Knowledge that Transforms

To increase the sales of their products through advertising, firms must integrate their brand-advertising strategy for capturing market share from competitors and their generic-advertising strategy for increasing primary demand for the category. This paper examines whether, when, and how much brand advertising versus generic advertising should be done. Using differential game theory, optimal advertising decisions are obtained for a dynamic duopoly with symmetric or asymmetric competitors. We show how advertising depends on the cost and effectiveness of each type of advertising for each firm, the allocation of market expansion benefits, and the profit margins determined endogenously from price competition. We find that generic advertising is proportionally more important in the short term and that there are free-riding effects leading to suboptimal industry expenditure on generic advertising that worsen as firms become more symmetric. Due to free-riding by the weaker firm, its instantaneous profit and market share can actually be higher. The effectiveness of generic advertising and the allocation of its benefits, however, have little effect on the long-run market shares, which are determined by brand-advertising effectiveness. Extensions of the model show that market potential saturation leads to a decline in generic advertising over time.

We study three determinants of the levels of price and detailing effort across geographic markets: the within-market response to each variable, the nature of interfirm strategic interactions both within that market and across markets. We empirically examine the interactions of Prozac, Zoloft, and Paxil across the United States, the United Kingdom, Germany, France, and Italy. Our results indicate that all three factors driving marketing mix interactions are at play in this product category. The U.S. market is less price-sensitive than the European markets. Detailing elasticities are comparable across the United States, Germany, and Italy, while the United Kingdom and France show greater elasticity. For the U.S. market, we find that almost all deviations from Nash pricing and detailing levels are due to within-market interactions. In the U.K. market, deviations from Nash prices come about due mostly to across-market interactions—both with the United States as well as the rest of Europe, whereas deviations from Nash detailing levels are mainly due to across-market interactions with the United States. For Italy, we observe that both within and across-market interactions affect price and detailing levels. Overall, the pattern of interactions makes observed prices more similar across countries than prices implied by the estimated elasticities. This underscores the importance of considering within- and across-market interactions in developing multimarket strategy.

Marketing scholars have reflected upon the marketing discipline's internal evolution before. However, no prior study has assessed the globalization of authorship in our discipline, let alone assessed its consequences for the field. This paper addresses the following two questions: (1) Is there evidence of increasing globalization of authorship in the marketing discipline? (2) If so, does it help or hinder the field? Our work shows empirically how the globalization of our discipline evolved, how U.S. dominance is fading, and which countries experienced a rise in productivity of their affiliate and native scholars. Globalization hinders the field, because it has a negative effect on the impact of several major journals (most importantly, the Journal of Marketing and the Journal of Marketing Research). Globalization helps the field, because it has a positive effect on the diversity of our discipline. Important implications of our research are: (1) Journals and sponsoring organizations should strive for more international meetings. (2) Editors, reviewers, and authors should pay more attention to the global relevance of the research they publish, review, and submit. (3) Individual researchers should aim to be part of the global community of marketing scientists through, for instance, international research visits.

Much of the empirical research on competitive reactions describes how or why rivals react to a firm's past actions, but stops short of examining whether managers attempt to predict such reactions, which we call strategic competitive reasoning. In three exploratory studies, we find evidence of managers' thinking about competitors' past and future behavior, but little incidence of strategic competitive reasoning. Competitive intelligence experts and other experienced managers' assessment of the results suggests that the relatively low incidence of strategic competitor reasoning is due to perceptions of low returns from anticipating competitor reactions more than to the high cost of doing so. Both the difficulty of obtaining competitive information and the uncertainty associated with predicting competitor behavior contribute to these perceptions. The paper suggests both a need for research on competitive behavior and an opportunity to influence and improve managerial judgment and decision making.

This research investigates the impact of a large-scale assortment reduction on customer retention, utilizing a model we develop to explore the effect on sales at both the store level and the category level simultaneously. We apply our model to a data set provided by an online grocer. The data contain detailed household purchase records for every category in the store. Our results indicate that the reduction in assortment reduces overall store sales, a result that contrasts with that of all of the recent studies on assortment reductions (Food Marketing Institute. 1993. Variety or duplication: A process to know where you stand. Prepared by Willard Bishop Consulting and Information resources, Inc., in cooperation with Frito Lay; Drèze, Xavier, Stephen J. Hoch, Mary E. Purk. 1994. Shelf management and space elasticity. J. Retailing 70(4) 301–326; Broniarczyk, Susan M., Wayne D. Hoyer, Leigh McAlister. 1998. Consumers' perceptions of the assortment offered in a grocery category: The impact of item reduction. J. Marketing Res. 35(May) 166–176; Boatwright, Peter, Joseph C. Nunes. 2001. Reducing assortment: An attribute-based approach. J. Marketing 65(July) 50–63; Boatwright, Peter, Joseph C. Nunes. 2004. Correction note for “Reducing assortment: An attribute-based approach.” J. Marketing. Forthcoming). We find the reduction had a negative effect on both shopping frequency and purchase quantity, and we find that the decline in shopping frequency resulted in a greater loss than did the reduction in purchase quantities. We also find that the impact of the assortment cut varies widely by category, with less-frequently purchased categories more adversely affected. The variation in the assortment reduction's impact across categories suggests that managers compare select categories in order to moderate the overall loss in sales.

The retail trade today is increasingly dominated by large, centrally managed “power retailers.” In this paper, we develop a channel model in the presence of a dominant retailer to examine how a manufacturer can best coordinate such a channel. We show that such a channel can be coordinated to the benefit of the manufacturer through either quantity discounts or a menu of two-part tariffs. Both pricing mechanisms allow the manufacturer to charge different effective prices and extract different surpluses from the two different types of retailers, even though they both have the appearance of being “fair.” However, quantity discounts and two-part tariffs are not equally efficient from the manufacturer’s perspective as a channel coordination mechanism. Therefore, the manufacturer must judiciously select its channel coordination mechanism. Our analysis also sheds light on the role of “street money” in channel coordination. We show that such a practice can arise from a manufacturer’s effort to mete out minimum incentives to engage the dominant retailer in channel coordination. From this perspective, we derive testable implications with regard to the practice of street money.

We provide a fully personalized model for optimizing multiple marketing interventions in intermediate-term customer relationship management (CRM). We derive theoretically based propositions on the moderating effects of past customer behavior and conduct a longitudinal validation test to compare the performance of our model with that of commonly used segmentation models in predicting intermediate-term, customer-specific gross profit change. Our findings show that response to marketing interventions is highly heterogeneous, that heterogeneity of response varies across different marketing interventions, and that the heterogeneity of response to marketing interventions may be partially explained by customer-specific variables related to customer characteristics and the customer’s past interactions with the company. One important result from these moderating effects is that relationship-oriented interventions are more effective with loyal customers, while action-oriented interventions are more effective with nonloyal customers. We show that our proposed model outperformed models based on demographics, recency-frequency-monetary value (RFM), or finite mixture segmentation in predicting the effectiveness of intermediate-term CRM. The empirical results project a significant increase in intermediate-term profitability over all of the competing segmentation approaches and a significant increase in intermediate-term profitability over current practice.