Murali K. Mantrala, Prasad A. Naik, Shrihari Sridhar, & Esther Thorson
Executive Summary
When making decisions about changes in levels of multiple marketing investments aimed at improving profits, managers need to know whether they are on the uphill side or the downhill side of the profit function with respect to each investment variable. Spending errors made by an uphill-located firm that believes that it is a downhill-located firm can have serious consequences. This article offers an econometric “diagnostic tool” to infer a company’s current location on a multivariable profit function and to determine the changes in investments that will take the company to the neighborhood of the maximum profit. The authors apply the proposed approach to daily newspaper industry data and investigate the optimality of the allocation behavior of companies with respect to three marketing efforts: investments in quality, distribution, and advertising space sales effort.
A novel feature of this problem setting is that it involves a “dual-revenue” market with possibly interrelated demands for subscriptions and advertising space. The authors derive normative rules for marketing investments in four dual-revenue market types. The empirical analysis finds that daily newspapers’ dual revenues are positively interrelated and that a majority of these companies are located near the optimal level of spending for quality, a surprising finding considering that previous studies have characterized marketing managers as overspenders. When these companies are suboptimal, they are much more likely to be underspending; that is, they are more likely to be located on the uphill side of the profit function than overspending. In addition, the research furnishes estimates of sales elasticities with respect to quality, personal selling, and distribution investments, which are sparsely available in the extant literature.
The authors conclude that investments in news quality affect not only subscription sales directly but also advertising revenues through subscriptions indirectly. This result is especially true for smaller-circulation newspapers, whose newsrooms and editorial departments tend to be understaffed and overworked. Thus, good news quality is good for business.
Biography
Murali K. Mantrala is Sam. M. Walton Professor of Marketing at the University of Missouri–Columbia. Murali holds a PhD in Marketing from Northwestern University and MBAs from the University of Minnesota and Indian Institute of Management, Calcutta. Previously, he was J.C. Penney Associate Professor of Marketing at the University of Florida, Gainesville. His research in the areas of marketing-mix optimization, retail pricing, category management, and sales force management has been published in Marketing Science, Journal of Marketing Research, Journal of Marketing, and other leading journals. He is a coeditor of the book Retailing in the 21st Century: Current and Emerging Trends (Springer 2006). He serves on the editorial board of Marketing Science and is an area editor for Journal of Personal Selling and Sales Management. He has worked as a pharmaceuticals sales executive and consultant to firms in the pharmaceuticals, broadcasting, insurance, and retailing industries.
Prasad A. Naik is a Chancellor’s Fellow and Professor of Marketing at the University of California Davis. He obtained his PhD from the University of Florida, his MBA from the Indian Institute of Management, Calcutta, and his BS in Chemical Engineering from the University of Bombay. He worked with Dorr Oliver and GlaxoSmithKline, where he acquired invaluable experience in sales and brand management. His thesis received the Doctoral Dissertation Award from the Academy of Marketing Science. In addition, he is a recipient of the 1998 Frank Bass Award from INFORMS. He was selected as one of the top 20 scholars in marketing by the Marketing Science Institute’s Young Scholars Program and as a Consortium Faculty by the American Marketing Association. He publishes in scholarly journals, such as Journal of Marketing, Journal of Marketing Research, Marketing Science, Biometrika, Journal of the American Statistical Association, Journal the Royal Statistical Society, and Journal of Econometrics.
Shrihari Sridhar is a doctoral student in Marketing at the University of Missouri–Columbia. He holds a master’s degree in Engineering Management from the University of Missouri–Rolla. His research interests include marketing resource allocation, retailing, and applied econometrics, and he has conducted research related to daily newspapers, style goods, trade shows, and motion pictures industries. He has coauthored “Can Good Marketing Carry a Bad Product? Evidence from the Motion Picture Industry,” with Thorsten Hennig-Thurau and Mark B. Houston, which appeared in Marketing Letters.
Esther Thorson is a professor, Associate Dean for Graduate Studies, and Director of Research for the Reynolds Journalism Institute at the School of Journalism at the University of Missouri–Columbia. Dr. Thorson has published extensively on the news industry, advertising, news effects, and health communication. Her scholarly work has won many research and writing awards, and she has advised nearly 40 doctoral dissertations. She applies research, both hers and that of her colleagues, in newsrooms and advertising agencies across the United States and abroad. She serves on an extensive list of journal editorial boards. Thorson has two central management goals: (1) to integrate theory and practice in graduate journalism and persuasion education and (2) to bring scholarly research to bear on the news industry.
Journal of Marketing, Vol. 71, No. 2, April 2007
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