The Roles of Marketing Breadth and Competitive Spread on Product Life Cycle (CEIBS Working Paper, No. 015/2020/MKT, 2020)

Understanding the patterns of demand evolution for a new innovation is critical for firms to effectively manage capacity planning, market and service operations, and research and development. The objective of this paper is to analyze how marketing at the industry level affects the evolution of primary demand in different stages of the product life cycle. We empirically analyze the growth and different types of marketing spending for product categories in the pharmaceutical industry across 7 countries. Our literature review leads to the identification of two constructs that characterize the pattern of competitive marketing spending over time: 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. Even though both construct measures a certain kind of spending spread, we find that they have qualitatively different (opposite) impact on market growth. An econometric model making use of the hierarchical nature of time observations within countries is estimated for each category. First, we 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, we 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.