While effective marketing spending is known to 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 reactivity. We develop
hypotheses about the influence of these variables on
revenue and cash-flow volatility that are rooted in
market response theory. Based on a broad sample of 99
pharmaceutical brands in four clinical categories and
four European countries, we test these hypotheses and
assess the magnitude of the different sources of
marketing-induced performance volatility.
The results support our hypotheses and demonstrate that
effective marketing may incur negative financial side
effects such as greater financing costs or higher
opportunity costs of cash holdings. Thus common
volatility-increasing marketing practices such as
advertising pulsing are effective at the top-line, but
may turn out to be ineffective at the
bottom-line. doc-file
