Competitive Response to Advertising and Promotion Attacks

Product & Brand ManagementSteenkamp, J.; Nijs, V.; Hanssens, D.; Dekimpe, M. · 2005Marketing Science

Topicscompetitive reaction·price promotion·advertising·reaction elasticity·cross-sales elasticity·varx·cpg

A rival's promotion can trigger defensive spending before anyone checks whether sales fell. Price promotions are temporary price cuts; advertising means mass-media advertising. Imagine your national cereal brand faces a rival's promotion. Do you fund a response or keep your plans?

Most brands that make no competitive response have no sales harm to defend against.

Data chart

Most brands with no price-promotion response do not lose sales

Number of brands making no price-promotion response, grouped by how a rival's price promotion changes their sales over the following weeks.

82% have no detectable sales loss from the rival's promotion.

Most brands that make no price-promotion response have no sales harm to defend against.

954 of the 1,779 cases in which a brand faced a rival's price promotion (Figure 2a, p. 49). Of 168 harmed brands, 118 had an effective promotion defense and 50 did not: 82% faced no sales harm, while 88% were justified in not responding (pp. 48 and 51). Counts represent average brand-pair responses (p. 42).

Data chart

Advertising retaliation raises sales far less often than price-promotion retaliation

Percent of brands that retaliate whose own counter-move is linked to higher short-run sales, answering a price promotion with a price promotion or advertising with advertising.

Higher sales from hitting back need not cancel the attack's harm.

Advertising retaliation raises the defending brand's sales far less often than price-promotion retaliation.

Positive own-sales effects in 343 of 546 promotion retaliations against promotion attacks and 28 of 115 advertising retaliations against advertising attacks; reported shares 63% and 24% (p. 49; Figure 3, p. 50). A positive own-sales effect does not establish net neutralization of the attack.

Action guide

Require a two-part sales case before funding a response.Your team must link the rival's move to lower sales and your planned response to higher sales. Pilot this funding rule; the study did not test it directly.
Keep your plans when your team finds no sales harm.Most brands that do not respond lose no detectable sales to the rival's move.
Check that your advertising is linked to higher sales before using it defensively.Counter-advertising shows that link far less often than counter-promotion.
Measure how shoppers respond before funding long-term retaliation plans.Lasting responses are rare.
Build likely counter-promotions into your promotion plans.Rivals hit back harder in impulse-buying categories and in categories shoppers buy less often.

Evidence

Of 954 brands that let a rival's price promotion go unmatched, 82% show no detectable sales loss.
Answering a price promotion with a price promotion is linked to higher own sales in 63% of cases (343 of 546), versus 24% for answering advertising with advertising (28 of 115).
Responses rarely last. More than 90% of rival price promotions draw no lasting promotion response, and more than 99% of attacks draw no lasting advertising response.
Brands hit back harder with the same tool when the attacker has more market share or the defender is strong relative to the attacker. The same holds in less concentrated categories and those shoppers buy less often. Promotion responses are also stronger in impulse-buying categories.
After a rival's price promotion, 54% of brands make no short-run promotion response and 85% make no advertising response. Across all cases and situations, 45% answer a promotion with a promotion even when unaffected.
An attack's net effect on sales usually depends on how shoppers react, not whether the defender responds.

Key takeaway

Fund retaliation only when a rival lowers your sales and your proposed response can raise them.

Limitations

The study tracks sales and spending, not profit, for the top three brands in 442 frequently purchased Dutch consumer-goods categories over four years. It covers price promotions and mass-media advertising, without testing other countries, services, or durable goods.

Source

Steenkamp, J., Nijs, V., Hanssens, D., & Dekimpe, M. (2005). Competitive Reactions to Advertising and Promotion Attacks. Marketing Science, 24(1), 35 to 54. https://doi.org/10.1287/mksc.1040.0069

https://doi.org/10.1287/mksc.1040.0069