Assessing long-term promotional influences on market structure

The allocation of marketing budgets across advertising and sales promotions has changed over the past decade with a marked decrease in the percentage of budgets directed towards advertising. Moreover, there has been much speculation regarding how these changes have affected a brand's positioning vis-à-vis its competitors. In spite of this speculation, previous research has not examined the impact of changes in promotion and advertising on market structure. The purpose of this paper is therefore to ascertain how changes in promotional and advertising policy affect market structure over the long-term. The eight and one quarter years of scanner panel data used for our analysis indicate that brands in the analyzed product category tend to fall into premium/non-premium and attribute-based (mildness) tiers. Furthermore, the data suggest that the differentiation between non-premium and premium brands has diminished during the period of our study (1984-1992). The data also suggest that increases in price promotions and reductions in advertising have led to decreased differentiation between brands. These findings suggest that shifts in marketing dollars from advertising to promotions have made national brands more vulnerable to store brands' marketing activity.

Duke Scholars

Author Carl Frederick Mela Fuqua School of Business