The marketing mix effectiveness
premium for market leaders in the
fast moving consumer goods sector
Master thesis defence
Sven Luijmers
s3010414
Supervisors
Background
• “Under most circumstances, enterprises that have achieved a high share of the markets they serve are
considerably more profitable than their smaller-share rivals”
(Buzzell, Gale, & Sultan, 1975)
.
Advantages for market leaders:
• The market leaders have more market power to influence consumer
(e.g. Ailawadi, Farris, & Parry, 1999; Mabkhot, Shaari, &
Salleh, 2017; Mukhopadhyaya, Roy, & Raychudhuri, 2012)
.
• Market leaders benefit more from scale economies
(e.g. Ingene, 1984; Sharp, Riebe, Dawes, & Danenberg, 2002; Szymanski et al., 1993)
.
• Market leaders experience a price premium. Better perceived quality of products
(e.g. Akerlof, 1970; Apelbaum, Gerstner,
& Naik, 2003; Fan, Ju, & Xiao, 2016; Sethuraman & Cole, 1999)
.
Research question
Conceptual model
Figure 1
Included brands
• Four years of weekly data (week 29, 1994 through week 28, 1998).
• The three largest supermarket chains in the Netherlands (based on a sample of ±350 stores).
Thresholds:
•
Only branded products.
•
Active > 15% of weeks with all single tools.
•
Active in full range of 208 weeks.
Table 1
Overview of included product classes and categories
Product classes
Categories
Number of brands
per category
Example brands
Beverages
Cola
4
Coca Cola, Pepsi
Pilsners
4
Heineken, Grolsch
Ground coffee
4
Douwe Egberts, Kanis & Gunnink
Food
Chips
3
Smiths, Croky
Candy bars
4
Mars, Twix, Milkyway
Dry soup
3
Honig, Knorr
Personal care
Deodorant
4
Sanex, Nivea, AXE
Toothpaste
4
Aquafresh, Prodent
Error correction model
DA
bt
Display Advertising of brand b in week t
+
P
bt
Price increase of brand b in week t
-
P
bt
Price decrease of brand b in week t
Q1,2,3
bt
Dummy controlling for seasonality
π
Adjustment effect
where
∆
First difference operator
S
bt
Volume sales of brand b in week t
α
b0
Intercept of brand b
MA
bt
Mass Advertising expenditures of brand b in week t
FA
bt
Feature Advertising of brand b in week t
Model is estimated twice: once for market leader brands and once for follower brands.
• Long-term parameters > Delta Method
(Greene, 2003)
.
Mass advertising expenditures
• More effective for followers than for market leaders.
• Main advantage for followers is gained on the short-term:
• Mass advertising expenditures market leaders beyond the optimum.
• Spend heavy amount on building positive image of the brand.
• Brand image > increases loyalty > consumers purchase
(e.g. Mabkhot et al., 2017; Yoo et al., 2000).
• Lower advertising elasticities are common in CPG categories
(Allenby & Hanssens, 2004)
.
Table 1
Elasticities mass advertising expenditures
Marketing mix tool
Market leader
Follower
Mass advertising
Short-term
𝛽1
𝑠𝑡
Non-significant
0.0007
Elasticities feature advertising
Marketing mix tool
Market leader
Follower
Feature advertising
Short-term
𝛽2
𝑠𝑡
0.0087
0.0099
Long-term
𝛽7
𝑙𝑡
0.0125
0.0126
Feature advertising
• Equally effective for market leaders and followers.
• Expected: stronger effects on the short-term, and smaller effects on the long-term.
• Even short-term oriented tools like search engine marketing and banner ads have long-term effects that
differ per target group
(Breuer & Brettel, 2012)
.
Elasticities display advertising
Marketing mix tool
Market leader
Follower
Display advertising Short-term
𝛽3
𝑠𝑡
0.0123
0.0072
Long-term
𝛽8
𝑙𝑡
Non-significant
0.0095
Display advertising
• Short-term advantage for market leaders.
• Long-term advantage for followers.
• Expected: stronger short-term effect and a smaller long-term effect.
• Market leaders deal with post-promotion dip
(e.g. van Heerde, Leeflang, & Wittink, 2000; Leone, 1987)
.
• Accelerate their purchases in response to a promotion, they buy earlier and/or purchase larger
quantities.
Elasticities pricing
Marketing mix tool
Market leader
Follower
Price increase
Short-term
𝛽4
𝑠𝑡
-0.7900
-1.1585
Long-term
𝛽9
𝑙𝑡
-0.3695
-0.6452
Price decrease
Short-term
𝛽5
𝑠𝑡
-1.9837
-2.3657
Long-term
𝛽10
𝑙𝑡
-0.3896
-0.6214
Pricing
(1/2)
• Short-term price decreases have a larger positive effect on sales, than short-term price increases will lead to
a loss in sales for both market leaders and followers.
• Long-term effect for price increase and decrease elasticities are equal so cancels out for both market leaders
and followers.
• For market leaders and followers the price decrease elasticity is stronger on the short-term than the
long-term.
• We assume they experience a post-promotion dip
(e.g. van Heerde, Leeflang, & Wittink, 2000; Leone, 1987). Consumers buy earlier and/or purchase larger
quantities.
Elasticities pricing
Marketing mix tool
Market leader
Follower
Price increase
Short-term
𝛽4
𝑠𝑡
-0.7900
-1.1585
Long-term
𝛽9
𝑙𝑡
-0.3695
-0.6452
Price decrease
Short-term
𝛽5
𝑠𝑡
-1.9837
-2.3657
Long-term
𝛽10
𝑙𝑡
-0.3896
-0.6214
Pricing
(2/2)
• Market leaders suffer less from a price increase, but also experience a smaller price decrease effect.
• Price increase: Market leaders are better able to increase prices with loosing less sales compared to the
followers who would follow the price increase.
• Brand image > increases loyalty > consumers purchase
(e.g. Mabkhot et al., 2017; Yoo et al., 2000)
.
• Price decrease: Followers are more effective with a decrease. A price reduction will gain more sales
compared to market leaders who would follower the price decrease.
1
Overview conclusions
• Market leader effectiveness premium:
• Short-term price increase elasticity.
• Long-term price increase elasticity.
• Short-term display advertising elasticity.
• Followers effectiveness premium (counterintuitive to expectations):
• Short-term mass advertising expenditures elasticity.
• Long-term display advertising elasticity.
• Short-term price decrease elasticity
• Long-term price decrease elasticity.
• Equal effectiveness:
• Long-term mass advertising expenditures elasticity.
• Short-term feature advertising elasticity.
Limitations and future research
• Only pricing and advertising marketing mix tools:
Higher short-term and long-term sales elasticities for product and distribution, and smaller elasticities for
advertising and price decreases
(Ataman et al., 2010)
.
> Replicate study with adding product and distribution as important marketing mix tools.
• Storable FMCG-products:
The used categories are “storable” FMCG-products, which result in post promotion dips
(van Heerde et al., 2000; Leone, 1987)
.
> Replicate research setting with less storable product categories.
• Only focused on branded products:
Recent years made firms begun to advertise their private labels
(e.g. Corstjens & Steele, 2008; Lamey et al., 2012)
.
> Replicate research setting and focus on private labels.
• Mass advertising optimum:
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