Competitive reactions to advertising and promotion attacks
AbstractHow do competitors react to each other's price-promotion and advertising attacks? What are the reasons for the observed reaction behavior? We answer these questions by performing a large-scale empirical study on the short-run and long-run reactions to promotion and advertising shocks in over 400 consumer product categories over a four-year time span. Our results clearly show that the most predominant form of competitive response is passive in nature. When a reaction does occur, it is usually retaliatory in the same instrument, i.e., promotion attacks are countered with promotions, and advertising attacks are countered with advertising. There are very few long-run consequences of any type of reaction behavior. By linking reaction behavior to both cross- and own-effectiveness, we further demonstrate that passive behavior is often a sound strategy, while firms that do opt to retaliate often use ineffective instruments, resulting in 'spoiled arms.' Accommodating behavior is observed in only a minority of cases, and often results in a missed sales opportunity when promotional support is reduced. The ultimate impact of most promotion and advertising campaigns depends primarily on the nature of consumer response, not the vigilance of competitors.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/121922.
Date of creation: 2005
Date of revision:
Publication status: Published in Marketing Science (2005) v.24, p.35-54
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Web page: http://www.kuleuven.be
Advertising; Advertising and price-promotion effects; Behavior; Competitive strategy; Empirical generalizations; Empirical study; Firms; Impact; Long-run; Opportunities; Product; Sales; Strategy; Studies; Time; Time-series analysis;
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Open Access publications from Katholieke Universiteit Leuven
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