Marketing Expenditures over the Product Life Cycle: Asymmetries ...

Marketing Expenditures over the Product Life Cycle:
Asymmetries between Dominant and Weak Brands











Venkatesh Shankar*









February 2009










* Professor of Marketing Science and Coleman Chair in Marketing, Mays Business School, Texas A&M
University, College Station, TX 77843-4112, Tel: 979-845-3246. Fax: 979-862-2811, email:
vshankar@mays.tamu.edu.

Acknowledgment: We are grateful to the Marketing Science Institute (MSI) for financial support and IMS
Health America for providing the data used in this research. We thank seminar participants at the Ohio
State University, University of Washington, Northwestern University, University of Houston, Cheong Kong
Graduate School of Business, and Vrije University, Amsterdam for helpful comments. We also thank Xing
Pan for assistance with data analysis. The usual disclaimer applies.

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Marketing Expenditures over the Product Life Cycle:
Asymmetries between Dominant and Weak Brands


Do managers vary their brands' advertising and sales force expenditures as the brands
move from the growth to the mature stages of the product life cycle (PLC)? Are these changes
different for dominant (high market share) and weak (low market share) brands? How do
dominant (weak) brands respond to weak (dominant) brands‘ marketing spending over the life
cycle? The answers to these questions have important implications for marketing resource
allocation formulation and the outcome of competition in product-markets. We address these
important questions in this paper. Building on previous research in strategic management,
innovation, industrial organization, and marketing, we develop several hypotheses. We test them
through an econometric model estimated on cross-sectional and time-series data, comprising 40
brands from their introduction through their life cycle in eight pharmaceutical markets. The
results show that advertising and sales force expenditures vary differently across the life cycle
for dominant and weak brands. As they move from the growth to the mature stages, dominant
brands spend more on the high-elasticity marketing weapon in the market (sales force for
pharmaceuticals) and shift expenditures toward this instrument. In contrast, weak brands shift
their allocation toward the low-elasticity instrument (advertising for pharmaceuticals).
Furthermore, while dominant brands do not react to changes in weak brand spending over the life
cycle, weak brands increase their advertising spending in response to any increase in marketing
expenditures of dominant brands over the PLC. We also validate these results through
interviews of executives who have a combined experience of managing 41 brands of ethical
drugs. The findings suggest that it may be advantageous to spend aggressively on the high-
elasticity marketing variable early to build market share and escalate it over the life cycle to
maintain market dominance.


Key words: product life cycle; marketing strategy; resource allocation; industrial organization;
competition




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1. Introduction
In many industries, the success of brands increasingly depends on their expenditures on marketing
variables such as advertising and sales force over the product life cycle (PLC). Expenditures on advertising
and sales force over the PLC are important because they reflect utilization of a firm‘s marketing resources
and may have long-term effects on the success of products (Dekimpe and Hanssens 1995a; 1999). Therefore,
it is important to study patterns in marketing expenditures over the PLC to better understand the success of
new products.
Advertising and sales force expenditures may vary across the different stages of the PLC from
introduction or early growth to late growth or maturity. Despite some limitations, the PLC concept has been
extensively used by marketing researchers (e.g., Bayus 1998; Lambkin and Day 1989) and industrial
organization economists (e.g., Porter 1980; Sherer and Ross 1990). Variations in marketing spending over
the PLC contribute to the market performance of products and have strategic managerial implications for
changes in marketing mix resources over the PLC. A greater allocation of expenditures toward advertising
over the PLC indicates a move toward ―pull‖ marketing strategy, whereas an increased allocation toward
sales force signifies a shift toward ―push‖ marketing strategy (Kotler and Keller 2008). Because market
evolutionary pattern may suggest different marketing strategies, it is important to study marketing spending
patterns over the PLC (Dekimpe and Hanssens 1995b, 1999).

The stages in the PLC (hereafter, PLC) may have both main (direct) and interaction or moderating
(indirect) effects on advertising and sales force expenditures. The main effect of the PLC is present when
firms inherently change their advertising or sales force expenditures across the different stages in the life
cycle due to significant changes in market growth. Prior research has primarily examined the main effect of
the PLC on advertising expenditures and the results are inconclusive. Lilien and Weinstein (1981) and
Parsons (1975) suggest that advertising expenditures should decline over the life cycle. In contrast, Winer
(1979) suggests that advertising spending should increase over the life cycle. Farris and Buzzell (1979),
however, find no evidence for the main effect of the PLC on advertising expenditures. These studies did not
consider any interaction or moderating effects of the PLC.
The PLC may have moderating effects on the advertising and sales force expenditures of brands.
Advertising and sales force expenditures may be driven by a variety of firm-specific factors such as relative
product quality and firm size, and industry- or competition-specific factors such as market concentration,

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entry of new products in the market, and competitor spending (Gatignon, Anderson, and Helsen 1989). Over
the PLC, the relationships between some of these factors and marketing spending may change, suggesting
important moderating roles for the PLC. The presence and extent of these moderating effects may offer
valuable guidance to product managers. For example, if brands generally increase their sales force spending
as their quality improves by a greater amount in the early stage than in the late stage, then this behavior
provides a benchmark for sales force spending over the PLC. The positive effect of product quality on
advertising is stronger in the later than the earlier stages of the PLC, that is, as a brand‘s product quality
increases, a firm advertises more in the mature stage than it does during the growth stage (Tellis and Fornell
1988). Previous research has not, however, explored the interaction of the PLC and industry-specific factors
on a brand‘s advertising or sales force expenditures. An examination of these interaction effects of the PLC
may offer important insights into the variation of advertising and sales force expenditures over time. How
are the effects of firm- and industry-specific factors on advertising and sales force expenditures in the
growth stage different from those in the mature stage of the PLC?
Surprisingly, very little is known about the variation of sales force spending over the life cycle
(Vandenbosch and Weinberg 1993). Like advertising, sales force expenditures may also be influenced by
firm- and industry-specific factors and these effects may be different during the different stages of the PLC.
These potential effects of the PLC on sales force spending, however, have not been explored by prior
research.
Over time, firms tend to spend more on the most elastic marketing mix variable for that product
category (e.g., Gatignon et al. 1989). Typically, category expenditures on the most elastic marketing
instrument increase over the product life cycle. This pattern is understandable as a rational firm will likely
spend more on the marketing instrument that offers more bang for the buck. However, such an observation
could mask an important underlying asymmetry in spending behavior among brands within the category.
Advertising and sales force expenditures over the life cycle could be different for dominant (high market
share) and weak (low market share) brands because the relative effectiveness of different marketing
variables may depend on the market power of brands (Borenstein 1991; Cubbin and Domberger 1988). An
examination of these differences is essential to better understand which spending strategies are associated
with successful brands. In particular, analyses of interactions among market dominance, the PLC and firm-

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and industry-specific factors on marketing expenditures could reveal longitudinal patterns of marketing
spending associated with dominant and weak brands, offering useful insights.
Although pricing decisions of dominant and weak firms have been studied in the industrial
organization literature (Borenstein 1989; 1991) and the effectiveness of marketing spending decisions have
been analyzed in the marketing literature (e.g., Dekimpe and Hanssens 1995a; 1999; Sethuraman and Tellis
1991), not much is known about differences in marketing spending of dominant and weak brands over the
PLC. Furthermore, dominant (weak) brands‘ reactions to changes in weak (dominant) brands‘ marketing
spending over the life cycle are likely to be important to the outcome of competition between these types of
brands. While much is known about factors that shape competitor responses (e.g., Gatignon, Weitz, and
Bansal 1990), little is known about the actions and the responses of dominant and weak brands over the life
cycle. A better understanding of dominant (weak) brands‘ advertising and sales force decisions will help
weak (dominant) brands better plan their own marketing spending decisions over the PLC.
In this paper, we address these gaps in prior research. Put another way, the purpose of this paper is
to investigate the interaction effects of the PLC with market dominance and their interactions with some
firm- and industry-specific factors on advertising and sales force expenditures of products. Building on
previous research in strategic management, innovation, industrial organization, and marketing, we first
develop a conceptual framework relating the stages in the PLC, market dominance and a comprehensive set
of firm-specific and industry-specific factors to advertising and sales force expenditures. We develop
hypotheses on the interaction effects of the PLC on these expenditures, in particular, how the effects of the
PLC may be different for dominant and weak brands. To test the hypotheses, we develop models of sales,
advertising spending, and sales force spending and estimate them simultaneously in structural form, using
cross-sectional and time-series data comprising 40 products from their introduction through their life cycle
in eight pharmaceutical markets. We validate these results with reactions from 17 brand managers who have
a combined experience of managing 41 brands of ethical drugs.
Our results show that advertising and sales force expenditures vary differently across the life cycle
for dominant and weak brands. As they move from the growth to the mature stages, dominant brands spend
more on the high-elasticity marketing weapon in the market (sales force for pharmaceuticals) and shift
expenditures toward this instrument. In contrast, weak brands shift their allocation toward the low-elasticity
instrument (advertising for pharmaceuticals). Furthermore, while dominant brands do not react to changes

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in weak brand spending over the life cycle, weak brands increase their advertising spending in response to
any increase in marketing expenditures of dominant brands over the PLC. The findings suggest that it may
be advantageous to spend aggressively on the high-elasticity marketing variable early to build market share
and escalate it over the life cycle to maintain market dominance.
Our analysis extends prior research in three important ways. First, unlike prior research that has
mostly studied the main effects of the PLC on advertising, our study explores both the main and interaction
effects of the PLC in the same framework. Second, prior studies have examined variations in only
advertising expenditures, but not in sales force spending. Investigating both advertising and sales force
variables in the same study is important from the viewpoint of understanding resource allocation. We
simultaneously analyze a structural model of advertising and sales force expenditures. Third, we focus on
the role of market dominance of brands in explaining asymmetric competitive marketing spending behavior,
providing useful benchmarking guidelines for managers.
2. Conceptual Development and Hypotheses

We begin by identifying some firm-specific and industry- or competition-specific determinants of
advertising and sales force, the associated relationships, and the roles of the PLC and market dominance. We
then develop hypotheses on the interaction or moderating effects of the PLC on these expenditures. In our
discussion of these determinants, we mention the empirical context of our study, the U.S. pharmaceutical
industry, wherever necessary. Following prior research (Farris and Buzzell 1979; Lilien and Weinstein
1981; Vakratsas and Kolsarici 2008), we primarily focus on two key phases of the life cycle, the
introduction and early growth (hereafter, growth) and late growth and mature (hereafter, mature) stages.1 We
use the term ―the effect of the PLC‖ to denote the effect of the mature stage relative to the growth stage in
the life cycle.
2.1. Main Effects of the PLC and Market Dominance
It is unclear if the PLC has a main effect on marketing spending. Advertising expenditures may be
inherently higher or lower during the growth stage than during the mature stage of the PLC. On the one
hand, because advertising elasticities decline over the life cycle (Parsons 1975) and with multiple entrants

1 The major reasons for prior research to combine the PLC stages in this manner are: (1) the transitions between
introduction and early growth and between late growth and mature stages are difficult to pinpoint and (2) firm
expenditures appear to be more discontinuous between early growth and late growth stages than between any other two
stages in our data. Furthermore, the decline stage is seldom observed in our empirical context, the drug industry, unless
a disease is eradicated or about to be eradicated, so we do not study the decline stage in our study.

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(Parker and Gatignon 1996), advertising expenditures may decrease over the PLC. Indeed, Lilien and
Weinstein (1981) found that advertising expenditures were lower in the later stages of the PLC. On the
other hand, because brands sell more in the mature stage when the market is bigger, they are likely to spend
more in the mature stage than in the growth stage. Winer (1979) found that sales response to advertising
increases over time, suggesting that advertising spending should increase over the life cycle. Interestingly,
Farris and Buzzell (1979) did not find the main effect of the PLC on advertising and promotion spending to
be significant. The arguments for the main effect of the PLC on sales force expenditures are similar. Given
the mixed evidence, we do not predict a main effect of the PLC. We leave it as an empirical issue to be
examined in this study.
The main effect of market dominance on marketing spending is somewhat obvious. Dominant
brands, by virtue of their higher sales, will have higher marketing expenditures than weak brands.
2.2. Interaction/Moderating Effects of the PLC
The PLC may have interaction effects with several determinants of advertising and sales force
expenditures, including market dominance. These effects have not been explored by prior research and
could explain the inconclusive results of past research which shows both positive and negative relationships
between market maturity and marketing spending. These inconclusive results suggest that there may be
contingency variables (moderators), that is, interaction effects of the PLC with firm- and industry-specific
factors and market dominance that would better explain the pattern of marketing spending over the PLC.
We examine a total of six firm- and industry-specific factors. Although there are potentially six
two-way interactions of the PLC with the firm- and industry-specific factors, a PLC x Market dominance
interaction, and six three-way interactions of the PLC x Market dominance x Firm/Industry-specific factors,
totaling 13 interaction factors involving the PLC, we develop hypotheses on five of the factors that have
stronger theoretical underpinnings than the others and which are central to our analysis. In each of the
hypotheses, the sub-hypothesis relating to advertising is subscripted by a and that relating to sales force is
subscripted by b.
Market Dominance
The PLC and market dominance, interacting together, contribute to differences in marketing
expenditures. We anticipate important differences between dominant and weak brands in advertising and
sales force spending over the PLC, consistent with the literature on dominant and weak brands (e.g.,

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Borenstein 1989; 1991). Our reasoning for these differences is based on the hierarchy of marketing
communication effects (Kotler and Keller 2008).
According to the theory of hierarchy of communication effects, a decision-maker goes through
different stages of readiness: awareness, interest, conviction, action and repeat action. Advertising is more
powerful than sales force to create brand awareness, whereas sales force is more useful to convince
customers (Kotler and Keller 2008). Awareness creation is important in the early stages of the launch of a
brand while persuasion is critical once the brand goes past the launch stage. Early in the PLC, all brands
face the problem of creating brand awareness, so they find advertising to be the most effective marketing
instrument to overcome this problem. As the market continues to grow, one or a few brand(s) come out on
top and become dominant. By that time, these dominant brands have already overcome the awareness
hurdle and have developed or deepened key brand associations. Dominant brands focus on conviction,
action and repeat action after the growth stage, so they find it advantageous to allocate more marketing
investment to sales force.
In the pharmaceutical industry, in particular, sales force is more effective than advertising over the
long-term (Rangaswamy and Krishnamurthi 1991).2 Managers allocate their scarce resources to the
marketing variable with the greatest long-term impact on sales and profitability (Dekimpe and Hanssens
1999). Relative to advertising, sales force efforts involve higher fixed costs of training. Typically,
dominant brands emerge early in the life cycle. Over time, they spend more on sales force than do weak
brands to capitalize on the earlier investments in sales force. In allocating marketing resources across its
product portfolio, a firm typically allocates more expenditures to the more effective marketing variable to its
best-performing brands or those that are dominant in their markets over the life cycle (Fogg 1974). In the
ethical drug industry, a sales representative details or canvasses multiple drugs on a visit to the physician.
Most firms have a fixed size of sales force and each sales person has a fixed detailing time. Over time, a
salesperson will likely detail the brands that are dominant in their markets first, devoting her remaining time
to the weak brands in the company‘s portfolio. Thus, a dominant brand‘s sales force expenditures increase
by a greater extent over the PLC than does a weak brand‘s sales force spending.

2 We verified this finding in subsequent analyses of our data. We note that in some other markets, however, other
marketing spending variables such as advertising or consumer sales promotion may be more effective.

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In contrast, even in the later stages of the PLC, weak brand firms may still need to spend on
advertising to surmount the awareness and brand association hurdles. Therefore, they spend more on
advertising in the later stages than they do in the earlier stages of the PLC, relative to dominant brands.
The following hypotheses summarize these arguments.
H1a:
The PLC and market dominance interact to affect spending on the market‘s low-elasticity
instrument (advertising) in such a way that the positive relationship between market
dominance and advertising spending will be stronger in the early growth than it is in the late
growth stage.
H1b:
The PLC and market dominance interact to affect spending on the market‘s high-elasticity
instrument (sales force) in such a way that the positive relationship between market
dominance and sales force spending will be weaker in the early growth than it is in the late
growth stage.

Much of the changes in advertising and sales force expenditures of dominant and weak brands are
also due to changes in firm and industry factors over the life cycle. These changes in firm and industry
factors form the underlying rationale for dominant brands‘ emphasis on sales force and weak brands‘ focus
on advertising over the life cycle in the hypotheses that we develop below.
Firm-specific Factors
Relative product quality. A brand may spend more on a marketing variable if it is perceived to be of
higher quality relative to other brands (Gatignon et al. 1990). This effect of relative product quality on a
brand‘s advertising and sales force expenditures, however, may be influenced by the stage in the PLC. In
the growth stage when the category is evolving, it may be effective for a firm with a high quality brand to
spend moderately in its marketing variables because the high product quality may be able to generate repeat
purchases (Kuehn 1962). In the mature stage, however, as the market becomes more established, a brand
may have to spend more heavily on advertising or on sales force with increasing relative product quality.
Indeed, Tellis and Fornell (1988) found that the relationship between product quality and advertising is
strongest in the mature stage when consumers are less responsive to advertising. This relationship, however,
is contingent on market dominance.
Dominant brands with higher relative product quality are likely to spend more on the market‘s high-
elasticity instrument (sales force in the market we study) during the mature stage relative to the growth
stage. Although the category may be more established in the mature stage, the large customer base of the
dominant brands together with high relative product quality may enable their sales force to be more effective
than those for the other brands (Borenstein 1991). In contrast, as its product quality increases, a weak brand

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may spend more on advertising during the mature stage relative to the growth stage to overcome the gap in
awareness with the dominant brand. These arguments lead to the following three-way interaction
hypotheses.
H2a:
The relationship between product quality and expenditures on the market‘s low-elasticity
instrument (advertising) will be more strongly positive when the brand is weak and in the
mature stage, relative to when the brand is dominant and in the early stage of the PLC.
H2b:
The relationship between product quality and expenditures on the market‘s high-elasticity
instrument (sales force) will be more strongly positive when the brand is dominant and in
the mature stage, relative to when the brand is weak and in the early stage of the PLC.

Industry- or Competition-specific Factors
Market concentration. Marketing spending may be strongly shaped by market concentration, an
important measure of competition (Ramaswamy, Gatignon, and Reibstein 1994). Market concentration
indicates the extent of rivalry, with a greater concentration ratio suggesting lower rivalry (Farris and Buzzell
1979).
A brand may vary its spending differently according to changes in market concentration between the
growth and the mature stages. Market concentration typically decreases over time as more brands enter the
market over the life cycle, in particular, in the pharmaceutical industry.3 In the growth stage, as market
concentration decreases, a brand may decrease its spending because it can benefit from category growth
stimulated by the spending of all the brands (Scherer and Ross 1990) and because the impact of marketing
on category sales declines with rising number of competitors (Bowman and Gatignon 1996), suggesting a
positive relationship between concentration and marketing spending. In this stage, high fixed costs like
advertising spending are associated with concentrated industry structure (Shaked and Sutton 1987). In the
mature stage, however, as market concentration continues to fall, the brand may have to raise its spending to
protect its market position, implying a negative relationship.
This relationship could depend on market dominance, creating a three-way interaction effect of the
PLC, market dominance and market concentration on marketing spending. Dominant brands could have an
advantage over weak brands in that they may have greater marketing elasticities than do weak brands.
Indeed, pioneers and early followers, which often are dominant brands, may have this advantage (Shankar et

3 In some markets, market concentration could increase over the life cycle as larger brands may consolidate by acquiring
weaker brands. In the pharmaceutical industry, however, typically, more brands enter over the life cycle and more so
when the patents of some brands expire. Therefore, market concentration typically decreases over the life cycle in
ethical drug markets.

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