Rebecca J. Slotegraaf and Koen Pauwels
Executive Summary
Although managers often hope to obtain long-term benefits with temporary marketing actions, such as price promotions, feature advertising, and displays, academic studies imply that their chances are slim. However, much of this research has focused exclusively on the top-three- or top-four-selling brands in the category, thus implicitly assuming that the brand itself carries no influence over whether marketing promotions have the power to lift sales permanently. However, the authors emphasize that brands vary in their positional advantage and argue that the underlying value of a brand will affect the permanent and cumulative effects from marketing promotions. Extending beyond the usual distinction between national brands and private labels, the authors delineate the underlying value of a brand by its equity, or revenue premium, and investigate the direct and complementary effects regarding the extent to which a brand’s new product introductions influence long-term promotional response and whether these benefits differ for brands of varying equity.
Using panel data for seven years from 100 brands across seven fast-moving consumer goods product categories, the authors employ a two-stage approach in which long-term promotional effectiveness is first estimated with persistence modeling, and these effectiveness estimates are then related to brand equity and new product introductions. The authors reveal two critical findings toward an understanding of the long-term effectiveness of marketing actions. First, permanent sales benefits from promotional efforts are fairly common, especially for small brands. Second, the authors find that both permanent and cumulative sales effects from marketing promotions are higher for brands with new product introductions and with higher equity. Indeed, new product introductions, such as V8 Splash blended fruit juice, Rembrandt’s Low-Abrasion Whitening Toothpaste for Kids, and Fresh Start’s detergent packaging, all offered something new to consumers and yielded higher long-term sales effects from promotions on these products. Moreover, brand equity is beneficial beyond its direct effect on sales: Brands with higher equity also obtain higher long-term sales effects from their promotions. For example in the bottled juice category, Ocean Spray and V8 command strong brand equity, and the authors indeed find that their promotional efforts yield higher long-term effects than those of lower-equity brands, such as All Sport and Hawaiian Punch. However, there appears to be ceiling effects associated with strong brand equity, such that lower-equity brands obtain higher long-term benefits from new product introductions than higher-equity brands. Therefore, low-equity brands may look to product innovation not just as a growth driver in itself but also as a means to achieve greater long-term sales effectiveness of promotional efforts. Overall, the results reinforce the importance of understanding the underlying role of the brand, offer suggestions for further research, and suggest managerial insight into the presence and conditions for persistent benefits from marketing promotions.
Biography
Rebecca J. Slotegraaf is Assistant Professor of Marketing and Eli Lilly Faculty Fellow in the Kelley School of Business at Indiana University. Her research addresses the effect of resources, capabilities, and deployment decisions on competitive advantage and has appeared in multiple outlets, including Journal of Marketing Research, Journal of Marketing, Organization Science, Journal of the Academy of Marketing Science, Decision Sciences, and Journal of Consumer Psychology. Dr. Slotegraaf currently serves on the editorial board of Journal of Marketing and was named to the Marketing Science Institute’s Young Scholars list in 2007. She is also a recipient of several other honors, including the 2005 Jagdish N. Sheth Award for Best Paper in Journal of the Academy of Marketing Science and a 3M Junior Faculty Award at the Kelley School of Business. Dr. Slotegraaf received her PhD from the University of Wisconsin at Madison in 2000.
Koen Pauwels is an associate professor in the Tuck School of Business at Dartmouth College, where he teaches and researches statistics and return on marketing investment. He won the 2007 O’Dell award for the most influential article in Journal of Marketing Research and built his research insights in industries ranging from automobiles and pharmaceuticals to business content sites and fast-moving consumer goods. His current research projects include the predictive power of market dashboard metrics, the impact of brand equity on marketing effectiveness, retailer product assortment, price wars, the dynamics of differentiation and performance turnaround strategies. Professor Pauwels received his PhD in Management from the University of California, Los Angeles; he won the EMAC 2001 best-paper award; and he publishes in Harvard Business Review, Journal of Marketing, Journal of Marketing Research, Journal of Retailing, Management Science, and Marketing Science.
Journal of Marketing Research, Vol. XLV, No. 3, June 2008
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