Strategy: The Role of the Manufacturer’s
Relationship with Distributors as
Moderated by Relative Market Share
Kenneth Anselmi
EASTCAROLINAUNIVERSITYResults of this study suggest that the type of exchange relationship between tionship a manufacturer has with its distributors is not in-cluded as a decision variable. The nature of buyer-seller
behav-a pbehav-ackbehav-aged-goods mbehav-anufbehav-acturer behav-and its distributors influences behav-a mbehav-anufbehav-ac-
manufac-turer’s brand allocation between the frequently opposing strategies of adver- ior is captured in the type of exchange relationship (Dwyer, Schurr, and Oh, 1987).
tising and promotion. As exchange relationships become more relational,
manufacturers increase their allocation to advertising. Conversely, as rela- Packaged-goods manufacturers use their exchange ship with distributors as a mechanism to govern their
relation-tionships become more discrete, manufacturers increase their allocation to
promotion. Additionally, study results suggest that a brand’s relative market ship with distributors. Governance is at issue for manufactur-ers as they seek control for the final exchange with consummanufactur-ers.
share moderates the influence of the exchange relationship type. Brands
with low relative market share may experience greater opportunity for Exchange relationships range in type from discrete to relational (Macneil, 1980) on a continuum that becomes increasingly
advertising in relational exchange and increased pressure for promotion
interdependent, cooperative, and complex (Macneil, 1981). The
in discrete exchange. J BUSN RES2000. 48.113–122. 2000 Elsevier
focus of discrete exchange is on a single transaction and the
Science Inc. All rights reserved.
pursuit of individual goals within the relationship (Macneil, 1978). Relational exchange is based on the expectations of bilateral, long-term exchange crafted to enhance the interests of the overall relationship. The exchange relationship between
I
n today’s environment of increasing pressure for marketinga manufacturer and its distributors is guided by norms that productivity and brand profitability, packaged-goods
serve to control proper and acceptable behavior by describing manufacturers are seeking direction in their advertising
how parties behave and, also, prescribing how they ought to and promotion allocation decisions in order to gain market
behave (Macneil, 1980, p. 38). When exchange is viewed as share and build a long-term franchise. The marketing literature
long term, norms represent important social and organiza-has begun to offer an understanding of this complex allocation
tional mechanisms of control (Gundlach and Achrol, 1993). decision by identifying factors that may influence the
fre-In the absence of a long-term view, where an exchange quently opposing strategies of advertising and promotion
relationship is guided by self-interest and may be characterized (Strang, 1975, 1980; Low and Mohr, 1992, 1994), suggesting
by opportunism, a manufacturer’s allocation decision may be consumer decision-making outcomes (Mela, Gupta, and
Leh-compromised by distributor actions that push products (in mann, 1997), and offering prescriptions that lead to allocation
the form of promotion) to be commodity-like and not allow plan optimization (Sethuraman and Tellis, 1991; Neslin,
Pow-for the differential effects of the brand. These types of exchange ell, and Stone, 1995). While these prescriptions address
dis-relationships may inhibit investment in the future of the brand tributor factors (e.g., inventory carrying cost and trade
promo-(in the form of advertising) and restrict the allocation between tion pass-thru), manufacturers may find the effectiveness of
advertising and promotion from its marginal level. This com-their allocation strategy lessened if the type of exchange
rela-promise in allocation strategy is at the center of distributor governance for packaged-goods manufacturers as they seek Address correspondence to K. Anselmi, East Carolina University, School of to gain market share and build a long-term brand franchise. Business, Department of Marketing, 3126 General Classroom Bldg.,
Green-ville, NC 27858-4353. Phone: 252-328-6369. The purpose of this article, then, is to further our
under-Journal of Business Research 48, 113–122 (2000)
2000 Elsevier Science Inc. All rights reserved. ISSN 0148-2963/00/$–see front matter
standing of a manufacturer’s advertising and promotion alloca- (Buzzell, Quelch, and Salmon, 1990). These practices have fur-ther eroded the manufacturers’ control of its exchange with tion decision by examining the influence of the type of
ex-distributors and consumers and have provided for a shift in change relationship a manufacturer has with its distributors.
channel profits to distributors. Industry sources estimate that The potential moderating role of a brand’s relative market
up to 35% of a supermarket chain’s profit and up to 75% share also is addressed. Within a given exchange type,
manu-of a wholesaler’s income are derived from retaining trade facturers may respond differently in their allocation between
promotions and not passing them on to the consumer (Mac-advertising and promotion based on the market position of
Claren, 1992). their brand.
For packaged-goods manufacturers, trade promotions can The allocation between advertising and promotion may be
offer the benefits of short-term sales increases, merchandising expressed as a ratio (A/P), which is the proportion of the
and shelf space advantages (Mohr and Low, 1993), economies total advertising and promotion budget accounted for by each
of scale and carrying cost reductions (Zerrillo and Iacobucci, activity (Strang, 1975). In this study context, a manufacturer’s
1995). Unfortunately, only 16% of trade promotions have promotion allocation is directed towards both consumers (e.g.,
been estimated to be profitable (Abraham and Lodish, 1990). sampling) and the trade (e.g., price discounts). While the
pro-Yet, some packaged-goods manufacturers have sold over 90% motion allocation is defined to include both types of promotion,
of their volume on promotion (Abraham and Lodish, 1987). trade promotions have been the predominant type of promotion
This escalation in trade promotion depth and frequency has for packaged-goods manufacturers (Cox Direct, 1996).
resulted in an increased intensity in promotions, a reduction in promotion pass-thru by distributors, and an increased
sensi-Industry Background:
tivity to promotion by consumers (i.e., switching behavior). The net result for manufacturers has been a rise in the costTrade Promotions and the
of trade promotions without the attendant rise in benefit.
Shift in Power to Distributors
Additionally, the shift to trade promotions has been at theexpense of advertising (Mohr and Low, 1993). A reduced During the past 15 years, packaged-goods manufacturers have
advertising allocation restricts a manufacturer’s ability to cre-increased their promotion allocation as a part of their total
ate brand awareness and image (Zerrillo and Iacobucci, 1995). advertising and promotion expenditures from 57% in 1981
A weakened image decreases a consumer’s ability to distin-to 73% in 1992 (Mohr and Low, 1993) and distin-to 75% in 1995
guish brand attributes and thus value. Consumers become (Cox Direct, 1996). Driving this promotion allocation increase
price sensitive (Mela, Gupta, and Lehmann, 1997), which was trade promotions. Trade promotions are special incentives
suggests to distributors that the product is substitutable. Re-(e.g., price discounts and free case offers) provided to
distribu-duced advertising expenditures have negative implications for tors for the pass-thru of a price reduction to consumers and,
a brand franchise (Mohr and Low, 1993) and can hasten a in many cases, the feature/display of a product (Blattberg and
brand’s decline (Strang, 1980). Levin, 1987). In 1970, trade promotions represented only 7%
Current marketing literature suggests that for marketing en-of the total advertising and promotion expenditures (Schiller,
vironments reflecting increased promotional intensity, de-Zachary: Not Everyone Loves a Supermarket Special. 1992.
creased pass-thru and increased consumer sensitivity, increased
Business Week, February 17. pp. 64–68) by 1995,
packaged-levels of advertising are appropriate (Neslin, Powell, and Stone, goods trade promotions had increased to 51% (Cox Direct,
1995). But, can a packaged-goods manufacturer act upon this 1996). Of the total funds spent on promotion in 1995, trade
prescription without distributors giving competitors greater promotions accounted for more than two-thirds of the
expen-shelf space, feature/display, and trade promotion pass-thru and, ditures (the remaining expenditures were spent on consumer
thus, a short-term loss in market share and economies of scale promotions).
for the manufacturer? Although shifting to an increased advertis-This reallocation of funds in the advertising and promotion
ing allocation may seem appropriate in theory, the type of budget reflects a shift in power to distributors (Buzzell, Quelch,
exchange relationship between a manufacturer and its distrib-and Salmon, 1990). While competing packaged-goods
manu-utors may lessen the effectiveness of this prescription. facturers have pursued growth in mature markets by pouring
product into the distribution pipeline and using trade
promo-tions to ease the flow, distributors have become gatekeepers
The Influence of
controlling the extent of a manufacturer’s influence with theExchange Relationship Type
consumer. This gatekeeper role has allowed distributors to
Stern, 1988), and mutuality, the evenness of exchange profits ential effect of a brand to emerge, be maintained, or enhanced through advertising. Increased advertising allows a manufac-and the assurance of an adequate return to each party (Macneil,
turer to develop a franchise (value in the minds of consumers), 1980, p. 44; Kaufmann and Stern, 1988). Exchange
relation-thereby, reducing brand substitutability (switching behavior) ship type also includes flexibility, the ability of the relationship
and allowing for allocation optimality (marginal level). The to change with circumstances (Heide and John, 1992), and
relational norms of the exchange provide confidence to a role integrity, the view that the relationship is complex
(Kauf-manufacturer that in relinquishing contract control (i.e., mann and Dant, 1992), requiring the sharing of information
through trade promotions), a condition of vulnerability will to carry out each party’s specialized activities (Gundlach and
not be created (Heide and John, 1992). In turn, distributors Achrol, 1993). Each norm also may be characterized as
rang-benefit from the predictability of brand demand and lower ing from discrete to relational.
display costs under relational exchange. Discrete exchange represents expectations of party
auton-During 1996, with the adoption of Efficient Consumer Re-omy and the pursuit and attainment of individual goals. The
sponse (ECR) by some distributors, the amount spent by manu-focus of discrete exchange is on a single transaction, separate
facturers on trade promotions declined an estimated 1 to 4% not only from all other current relations but all past and future
while advertising allocations increased 1 to 3% as a part of exchanges (Macneil, 1978). Whalen (1995) characterized
ex-their total advertising and promotion expenditures (Tenser, change relationships between packaged-goods manufacturers
1997). ECR, a movement currently gaining acceptance in the and distributors, during the period of escalating trade
promo-grocery industry, is a systems approach to enhance consumer tions, whereby manufacturers “sought to sell as much product
value with a focus on practices that increase the efficiency of as possible to distributors who were just looking for a deal.”
the total supply chain and not just the efficiency of an individ-The norms of these relationships reflect the expectation that
ual component (Kurt Salmon Associates, Inc., 1993). The prac-both manufacturers and distributors pursue individual goals.
tices of ECR require a joint effort by packaged-goods manufac-Distributors increasingly have sought profitability from
pro-turers and distributors that is cooperative and interdependent, curement without regards to brand value.
reflecting the norms of relational exchange. This emerging Short-term incentives and contracts are often used to curtail
trend in allocation would suggest that as exchange relation-the self-interest in discrete exchange (Heide, 1994), but many
ships become more relational with both manufacturers and packaged-goods manufacturers have chosen not to enforce
distributors recognizing the goals of the other, manufacturers the reciprocity of the promotion contract regarding brand
may allocate more to advertising. Based on anecdotal evidence display/feature or price reductions to consumers. This
reluc-and review of relevant literature, the following hypothesis was tance in enforcement by manufacturers has allowed
distribu-developed for this study: tors to pursue opportunism in the form of forward buying.
Forward buying can be described as quantity purchased on
H1: The type of exchange relationship between a manufac-promotion without an intention to carry any of a
manufactur-turer and its distributors influences the manufacmanufactur-turer’s er’s discount to the consumer. Neslin, Powell, and Stone
allocation between advertising and promotion for a (1995) suggested that forward buying renders trade
promo-brand. Greater levels of relational (discrete) exchange tions ineffective.
increase the advertising (promotion) allocation. At the other end of the relationship type continuum is
relational exchange. Relational exchange can be viewed as
the opposite of discreteness, a relationship projected into the
The Moderating Role
future (Macneil, 1978). The norms of relational exchange areof Relative Market Share
based on expectations of bilateral goals and a long-term view
(Macneil, 1980). Relational norms serve as a general protective While this study proposes that the type of exchange relation-device (Stinchcombe, 1986), providing alternative governance ship between a packaged-goods manufacturer and its distribu-in ways not supplied by contracts (Gundlach and Achrol, tors may be a decision variable in the manufacturer’s allocation 1993). Heide and John (1992) suggested that a characteristic between advertising and promotion for a brand, the influence of relational norms is their prescription for behavior that cur- of the exchange relationship may be more complex. Within tails the self-interest that may lead to opportunism. a given exchange relationship type, a manufacturer’s allocation Low and Mohr (1992, 1994) suggested, based on in-depth response may be different based on the competitive strength interviews with packaged-goods managers, that a stronger of its brands.
differ-that absolute market share may not capture (Kerin, Mahajan, H2b: Greater levels of relational (discrete) exchange in-crease a manufacturer’s advertising (promotion) allo-and Varadarajan, 1990, p. 42). While the competitive strength
of a brand does not correspond to a given exchange relation- cation at a higher rate for brands with low relative market share and at a lower rate for brands with high ship type for a manufacturer (brand competitors from low to
high relative market share can experience a given type of relative market share. exchange relationship), manufacturers bring this market
posi-tion or power into their relaposi-tionship with distributors.
Method
Blattberg, Briesch, and Fox (1995) found that low share
brands in general receive less pass-thru of trade promotions
Context and Sample
to the consumer than large share brands. Strang (1980) sug- The strategy perspective of this study was that of the manufac-gests that manufacturers allocate more to promotion for low turer, and the context was specific to packaged-goods. Manu-share brands, since they face a greater risk of a loss in distribu- facturers representing a cross-section of the departments and tion. Moreover, when low share brand manufacturers experi- categories of a supermarket were chosen as respondents. The ence discrete exchange, additional incentives must be offered range of product differentiation and manufacturer governance in order to curb distributor self-interest. Although manufac- strategies allowed for variance on the effects of relationship turers of low strength brands benefit from consumer interest type, relative market share, and their interaction on the alloca-and increased sales due to trade promotions (Hoch alloca-and tion between advertising and promotion.
Deighton, 1989), the discrete nature of a manufacturer’s rela- The sampling frame for this study was a segment of the tionship with its distributors may push the promotion alloca- subscriber base of a national brand management publication. tion beyond its marginal level. As exchange relationships be- The audience for the publication is packaged-goods manufac-come more relational and manufacturer vulnerability to turers who market through the food, drug, and mass channels. distributor opportunism is lessened, manufacturers of low Individuals who indicated all or partial responsibility for a strength brands may begin to engage in franchise building product were chosen as informants. An individual responsible and increased advertising. Small share relational brands may for the management of a product is the medium through which experience increased ad message efficiency (Deighton, Hen- information about the product flows between environment derson, and Neslin, 1994) and learned message effectiveness and firm. Position titles of the informants varied with company (Ha, Young-Wan: Consumer Learning as a Hypothesis-Testing size, business unit organization, and approach to the market. Process. Unpublished doctoral dissertation, University of Chi- Titles included descriptive management terms, such as brand, cago, Graduate School of Business, 1987) as a result of these product, category, trade, business, marketing, and sales.
franchise building efforts. Informant competency was evaluated using the qualification
Manufacturers of brands with high relative market share method of Kumar, Stern, and Achrol (1992). A level of knowl-may exercise greater control in their exchange relationship edge response was requested for the study areas of product with distributors and thus their allocation response to advertis- strategy, relationship with distributors, and market environ-ing and promotion for the product. Since large share brands ment. Specifically, respondents were asked their level of knowl-in general are less price or deal elastic (Bolton, 1989) and edge concerning “this product’s list price and promotion strat-experience a greater level of trade promotion pass-thru (Blatt- egy,” “our relationship with distributors concerning this berg, Briesch, and Fox, 1995), manufacturers of high strength product,” and “the environment in which this product com-brands compared with low strength com-brands often indicate a petes.” Any respondent indicating less than a three on the larger or dissimilar advertising allocation difference under seven-point Likert-like measures (15do not have adequate discrete exchange and a smaller or similar advertising alloca- knowledge, 75have adequate knowledge) were removed. The tion difference under relational exchange. Thus, incremental mean value of product strategy knowledge was 6.6 (SD
5
advertising efforts for a high strength brand may have less
0.74), relationship with distributors knowledge was 6.1 impact on the allocation between advertising and promotion
(SD 5 0.99), and market environment knowledge was 6.5 than for a low strength brand due to budget size and scale
(SD50.76). Additionally, the mean value of months of com-economies. The shift in allocation between advertising and
pany service was 115.5 (SD588.1), and months responsible promotion may be less dramatic for brands with high relative
for the product was 63.9 (SD556.1), suggesting the respon-market share as manufacturers bring this bargaining power
dents were informed in those areas covered by the survey. into their exchange relationship and governance with
distribu-To evaluate cross-category product representation, each tors. Thus, the following hypotheses are suggested:
respondent indicated the category in which the product com-petes. A category index from a major scanner data service was H2a: The effect of the type of exchange relationship
be-used for classification, consisting of 11 departments (e.g., tween a manufacturer and its distributors on the
dry grocery) with 122 product categories (e.g., cereal). Each manufacturer’s allocation between advertising and
department and 77 categories were represented with no one promotion is dependent on the relative market share
Table 1. Descriptive Profile of Manufacturer/Product in the Response Set
Characteristic Frequencya Percentage
Manufacturer Total annual sales
Less than 5 million 4 2.0
5–50 million 20 10.1
50–100 million 23 11.6
100–500 million 40 20.2
500 million 27 13.6
More than 1 billion 84 42.5
Product
Geographic distribution
National 184 89.8
Regional 21 10.2
Stage of life cycle
Introduction 11 5.4
Growth 39 19.2
Maturity 137 67.5
Decline 16 7.9
M SD
Sales percentage by distributor type
Traditional supermarket (e.g., Kroger) 47.1 21.3
Nontraditional format (e.g., Sam’s Club) 27.3 23.3
Wholesaler/distributor (e.g., Fleming) 24.7 18.6
aMissing values not included.
descriptive profile of manufacturer/product characteristics in on the basis that late respondents are like nonrespondents. No significant differences between wave respondents were found the response set is provided in Table 1.
on the hypothesis variables or on a number of sample profile variables (e.g., sales percentage to traditional supermarkets).
Data Collection
Data were collected for this study by using a mail survey. In
order to maximize response rates and reduce response bias,
Measures
procedures suggested by Walker, Kirchmann, and Conant The survey instrument was pretested following the recommen-(1987) were adapted to this study. Two survey waves gener- dations of Fowler (1993, p. 102). The pretests were conducted ated 206 responses or 11.7% of the 1,804 sampling frame. at both a large and small Midwestern packaged-goods manu-The response rate was tempered by the proprietary nature of facturer. Five individuals from the large firm and one individ-the information requested, individ-the time constraints of informants, ual from the small firm, each having full responsibility for a and the movement of informants between manufacturers. product, completed the survey. Individual discussions, based
Ana prioripower analysis (Cohen, 1977, p. 439) was per- on respondent schedules, also were conducted. Discussions
formed to determine the number of responses needed to find averaged 60 minutes and began with a script by the researcher significance in the statistical tests. The required responses for followed by an open period for general comments. Results of 0.80 and 0.90 power were 164 and 210, respectively, given an the pretest suggested minor changes in survey layout and R2effect size of 0.07, an alpha 0.05, and the maximum number
wording and thus adequate face validity of the measures. of variables in the equations. Cohen (1977, p. 413) suggests
EXCHANGE RELATIONSHIP TYPE. The basis for placement of ex-that for a regression model, anR2effect size of 0.02 is small
change relationship type on the continuum from discrete to re-and 0.13 is medium. In the relevant literature (Boyle, Dwyer,
lational is manifested in the norms of the relationship (Kauf-Robicheaux, and Simpson, 1992; Heide and Miner, 1992;
mann and Stern, 1988). A scale (Likert-like) of equally weighted Heide, 1994) small to mediumR2effect sizes may be found.
norms with items drawn from previous studies was used to A response rate that exceeded 200 questionnaires was targeted
measure exchange relationship type. The norms of solidarity, and achieved.
mutuality, flexibility, and role integrity were measured in this Nonresponse bias was evaluated by a comparison of first
study as they form a dimension set commonly found in the and second wave respondents. Achrol and Stern (1988)
Robi-cheaux, and Simpson, 1992; Kaufmann and Dant, 1992; (Carmines and Zeller, 1979). With orthogonal rotation, the explained variance for each single factor structure and the Gundlach and Achrol, 1993). These norms are central to
most exchange relationships and embodied in the exchange range of loading values was 65% and 0.80 to 0.81 for solidar-ity, 61% and 0.67 to 0.87 for mutualsolidar-ity, 65% and 0.77 to relationship between packaged-goods manufacturers and
dis-tributors. In this study, distributors are defined as a group 0.85 for flexibility, and 55% and 0.61 to 0.85 for role integrity. A separate principal components analysis was performed that includes traditional supermarkets (e.g., Kroger),
nontradi-tional retail formats (e.g., Kmart Supercenters), and the whole- to assess the validity of exchange relationship type as a measure of the four (equally weighted) underlying norms. Final items sale/distributor level of distribution (e.g., Fleming). Gundlach
and Achrol (1993) suggested that norms span the domain of from each norm and items from a measure of outcome/behav-ior-based control (measured in the study) yielded a single the construct and are highly interrelated but conceptually
distinguishable. factor structure for exchange relationship type. With
orthogo-nal rotation, the explained variance was 32%. and the range
Solidarity. The norm of solidarity is defined as the degree of loading values was 0.37 to 0.72, thus suggesting
unidimen-to which exchange partners view the relationship itself as sionality of scale items. Coefficient alpha for the exchange important (Kaufmann and Stern, 1988). The solidarity norm
relationship type scale was 0.67. Achrol and Stern (1988) reflects an orientation that ranges from a focus on an individual
suggested that for theoretical research, a reliability coefficient transaction to a focus on the relationship. Solidarity was
mea-greater than 0.60 is the conventionally accepted criterion. In sured using items from Kaufmann and Dant (1992) and
Kauf-summary, the evidence suggests that exchange relationship mann and Stern (1988). One item from Kaufmann and Dant
type has adequate measurement properties. (1992) reflecting information exchange was not used.
Infor-mation exchange was operationalized in the norm of role RELATIVE MARKET SHARE. The competitive strength of the brand was measured by its relative market share. Buzzell and Gale integrity by Gundlach and Achrol (1993) and is the position
taken in this study. (1987) suggested that relative market share is more precise
in calibrating competitive advantage than absolute market
Mutuality. Mutuality refers to the evenness in the division of
share. Relative market share is preferred over absolute market exchange profit that assures adequate returns to each partner
share when cross-sectional data is used and market share over the course of the exchange (Macneil, 1980, p.44).
Divi-values, in sum, exceed 100% (Varadarajan and Dillon, 1982). sion of profits under high levels of mutuality is evaluated over
In this study, the data is across product categories, and market the long term rather than on an individual transaction basis
share values exceed the sum constraint. The single indicator (Kaufmann and Stern, 1988; Boyle, Dwyer, Robicheaux, and
is computed by dividing the market share of the brand by Simpson, 1992). The norm of mutuality was measured using the market share of the leading competitor. The measure the scale of Boyle, Dwyer, Robicheaux, and Simpson (1992). of relative market share was transformed with a logarithmic
transformation to account for the decreasing number of domi-Flexibility. The norm of flexibility refers to the bilateral
expec-nant brands. tation that adjustments in the substance and terms of the
exchange will be made in accordance with changing circum- ADVERTISING AND PROMOTION ALLOCATION. Strang (1975) sug-stances. Exchange is open ended when flexibility is displayed gested that the allocation between advertising and promotion (Boyle, Dwyer, Robicheaux, and Simpson, 1992). Flexibility can be expressed as a ratio or a single percentage. For simplic-was measured using the scale of Kaufmann and Dant (1992). ity, the percentage allocated to advertising was used as the
dependent variable in this study. Either allocation provides
Role Integrity. The norm of role integrity refers to the extent
for a test of the hypotheses. to which roles of the exchange partners are viewed as complex
Final scale items for the construct of exchange relationship and multidimensional and extend beyond individual
transac-type (after purification) and for the single-item measures of tions (Kaufmann and Stern, 1988; Kaufmann and Dant, 1992).
relative market share and advertising allocation are shown in Role integrity includes the expectation that each partner will
the Appendix. Table 2 provides information on summary sta-provide information that is meaningful for the specialized
tistics for these measures. activities of the other (Gundlach and Achrol, 1993). The norm
was measured using role integrity items from Kaufmann and
Dant (1992) and Kaufmann and Stern (1988), and items of
Findings
information exchange from Heide and Miner (1992) andKauf-Data Analysis
mann and Dant (1992).
The validity of the exchange relationship type norms was The hypotheses were tested using hierarchical moderator re-assessed by examining item-to-total correlations for the set gression analysis. The independent variables were mean-cen-of items corresponding to each theoretical subconstruct and tered to reduce multicollinearity between the main and inter-action terms (Aiken and West, 1991). Following guidelines conducting principal components analysis. Unidimensionality
Table 3. Summary of Hierarchical Moderator Regression Analysis:
Table 2. Means, Standard Deviations, Reliabilities, and
Intercorrelations of Study Measures The Influence of Relative Market Share, Exchange Relationship Type, and Their Interaction on a Manufacturer’s Advertising Allocation
Correlation Coefficient
Standardized
Measure 1 2 3
Step/Variable Coefficient t-Value
Relative market share (log)
Step 1
Exchange relationship type 0.08 — —
Main effects Advertising allocation 0.21a 0.27a —
Relative market share (log) 0.186 2.04a
Number of items 1 8 1
Exchange relationship type 0.234 3.02b
M 20.075b 4.409 30.085
Step 2
SD 0.524 0.753 23.845
Main effects
Coefficient alpha — 0.67 —
Relative market share (log) 0.161 2.09a
Exchange relationship type 0.220 2.87b
n5206.
Interaction ap,0.01 (two-tailed test).
bRelative market share (log) ranges from21.45 to 0.93. Relative share3exchange type 20.173 22.24a R250.10bfor step 1;DR250.03bF(3, 151) for step 2.
ap,0.05.
was entered into the regression model after its components to
bp,0.01.
partial out the “conditional” main effects from the interaction term. Examination of Mahalanobis distances and residuals scatterplots suggested regression assumptions were met.
Discussion
Results
The marketing literature has begun to offer an understandingTable 3 presents results of the regression model. The effect of the complex decision packaged-goods manufacturers face of relationship type was predicted to influence the allocation in their allocation between the frequently opposing strategies between advertising and promotion for a brand. As exchange of advertising and promotion by identifying antecedent factors becomes more relational, packaged-goods manufacturers in- (Low and Mohr, 1992, 1994), suggesting consumer decision-crease their advertising allocation (standard coefficient50.22, making outcomes (Mela, Gupta, and Lehmann, 1997), and p,0.01) and therefore decrease their total promotion alloca- providing prescriptions for the optimization of their allocation tion. Thus, hypothesis 1 is supported. decision (Sethuraman and Tellis, 1991; Neslin, Powell, and
The omnibus test (change inR2) for the interaction term is
Stone, 1995). The results of this study suggest that the norms significant. Additional variance is explained in the advertising of the exchange relationship, as moderated by the relative allocation by the interaction, and thus supports hypothesis market share of the brand, may influence a manufacturer’s 2a. The effect of the type of exchange relationship on a manu- advertising and promotion allocation decision.
facturer’s advertising allocation is moderated by the relative The findings of this research suggest that a move by
pack-market share of the brand. aged-goods manufacturers away from the economic incentives
Hypothesis 2b predicted that greater levels of relational of promotion must be in concert with the norms that guide the exchange increase a manufacturer’s advertising allocation (and
therefore decrease their promotion allocation) at a higher rate for brands with low relative market share and at a lower rate for brands with high relative market share. The negative interaction coefficient indicates that as relative market share increases, exchange relationship type has a smaller effect on the advertising allocation. In other words, a greater level of relational exchange has a stronger, positive effect on the adver-tising allocation under low relative market share situations and a weaker, positive effect under high relative market share situations.
The simple slope of the regression of advertising allocation on exchange relationship type was 0.393 for low strength brands and 0.047 for high strength brands. Thus, hypothesis 2b is supported. The interaction analysis followed procedures suggested by Cohen and Cohen (1983) with high and low relative market share (log) determined one standard deviation
above and below the mean, respectively. Figure 1 depicts the Figure 1. The interaction of relative market share and exchange relationship type on a manufacturer’s advertising allocation.
Table 4. Joint Frequency Distribution of Relative Market Share and
relationship. This congruence binds a manufacturer’s brand
Exchange Relationship Type: Summary Valuesa
advertising and promotion allocation strategy to the type of
exchange relationship it has with distributors. The influence Exchange Relationship Typeb
of the exchange relationship type may allow a packaged-goods Relative Market Sharec 2–3 3–4 4–5 5–6 6–7
manufacturer to differentiate a product and develop brand
0.02–0.50 2 17 29 7 1
image through greater levels of advertising in relational
ex-0.51–1.00 2 10 16 7 0
change (a relationship guided by mutual interest) or,
con-1.01–2.00 1 9 19 11 0
versely, may allow distributors to push a product to be com- 2.01–8.50 0 11 21 7 0
modity-like by requiring greater levels of promotion in discrete
exchange (a relationship guided by self-interest). A manufac- aMissing values not included.
bSeven-point scale ranging from discrete (1) to relational (7). Minimum value in
fre-turer in a discrete exchange relationship that increases its
quency52.50. Maximum value in frequency56.25.
advertising (and thereby, decreases its promotion) allocation cRelative market share (RMS) is calculated by dividing informant brand market share
by market share of largest competitor. RMS value greater than 1.00 identifies a share may experience a loss of distribution as distributors seek
sub-market leader. Minimum and maximum values in frequency provided in classifications. stitutions. Conversely, an increased promotion (decreased
ad-vertising) allocation by a manufacturer in relational exchange may increase a brand’s vulnerability to competition as con-sumers engage in switching behavior and distributors perceive
model tests yield results that are consistent with the hypothe-less need for the product. Thus, an advertising and promotion
ses, the cross-sectional design limits the ability to rule out allocation strategy for a brand that is incongruent with the
alternative causal inferences. A longitudinal design that follows type of exchange relationship between the manufacturer and
how manufacturers (re)allocate between advertising and pro-its distributors may be less effective in achieving the
manufac-motion as a result of changes in their exchange relationships turer’s goal of increasing its brand market share and building
with distributors could strengthen model inferences and con-a long-term frcon-anchise.
tribute to allocation prescription development. The relative market share of the manufacturer’s brand has
Data were collected from single brand informants on the a moderating effect on the norms of the relationship by
bring-manufacturer’s side of the dyad. A dyadic perspective in data ing the competitive strength of the brand into the exchange
collection would improve the measure of exchange relation-between the manufacturer and its distributors. In this study,
ship type and enhance study results. the magnitude of allocation response was greater for
manufac-In this study, advertising and promotion are viewed as turers of low strength brands than those with high strength
distinct strategies. The definition of each strategy becomes brands. Manufacturers of high strength brands may be able
to temper the self-interest of discrete exchange and the interde- blurred when execution of each is combined, such as when pendence of relational exchange by bringing market power an advertising message is delivered with a coupon in a free-into the exchange relationship. This market power allows them standing insert. This execution could be deemed as franchise to exercise greater control in response to product elasticities. building (Strang, 1975) yet be included in the promotion Manufacturers of low strength brands (low relative market allocation. A blurring of the definitions may understate the share) are more responsive in their allocation between adver- influence of exchange relationship type and relative market tising and promotion with changes in the manufacturer’s rela- share on a brand’s advertising and promotion allocation. The tionship with its distributors. Low strength brands may experi- separation of advertising and promotion by its brand franchise ence greater pressure for trade promotions in discrete exchange building effects offers an avenue for further research. This as they struggle to maintain shelf space and promotion recogni- alternative strategy framework, suggested by Prentice (Pren-tion. Relational exchange may present low strength brands tice, Robert M.: The Role of Advertising and Promotion in with the opportunity to establish a loyal franchise, but also Building Enduring—and Profitable—Brand Franchises. Un-the responsibility to develop Un-the consumer base through a published mimeograph, 1975, unpublished) and extended by greater advertising allocation. This finding suggests that low Strang (1975), may offer a better understanding of exchange strength brands may be able to form long-term relationships relationship effects on promotion strategy allocation. Individ-with distributors. A summary distribution of brand relative ual or grouped activities deemed franchise building (e.g., me-market share values across exchange relationship type values
dia advertising, sampling, coupons with effective selling mes-is provided in Table 4.
sages) or nonfranchise building (e.g., trade promotions, refund offers, reduced-revenue packs) could serve as dependent vari-ables in allocation strategy investigations.
Limitations and Directions
Although the study model concerns a specific
manufactur-for Further Research
er’s product, the influence of exchange type may be predictiveof a number of brands across the manufacturer’s product line. The findings of this study must be considered in light of some
of Anticipated Interaction and Frequency of Contact on
Buyer-portfolio position reflecting its market position relative to
Seller Cooperation. Academy of Management Journal35 (1992):
other brands within a manufacturer’s product line.
265–291.
Hoch, Stephen J., and Deighton, John: Managing What Consumers
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Appendix. Measures
Exchange Relationship Type1
Seven-point scale ranging from strongly disagree (1) to strongly agree (7). Reverse-worded items are indicated by a (r). Items remaining after scale purification.
1. Our relationship with distributors could best be described as a “series of one shot deals, entered into one at a time” than as a “long-term venture.” (r)
2. Our relationship with distributors could best be described as an “arms length negotiation” than a “cooperative effort.” (r) 3. We usually receive a fair share of the rewards and costs from our relationship with distributors.
4. We might absorb some costs that we could share with distributors, but sometimes distributors absorb some expenses that we may have caused. Over time things balance out.
5. It is expected that a give and take on specific transactions with distributors would occur, if economic conditions change.
6. It is expected that changes in the terms of our transactions with distributors would be allowed if unanticipated economic events occur.
7. In our relationship with distributors, it is expected that any information that might help the other party will be provided to them. 8. The exchange of information in our relationship with distributors takes place frequently and informally.
Relative Market Share2
1. What is the market share of your product within its distributed market? % 2. What is the market share of your largest competitor? %
Advertising and Promotion Allocation3
What is your advertising and promotion ratio? Promotion includes both trade and consumer types. Advertising: Promotion. % : % (5100%)
