Temporal Differences in the Role of Marketing Communication in New Product Categories
Published 8/1/2005
Author: Sridhar Narayanan, Puneet Manchanda, and Pradeep K. Chintagunta
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Executive Summary
Marketing communication plays a major role in influencing consumer purchases in new product categories. An important question about this communication is related to its role over the life cycle of the new product category. One effect of marketing communication is to reduce uncertainty about product quality. Because this affects consumers’ choice decisions only through updating consumers’ perceptions about product quality, the authors refer to this as the “indirect effect.” In contrast, they refer to all marketing communication that directly affects consumers’ preferences as the “direct effect.” The indirect effect is likely to be greater for uninformed consumers than for well-informed consumers. It is expected that consumers are not well informed about product quality in the early stages of the product life cycle, but they become better informed over time. Thus, the authors hypothesize that an indirect effect plays an important role in the initial stages but not in subsequent stages. Conversely, the authors hypothesize that the direct effect does not change much over time. In addition, the authors hypothesize that there are temporal differences in the role of marketing communication in different stages of the life cycle of a product.
They develop a structural model of demand that allows for the different roles of marketing communication to have a differential impact over time. They estimate the model on market-level data for the prescription antihistamines category. In the model, physician learning about new antihistamines occurs through marketing communication (i.e., detailing and meetings/seminars) and experience (i.e., previous prescriptions). Specifically, the model is a random coefficients discrete choice model that allows for category expansion. The model also incorporates a Bayesian learning process through which physicians learn about the efficacy of this new class of drugs. The authors estimate the model using a GMM-based methodology.
They find evidence for both indirect and direct effects of detailing on physicians’ prescription behavior. In addition, they find that detailing has a primarily indirect effect in the introductory phase (typically 6–14 months postintroduction), but the direct effect dominates subsequently. The finding that direct effects are significant may explain why firms continue to detail long after physicians have learned about drug quality. In terms of resource allocation for detailing over time, results suggest that firms should follow a pattern of heavier detailing at the introduction phase, followed by lower levels in subsequent stages.
Biography
Sridhar Narayanan is a doctoral student in Marketing in the Graduate School of Business at the University of Chicago. His research interests are in the empirical analysis of consumer decisions in the presence of uncertainty, consumer learning models, the role of advertising, and return on investment from marketing investments. His research has appeared in Journal of Marketing.
Puneet Manchanda is Associate Professor of Marketing in the Graduate School of Business at the University of Chicago. He received his master’s degree in Philosophy and doctoral degree in Marketing from Columbia University. His research interests are in micromarketing and targeting, multicategory choice, consumer learning models, individual-level adoption models, and the role of advertising. In his research, he uses data from various domains, such as pharmaceuticals, retailing, direct marketing, and Internet marketing. His modeling interests are in econometric modeling, with a special focus on Bayesian methodology. His research has appeared in Quantitative Marketing and Economics, Marketing Science, Journal of Marketing Research, Journal of Consumer Psychology, and Marketing Letters. He is on the editorial board of Journal of Marketing Research and Review of Marketing Science.
Pradeep K. Chintagunta is Robert Law Professor of Marketing in the Graduate School of Business at the University of Chicago. He is interested in studying strategic interactions among firms in vertical and horizontal relationships. His research also includes measuring the effectiveness of marketing activities in pharmaceutical markets, investigating aspects of technology product markets, and analyzing household purchase behavior.
J Marketing Research, Volume 42, Number 3, August 2005
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