Optimal Entry Timing in Markets with Social Influence

Management Science, Vol. 55, No. 6, pp. 926–939, June 2009

Posted: 19 May 2009 Last revised: 5 Apr 2012

See all articles by Yogesh V. Joshi

Yogesh V. Joshi

University of Maryland - Department of Marketing

David Reibstein

Marketing Science Institute; University of Pennsylvania - Marketing Department

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: March 23, 2009

Abstract

Firms routinely face the challenging decision of whether to enter a new market where a firm's strong presence in an existing market has a positive influence (the leverage effect) on product adoption in the new market, but the reciprocal social influence on the existing market is negative (the backlash effect). In this paper, we show that a firm's optimal entry strategy in this situation cannot be characterized by the familiar 'Now or Never' or 'Now or At Maturity' strategies proposed in the literature. We show that a strong leverage effect does not necessarily provide the justification for a firm to enter a new market and neither should a strong backlash effect necessarily deter a firm from embracing a new market. The optimal strategy is predicated on a judicious trade-off between the three factors of leverage, backlash, and patience. Thus, an astute manager can always find the opportune time to enter the new market if she takes into account the dynamic and recursive nature of cross-market interaction effects, where leverage enhances the backlash but backlash weakens the leverage in a nonlinear, dynamic fashion. We illustrate that firms stand to benefit from explicit considerations of these effects in deciding whether and when to enter a new market. Further, we explore how the optimal time of entry into the new market relates to the time of peak sales for the existing market, demonstrating that depending on the interactive effects of leverage and backlash, entry could be optimal ether before or after peak sales in the existing market.

Keywords: market entry, social influence, optimal timing, brand extension

Suggested Citation

Joshi, Yogesh V. and Reibstein, David and Zhang, Z. John, Optimal Entry Timing in Markets with Social Influence (March 23, 2009). Management Science, Vol. 55, No. 6, pp. 926–939, June 2009. Available at SSRN: https://ssrn.com/abstract=1402894

Yogesh V. Joshi (Contact Author)

University of Maryland - Department of Marketing ( email )

College Park, MD 20742
United States

David Reibstein

Marketing Science Institute ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

University of Pennsylvania - Marketing Department

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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