How do competitors react to each other's price-promotion and advertising attacks? What are the reasons for the observed reaction behavior? We answer these questions by performing a large-scale empirical study on the short-run and long-run reactions to promotion and advertising shocks in over 400 consumer product categories over a four-year time span. Our results clearly show that the most predominant form of competitive response is passive in nature. When a reaction does occur, it is usually retaliatory in the same instrument, i.e., promotion attacks are countered with promotions, and advertising attacks are countered with advertising. There are very few long-run consequences of any type of reaction behavior. By linking reaction behavior to both cross- and own-effectiveness, we further demonstrate that passive behavior is often a sound strategy, while firms that do opt to retaliate often use ineffective instruments, resulting in "spoiled arms." Accommodating behavior is observed in only a minority of cases, and often results in a missed sales opportunity when promotional support is reduced. The ultimate impact of most promotion and advertising campaigns depends primarily on the nature of consumer response, not the vigilance of competitors.

Advertising and price-promotion effects, Competitive strategy, Empirical generalizations, Time-series analysis,
Marketing Science: the marketing journal of INFORMS
Erasmus Research Institute of Management

Steenkamp, J-B.E.M, Nijs, V.R, Hanssens, D.M, & Dekimpe, M.G. (2005). Competitive reactions to advertising and promotion attacks. Marketing Science: the marketing journal of INFORMS, 24(1), 35–54. doi:10.1287/mksc.1040.0069