Temporal Differences in the Role of Marketing Communication in New Product Categories

Marketing communication plays a major role in influencing consumer purchases in new product categories. An important question about this communication relates to the roles it plays over the life cycle of the new product category. One effect of marketing communication is to reduce uncertainty about product quality. Since this affects consumers choice decisions only through the updation of consumers’ perceptions about product quality, we term this as the indirect effect. In contrast, we term all marketing communication that directly affects consumers’ preferences as the direct effect. The indirect effect is likely to be larger for uninformed consumers than for consumers who are better informed. We expect that consumers are not well informed about product quality in the early stages of the product life cycle but they become better informed over time. Thus, we expect the indirect effect to play an important role in the early stages, but not in later stages. On the other hand, we do not expect the direct effect to change much over time. Therefore, we expect that there are temporal differences in the role of marketing communication in different stages of the life cycle of a product. We develop a structural model of demand that allows for the different roles of marketing communication to have a differential impact over time. We estimate our model on marketlevel data for the prescription antihistamines category. In our model, physician learning about new antihistamines occurs through marketing communication (detailing and meetings/seminars), and experience (past prescriptions). Specifically, our model is a random coefficients discrete choice model that allows for category expansion. The model also incorporates a Bayesian learning process through which physicians learn about the efficacy of this new class of drugs. We estimate our model using a GMM-based methodology. We find evidence for both indirect and direct effects of detailing on physicians’ prescription behavior. In addition, we find that detailing has a primarily indirect effect in the introductory phase (typically 6-14 months post introduction) but the direct effect dominates later on. The finding that direct effects are significant may explain why firms continue to detail long after physicians have learnt about drug quality. In terms of resource allocation for detailing over time, our results suggest that firms should follow a pattern of heavier detailing at the introduction phase followed by lower levels.