The Art of Imitation
Title: Performance Effects of Imitative Entry
Authors: Sendil K. Ethiraj and David H. Zhu
Publisher: Self-published (Strategic Management Journal, forthcoming)
Date Published: December 2007
The first-mover advantage gained by companies that develop and launch innovative new products does not always translate into long-term success. That’s because many savvy entrepreneurs and corporate executives have been successful at copying innovations, learning from the original’s successes and failures, and producing products that surpass the product they mimic.
Under what conditions are these imitators most likely to erode the advantages of existing products? How does the timing of an imitator’s entry into the market affect its success? To answer those questions, the authors explored the performance of 200 pharmaceutical drugs over two decades. Surprisingly, for an industry in which innovators enjoy strong patent protection, imitation drugs often outperformed pioneering products. The key to imitators’ success was timing. By delaying the launch of their competing product and using that delay to learn as much as possible about the existing product from sources such as clinical trials conducted in accordance with the U.S. Food and Drug Administration guidelines, imitators were often able to create high-quality alternatives to the original drug, thus negating the innovator’s advantage. The authors cite Viagra as an example: The drug’s long product development cycle and the information that leaked out about it before its debut opened the door for two successful competing products — Levitra and Cialis — to come to market relatively quickly.
Bottom Line: Timing is key for those imitating an innovative product. By gathering information and waiting for innovators to overcome the challenges associated with pioneering new products, imitators can enjoy the rewards of bringing products to market with potentially better features relatively quickly and shoulder fewer risks faced by first movers.
Online Search Strategies
Title: Competing “Creatively” in Online Markets: Evidence from Sponsored Search
Authors: Animesh Animesh, Siva Viswanathan, and Ritu Agarwal
Date Published: November 2007
Because search engines like Google and Yahoo are the most visited sites on the Web, sponsored search results, a form of online advertising in which companies bid to have their advertisements displayed alongside search listings, have become a popular form of marketing. Companies now spend nearly half of their online budgets on this type of promotion, and analysts predict advertisers will pony up a total of more than US$11 billion annually on search results advertising by 2010.
What makes an effective sponsored search ad? Until recently, most research on the efficacy of these ads focused on placement — that is, it was assumed that the best- performing ads were those that appeared at the top of the list of advertisements. But that is just one of several important variables, according to these authors, who tracked the performance of a mortgage company’s sponsored search efforts for a three-month period in 2006. Their research found that although placement matters — ads at the top of a list did attract more clicks — the content of the advertisement and the amount of competition in the category significantly affected how well a specific ad performed. The research also yielded interesting insights about which types of consumers clicked on which ads: Those interested in quality were attracted to the top-ranked results, whereas bargain hunters were more likely to scan for a listing that offered the best savings.
The results suggest that savvy marketers should pay special attention to their sponsored search campaigns. By targeting advertising to specific demographics, tailoring landing pages — which appear when a searcher clicks on a link — to the searcher’s tastes and preferences, and using other easy-to-implement techniques, marketers can use sponsored search to segment and reach a range of different potential customers.
Bottom Line: Placement is not the only element to consider in crafting a successful sponsored search campaign. Qualitative variables, such as the wording and targeting of ads, are also key factors to examine.