The Effects of Imbalanced Competition on Demonstration Strategies

Abstract

This paper analyzes the effect of competition on product demonstration decisions. Pre-purchase product demonstration enables marketers to differentiate products that are ex-post differentiated but are judged according to perceived fit, rather than actual fit, due to pre-purchase consumer uncertainty. Imbalanced competition accompanied by fit uncertainty motivates the follower to offer demonstrations to avoid a price war. This paper explores the conditions that lead the leader to retaliate. If both competitors offer demonstrations then the quality of demonstrations offered by the follower is higher then that of the leader. We analyze a business case, showing that competition may increase the demonstration intensity and that the leading manufacturer’s response to changes in competition is stronger than the responses of the followers. Our research has the potential to aid mangers in formulating demonstration strategies and in responding to competitors’ demonstration efforts.

Keywords: Imbalanced Competition, Product Demonstration, Differentiation, Test-Drive, Price War

JEL Classification: M31, L15, D83