RESOURCE-ALLOCATION TO DEFENSIVE MARKETING AND MANUFACTURING STRATEGIES

In this paper, we investigate the coordinated use of marketing and man ufacturing strategies to formulate a defensive business strategy for a n incumbent firm upon market entry. While defensive marketing strategi es have been researched extensively, little has been done on defensive manufacturing strategies and even less on coordinating these two. We propose a formulation for the joint formation of a defensive strategy by the marketing and production functions under budget constraint cons iderations. The incumbent firm may allocate its resources to advertisi ng and distribution expenditures, as well as to manufacturing investme nts to reduce the unit production cost. The incumbent firm has also th e option of simply allocating all of its resources purely to advertisi ng and distribution. We show that while there exist cases where the op timal reaction to entry involves investments in manufacturing improvem ents, there are also cases where defense is in marketing strategies al one. We identify the market conditions that promote such reactions to entry and also provide sensitivity analysis.