Insights from multidimensional scaling

Many strategic management and marketing issues depend on accurately identifying and representing competitive market structures. It is widely acknowledged that competitive market structures are typically asymmetrical in that one form may compete with another but not the other way around.

by Strategic Management Journal 27, 2006
Last Updated: 23 Jul 2013

For example, a market leader with a high market share might not compete actively with a much smaller niche player on the grounds that the gains to be made were too limited. On the other hand, the niche player might target the much larger business in its competitive strategy because even small gains were likely to benefit it.

However, for all the acceptance of the theory, hitherto there has been a lack of methodologies to identify and represent such asymmetries. A new multidimensional scaling (MDS) technique fills this gap by providing information on specific market structures in any industry that provides demand or supply-based data.

Analysis of the US luxury motor and mobile telephone industries shows that the MDS technology obtains much richer and more detailed competitive insights than is possible with traditional approaches. Integration of demand and supply-based perspectives in the research suggests that a complete picture of competitive market structures is more likely to emerge when the two perspectives are considered together.

Such information can be used to introduce and position new products. It can also be used to reposition existing brands and to manage brand portfolios.

At the firm level, the asymmetric maps produced through the process can be useful in resource allocation decisions. For example, if an analysis showed one product to be particularly weak against its rivals, that product could be withdrawn leaving valuable marketing resources available for another item.

Source: Who competes with whom? A demand-based perspective for identifying and representing asymmetric competition
Wayne S DeSarbo, Rajdeep Grewal, Smeal College of Business Administration, Pennsylvania State University, and Jerry Wind, the Wharton School, University of Pennsylvania
Strategic Management Journal 27, Issue 2, 2006

Review by Roger Trapp

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