Impact of Consumer Preference Formation on Marketing Objectives and Competitive Second Mover Strategies

In this article, we consider the impact of the dynamics of consumer preference formation on the optimal competitive strategy for a second brand entering a market dominated by a pioneer. In particular, our analysis explicitly incorporates the perceptual dominance and prototypicality of a successful pioneer into models of consumer and managerial decision making. Based on these models, we derive optimal entry strategies for a second mover that competes with the pioneer in brand positioning, advertising, and price. Analyses using classical models of decision making, which exclude prototypicality, show that optimal second mover strategies engage a process of competition that leads to falling prices and profits until further entry is unprofitable. However, the empirical evidence shows that pioneers enjoy persistent competitive advantages. Our analysis, incorporating the prototypicality of the pioneer, shows that it is optimal for the second mover to adopt a niche strategy (with a maximally differentiated position, high price, low advertising outlay) that is consistent with the persistent pioneering advantage. Our results suggest an important role for brand prototypicality in the design of competitive strategies and for the process of competition between brands.