Incumbent vs. Entrant
Huge payoff if played well
One explanation: Fixation
Fixation: focus on micro hurdle /breakthrough
Entrenchment: hang on to /perfect early success
Marketing Myopia
Baggage: routines. bureaucracy hinders vision
Another explanation: high failure rate of ideas
Third Explanation: Trend Projection Hot hand bias
Anything can be wrong. As a reviewer you have to say why you have a better explanation for a result
36.1.1 (Peter N. Golder and Tellis 1993)
Downfall of previous research using PIMS and ASSESSOR or business press:
survivorship bias
single-informant self-reports: measurement errors
Half of market pioneers fail and mean market share is lower (compared to previous studies)
Early market leaders have greater long-term success and enter about 13 years after the first pioneers
Theories of pioneer advantages
Consumer-based:
Uncertainty in trying later entrants
Consumer stable preferences
Learning theory: pioneer = standard
Positioning advantage
Consumer with high switching costs will stay
Product-based:
- Barrier to entry: economies of scale + learning + technological leadership + limited suppliers
Theories of pioneer disadvantages
Free-riders: late entrants can come in at lower cost
Shifts in technology, customer needs
Incumbent inertia
Improper positioning (late entrants can pick optimal position later because pioneers’ high cost of switching)
changing resource requirement
insufficient investments
Data: historical analysis based on all publicly available sources of info.
Prospective contrast to retrospective (from database)
Might be less biased because of multiple sources (instead of single informants).
Examples: business week, advertising age
Criteria for selection:
Competence
Objectivity
Reliability
Corroboration: Confirmation Bias?
Sampling (have to justify you chose what you choose): before sampling was drawn.
Sample 1: consumer goods + new product categories and its extensions.
Sample 2: categories from Advertising Age
Sample 3: acknowledged pioneers
Limitation:
Did not consider marketing mix
Customer-oriented definition of product category = arbitrary
Sample selection
Uncertainty regarding survivorship bias
36.1.2 (J. Johnson and Tellis 2008)
Market entry into China and India
Smaller firms are more successful than larger firms
Markets that are more open have less success rate.
Success is greater for companies (1) enter earlier, (2) have greater control of entry mode, (3) similar to the host country.
India is a tougher market than China (i.e., less successes)
Drivers of Entry success:
Firm differentiation
Firm strategy
Entry mode: export, license and franchise, alliance, joint venture, wholly owned subsidiary (related to degrees of control over its marketing resources from lowest to highest). Opposite prediction
Resource-based: degree of control increases with success likelihood, and help control resource leakage, and complementary resources.
Transactions cost: cost increases with degree of control (high investment -> high levels of investment to break even).
Entry timing:
Early entry: lock up key resources (e.g., distribution channels + suppliers), create standard, consumer preferences, exploit governmental incentives.
Late entry: pioneers usually don’t have long-term success (Peter N. Golder and Tellis 1993), learn lesson from early entrants, lower learning curve
Firm resources: Firm size
Larger > Smaller: more resources, more product- and marketing-specific knowledge, can absorb more negative periods
Smaller > larger: less bureaucracy, which lower innovative ability (Chandy and Tellis 2000)
Country differentiation
Host-country characteristics:
Openness: lack of regulatory and obstacles to entry
Good: increase demand, competition on quality, higher efficiency and lower prices
Bad: increase competition from foreign entrants (thin margins, high cost of purchases, hiring of talent).
Country risk: negatively affect entry success
Political: tariffs, regulations
Financial + Economic: recession, currency crises, inflation.
Host-home location
Cultural distance: closer better
Economic distance:
- Closer better: similar market segments (transformable market demand knowledge), similar physical infrastructure (greater efficiency in operations, lowering costs), more market knowledge
Data: historical analysis where data meet the following criteria:
Competence
Neutrality / Objectivity
Reliability
Corroboration
Contemporaneity
Small sample size
192 from China
64 from India
| Variable | Measure | Source |
|---|---|---|
| Success | Degree of success numerical rating | Historical Analysis from LexisNexis and ABI/INFORM |
| Entry mode | 6 points scale based on (E. Anderson and Gatignon 1986) | Archival data |
| Entry timing | Arbitrary: China: 1978, India 1991. | Archival data |
| Firm size | year-end sales for the focal firm | Compustat, Mergent Online |
| Economic distance | (D. Mitra and Golder 2002) | International Financial Statistics yearbook |
| Cultural distance | Follow (Kogut and Singh 1988) | Hofstede (1991, 2001) |
| Openness | Fraction of foreign direct investment over the host country’s GDP | International Monetary Fund |
| Country Risk | Based on International Country Risk Guide (Erb, Harvey, and Viskanta 1996) | International Country Risk Guide |
36.1.3 (Zervas, Proserpio, and Byers 2017)
Use DiD identification strategy
sharing economy decreases demand for hotel via less aggressive hotel room pricing.
- Those with low price and don’t cater to business travelers suffer most.
Data: from Airbnb (using review history) and 300 hotels in Texas (Texas Comptroller of Public Accounts),
Dependent variables:
Cumulative measure
Instantaneous measure
10% increases in the market share of Airbnb lead to .39% decrease in hotel room revenue