Shuba Srinivasan

New Products, Sales Promotions, and Firm Value:The Case of the Automobile Industry

Year after year, managers strive to improve financial performance and firm value through marketing actions such as new product introductions and promotional incentives. This study investigates the short- and long-term impact of such marketing actions on financial metrics, including top-line, bottom-line, and stock market performance. The authors apply multivariate time-series models to the automobile industry, in which both new product introductions and promotional incentives are considered important performance drivers. Notably, whereas both marketing actions increase top-line firm performance, their long-term effects strongly differ for the bottom line. First, new product introductions increase long-term financial performance and firm value, but promotions do not. Second, investor reaction to new product introduction grows over time, indicating that useful information unfolds in the first two months after product launch. Third, product entry in a new market yields the highest top-line, bottom-line, and stock market benefits. Managers may use these results to justify new product efforts and to weigh short- and long-term consequences of promotional incentives.

Marketing and Firm Value: Metrics, Methods, Findings, and Future Directions

The marketing profession is being challenged to assess and communicate the value created by its actions on shareholder value. These demands create a need to translate marketing resource allocations and their performance consequences into financial and firm value effects. The objective of this paper is to integrate the existing knowledge on the impact of marketing on firm value. We first frame the important research questions on marketing and firm value and review the important investor response metrics and relevant analytical models, as they relate to marketing. We next summarize the empirical findings to date on how marketing creates shareholder value, including the impact of brand equity, customer equity, customer satisfaction, R&D, product quality and specific marketing-mix actions. In addition we review emerging findings on biases in investor response to marketing actions. We conclude by formulating an agenda for future research challenges in this emerging area.

Do Promotions Benefit Manufacturers, Retailers, or Both?

Do price promotions generate additional revenue and for whom? Which brand, category, and market conditions influence promotional benefits and their allocation across manufacturers and retailers? To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues, and total profits (margins).A first major finding is that a price promotion typically does not have permanent monetary effects for either party. Second, price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Moreover, retailer category margins are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands, for frequently promoted brands and for national brands in impulse product categories with a low degree of brand proliferation and low private-label shares. Retailer revenue elasticities are higher for brands with frequent and shallow promotions, for impulse products, and in categories with a low degree of brand proliferation. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. We discuss the managerial implications of our results for both manufacturers and retailers.

Mindset Metrics in Market Response Models: An Integrative Approach

Demonstrations of marketing effectiveness currently proceed along two parallel tracks: Quantitative researchers model the direct sales effects of the marketing mix, and advertising and branding experts trace customer mind-set metrics (e.g., awareness, affect). The authors merge the two tracks and analyze the added explanatory value of including customer mind-set metrics in a sales response model that already accounts for short- and long-term effects of advertising, price, distribution, and promotion. Vector autoregressive modeling of the metrics for more than 60 brands of four consumer goods shows that advertising awareness, brand consideration, and brand liking account for almost one-third of explained sales variance. Competitive and own mind-set metrics make a similar contribution. Wear-in times reveal that mind-set metrics can be used as advance warning signals that allow enough time for managerial action before market performance itself is affected. Specific marketing actions affect specific mind-set metrics, with the strongest overall impact for distribution. The findings suggest that modelers should include mind-set metrics in sales response models and branding experts should include competition in their tracking research.

Market share response and competitive interaction: The impact of temporary, evolving and structural changes in prices

Managing pricing is a challenging task due to the significant impact on shares and the likelihood of strong consumer and competitor reaction. The major contributions of this paper are to assess comprehensive share response to temporary, evolving and structural changes in prices and to determine the level of market share as a function of levels of prices. For the empirical analysis, we examine two consumer product categories and find that it is valuable to distinguish among temporary, evolving and structural changes in prices, as their impact on market shares tends to differ. Further, we find that subsequent competitive reaction will influence predictions of price response. Accordingly, it is important for managers to use conjectures regarding competitive price reactions in assessing the impact of policy changes. We conclude with the strategic implications of the findings and discuss a number of opportunities for future research.

Why do firms invest in consumer advertising with limited sales response? A shareholder perspective

Marketing managers increasingly recognize the need to measure and communicate the impact of their actions on shareholder returns. This study focuses on the shareholder value effects of pharmaceutical direct-to-consumer advertising (DTCA) and direct-to-physician (DTP) marketing efforts. Although DTCA has moderate effects on brand sales and market share, companies invest vast amounts of money in it. Relying on Kalman filtering, the authors develop a methodology to assess the effects from DTCA and DTP on three components of shareholder value: stock return, systematic risk, and idiosyncratic risk. Investors value DTCA positively because it leads to higher stock returns and lower systematic risk. Furthermore, DTCA increases idiosyncratic risk, which does not affect investors who maintain well-diversified portfolios. In contrast, DTP marketing has modest positive effects on stock returns and idiosyncratic risk. The outcomes indicate that evaluations of marketing expenditures should include a consideration of the effects of marketing on multiple stakeholders, not just the sales effects on consumers.

Consumer Satisfaction for Internet Service Providers: An Analysis of Underlying Processes

A key managerial challenge, of interest to academics and practitioners alike, is the assessment and management of customer satisfaction. In this paper, we examine the underlying processes involving consumer satisfaction and switching patterns among ISPs using different satisfaction models, including the expectations-disconfirmation model, the attribution model, and an affective model. Our results indicate that the satisfaction levels of ISP consumers are generally relatively low, despite the fact that consumer expectations of ISPs are also low, reflecting “mediocrity” in the marketplace. In addition, consumers attribute their dissatisfaction to ISP indifference and believe that managing dissatisfaction is within the control of the ISP. Moreover, “affective” factors play an important role in satisfaction processes and switching behavior. Customer service including technical support and responsiveness of service staff is an important “determinant” factor in ISP selection. We suggest that as the ISP market matures, service providers that pay attention to affective factors and to building “relationships” with their customers will have a competitive advantage in the marketplace of the future.

Demand-Based Pricing Versus Past-Price Dependence: A Cost-Benefit Analysis

The authors develop a conceptual framework of the factors that motivate a retailers decision to rely on demand conditions and past prices in setting current and future prices. Specifically, they examine the circumstances under which retailers choose demand-based pricing versus past-price dependence for different brands and categories. Given scarce resources and costs of price adjustments, demand-based pricing is more likely when the customer-driven and firm-driven costs of adjusting pricing patterns are low or when the benefits of such adjustments are high. First, the customer-driven benefits of demand-based pricing are expected to be greater in categories with higher penetration and for brands with higher market share and higher demand sensitivity to price. Second, the firm-driven benefits are greater for categories with higher private-label share. Finally, the customer-driven costs are greater for expensive categories, whereas the firm-driven costs are greater for categories with many stockkeeping units. The empirical findings support the conceptual framework, implying that customer-driven and firm-driven benefits are the main stimulants in the retailers choice of demand-based pricing. In contrast, customer-driven and firm-driven costs significantly hinder retailer implementation of demand-based pricing. These insights enable retailers to identify problem areas and opportunities to improve the allocation of scarce pricing resources. The results also contribute to the ongoing debate in economics and marketing on the rationality of observed past-price dependence. Whereas previous research points to the negative impact on gross margins of this practice, the authors find that retailers weigh the costs and benefits of demand-based pricing rather than adhere to past-pricing patterns.

Consumer Attitude Metrics for Guiding Marketing Mix Decisions

Marketing managers often use consumer attitude metrics such as awareness, consideration, and preference as performance indicators because they represent their brands health and are readily connected to marketing activity. However, this does not mean that financially focused executives know how such metrics translate into sales performance, which would allow them to make beneficial marketing mix decisions. We propose four criteria---potential, responsiveness, stickiness, and sales conversion---that determine the connection between marketing actions, attitudinal metrics, and sales outcomes. We test our approach with a rich data set of four-weekly marketing actions, attitude metrics, and sales for several consumer brands in four categories over a seven-year period. The results quantify how marketing actions affect sales performance through their differential impact on attitudinal metrics, as captured by our proposed criteria. We find that marketing--attitude and attitude--sales relationships are predominantly stable over time but differ substantially across brands and product categories. We also establish that combining marketing and attitudinal metrics criteria improves the prediction of brand sales performance, often substantially so. Based on these insights, we provide specific recommendations on improving the marketing mix for different brands, and we validate them in a holdout sample. For managers and researchers alike, our criteria offer a verifiable explanation for differences in marketing elasticities and an actionable connection between marketing and financial performance metrics.

Estimating Cannibalization Rates for Pioneering Innovations

To evaluate the success of a new product, managers need to determine how much of its new demand is due to cannibalizing the firms other products, rather than drawing from competition or generating primary demand. We introduce a time-varying vector error-correction model to decompose the base sales of a new product into its constituent sources. The model allows managers to estimate cannibalization effects and calculate the new products net demand, which may be considerably less than its total demand. We apply our methodology to the introduction of the Lexus RX300 using detailed car transaction data. This case is especially interesting because the Lexus RX300 was the first crossover sport utility vehicle (SUV), implying that its demand could come from both the luxury SUV and the luxury sedan categories. Because Lexus was active in both categories, there was a double cannibalization potential. We show how the contribution of the different demand sources varies over time and discuss the managerial implications for both the focal brand and its competitors.