Increasing marketing spending can help incumbent firms respond effectively and achieve strong financial performance when their markets are liberalized to foreign competition.
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Marketing Strategy; Principles of Marketing, Core Marketing, Introduction to Marketing Management
Ramani, Nandini and Raji Srivivasan (2019), “Effects of Liberalization on Incumbent Firms’ Marketing Mix Responses and Performance: Evidence from a Quasi-Experiment,” Journal of Marketing, 83(5), 97-114.
Many markets are liberalizing by opening up their economies to foreign competition, with the expectation that this will increase economic growth. While foreign competitors with superior technology and management practices pose serious threats to incumbent firms, they also provide them an opportunity to gain new marketing knowledge. How do incumbent firms respond to liberalization? Can incumbent firms’ marketing mix responses affect their performance following liberalization? Addressing these questions, we examine incumbent firms’ marketing mix responses to liberalization and the impact of these responses on performance, using the quasi-experiment of liberalization reforms in India. Estimation results from a panel of 3,927 firms in the period 1989-2000 suggest that while all incumbent firms intensified their product and promotions in response to liberalization, only incumbent firms with greater domestic market knowledge intensified their advertising and distribution responses. Further, incumbent firms’ marketing mix responses significantly affect their performance outcomes. The research’s findings extend theory and provide practical guidelines on how incumbent firms can design marketing mix responses to liberalization to improve performance.
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