The article outlines a model of the response of the Australian telecoms incumbent, Telstra, after deregulation. The authors conclude that market leaders should avoid price wars, understand the points in the consumer decision process that are defendable and use inertial strategies. Consumers’ views of the incumbent can dramatically change their perceptions of the new entrant too.
For every new entrant, and every innovation by an existing competitor, there is at least one incumbent seeking to defend its market share and profit. Yet market defence has attracted much less attention than market attack. This is a serious weakness in strategy and marketing. Defence against competitive attack poses an important problem and the issues facing the defender are different to those facing the attacker. Some guidance comes from Hauser and Shugan (1983) in advising directional defensive moves with respect to price and advertising and a survey of industry practice is provided by Gatignon, Robertson and Fein (1997). But nowhere can we see how to calibrate specifically how a defender should respond over time.
In this article, we focus on one aspect of defensive strategy, defending against a new market entrant. Much of the thinking would be equally applicable in the context of defending against other competitive assaults such as a major new product launch or an aggressive move into a new distribution channel.
We specifically focus on, in marketing warfare terms, “defending the beachhead”: short-term strategy to (a) minimise the competitor’s market share gain during the first few months after launch, while (b) enabling the incumbent to avoid expending more resources or sacrificing more profit (eg through price-cutting) than necessary. A successful defence of the beachhead will provide the platform for a longer-term strategy to keep the new entrant bottled up, regain the lost market share, or even force the new entrant to withdraw from the market.
The defender has four generic strategic options (Figure 1 overleaf). First, it must decide whether to emphasize its own strong points or to counterattack at the entrant’s weak spots. Second, it must determine whether to try to reduce the final amount of territory (market share) that the new entrant gains or to focus on slowing the rate at which that territory is won.
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