Research Within Reach: How competitor advertising can benefit your brand
Over the past decade the online revolution has resulted in an ever-growing trove of customer data and alternative advertising media for retailers.
Understanding the effects of advertising, including that of competitors, in a multimedia environment with multiple sales channels is a challenge for marketing managers seeking to maximise the benefits of their limited marketing budgets.
Recent research conducted by Melbourne Business School's Chair in Econometrics, Professor Michael Smith, with colleagues from Monash University, sheds light on this challenge. This research is the focus of the latest Research Within Reach report (PDF, 512KB) published this week.
"What sets this study apart is that we had data from a single company that owns three distinct but competing apparel brands," explains Professor Smith. "While managed by a parent company, each brand has its own identity and customer databases.
"We were able to access this rich data for 4000 individuals over two years, leading to millions of observations, and compare the effect on each individual from advertising for all three brands in three distinct media – printed catalogues, emails and online paid searches."
The resulting paper, Advertising Effectiveness for Multiple Retailer-Brands in a Multimedia and Multichannel Environment, was published in the leading Journal of Marketing Research.
The research team, comprising Professor Peter Danaher, Professor Tracey Danaher, Dr Ruben Loaiza-Maya and Professor Smith, provides insights into how retailers can maximise the impact of their advertising budget by taking advantage of their competitor's advertising spend and scheduling.
“When a pair of brands advertise intensively and simultaneously, sales for both brands are increased," observes Professor Smith. "This suggests that brand managers can make further gains from their advertising spend by scheduling their ads away from competitors, especially with catalogues.
"Alternatively, at times, managers might wish to defend their brand's sales at the expense of a competitor, and email seems to be an ideal medium for achieving this."
The team also identified a segment which was the most attractive to retailers – heavier buyers who utilised both instore and online channels and were responsive to all forms of advertising.
Within this highly-prized group of heavy buyers, the most effective advertising depended on the number of brands favoured by the buyer – and here the value of catalogues stood out.
"Where you have a brand-loyal customer, that is, a customer who preferred one brand over others, and that customer uses both instore and online purchase channels, catalogues were incredibly effective," says Professor Smith.
"In such cases, catalogues had a healthy ROI of 97 per cent because they also stimulate online searches and website visits for this segment."
The research rebuts any assumption among marketing managers of very little spill-over from cross-brand advertising.
"I think we've shown that there can be strong positive spill-over effects using our data from three retail brands. It seems likely that this can also be the case in other circumstances, such as in the airline and hotel industries, where it's common for one company to hold multiple brands," says Professor Smith.
"Moreover, even in industries where multiple brands are not owned by the same parent company the principles may well still hold."
Over the past decade, the global digital advertising budget has surpassed traditional media. The findings from Professor Smith and his colleagues will reassure advertising managers who have invested in digital channels at the expense of traditional media.
Their research also demonstrates that with the growth of customer databases, the task of a marketer has become increasingly complex.
"Increasingly, businesses need to collect, maintain and harness customer data. This means extracting value from it using analytics, not just reporting on it. Doing this correctly will be a source of competitive advantage that will help determine which businesses are successful in the future."
Research Within Reach is a regular publication from Melbourne Business School designed to explain the latest research by our academic faculty in easy-to-understand language. You can download the latest report here (PDF, 512KB).
Professor Smith is the Associate Dean (Research) at Melbourne Business School. His research focuses on econometrics, Bayesian statistics and business analytics.