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Brand Performance Volatility from Marketing Spending |
While volatile marketing spending, as opposed to
even-level spending, may improve a brand’s financial
performance, it can also increase the volatility of
performance, which is not a desirable outcome. This
paper analyzes how revenue and cash-flow volatility are
influenced by own and competitive marketing spending
volatility, by the level of marketing spending, by the
responsiveness of own marketing spending, and by
competitive response. From market response theory, the
authors derive propositions about the influence of these
variables on revenue and cash-flow volatility. The
direction of effects, i.e. whether volatility increases
or decreases, largely depends on the type and intensity
of competitive interaction. Based on a broad sample of
99 pharmaceutical brands in four clinical categories and
four European countries, the authors test for the
empirical relevance of the propositions and assess the
magnitude of the different sources of marketing-induced
performance volatility. The authors find broad support
for the predicted volatility effects. Volatility
elasticities may be as large as 1.10 (cash-flow variance
with respect to marketing responsiveness).
The findings imply that common volatility-increasing
marketing practices such as price promotions or volatile
advertising plans may be effective at the top-line, but
could turn out to be ineffective after all costs are
taken into account. pdf 2012 |
