The Effect of Marketing Breadth and Competitive Spread on Category Growth

Understanding the patterns of demand evolution for a new category is important for firms to effectively manage capacity planning, market and service operations, and research and development. The authors' objective is to analyze how marketing at the industry level affects the evolution of primary demand in different stages of the product life cycle. The authors characterize the aggregate marketing activities in two constructs: marketing breadth and competitive spread. The first construct reflects the spread of spending across different marketing instruments at the industry level, and the second construct reflects the spread of spending across different firms. Though both constructs are related to the spread of spending within a category, the authors find that they have qualitatively different effects on category growth. An econometric model making use of the hierarchical nature of time observations within countries is estimated for each category. First, the authors find that high degrees of spending breadth impede market growth when the number of competitors is small (the category is young) but accelerate market growth when the number of competitors is higher (the category is maturing). Second, the authors find that high levels of competitive spread decrease category growth when spending levels are relatively low. However, as spending levels increase, the negative effect of competitive spread on demand growth all but evaporates.