Directory UMM :Data Elmu:jurnal:J-a:Journal Of Business Research:Vol48.Issue2.2000:

A Brand’s Advertising and Promotion Allocation
Strategy: The Role of the Manufacturer’s
Relationship with Distributors as
Moderated by Relative Market Share
Kenneth Anselmi
EAST CAROLINA UNIVERSITY

Results of this study suggest that the type of exchange relationship between
a packaged-goods manufacturer and its distributors influences a manufacturer’s brand allocation between the frequently opposing strategies of advertising and promotion. As exchange relationships become more relational,
manufacturers increase their allocation to advertising. Conversely, as relationships become more discrete, manufacturers increase their allocation to
promotion. Additionally, study results suggest that a brand’s relative market
share moderates the influence of the exchange relationship type. Brands
with low relative market share may experience greater opportunity for
advertising in relational exchange and increased pressure for promotion
in discrete exchange. J BUSN RES 2000. 48.113–122.  2000 Elsevier
Science Inc. All rights reserved.

I

n today’s environment of increasing pressure for marketing
productivity and brand profitability, packaged-goods

manufacturers are seeking direction in their advertising
and promotion allocation decisions in order to gain market
share and build a long-term franchise. The marketing literature
has begun to offer an understanding of this complex allocation
decision by identifying factors that may influence the frequently opposing strategies of advertising and promotion
(Strang, 1975, 1980; Low and Mohr, 1992, 1994), suggesting
consumer decision-making outcomes (Mela, Gupta, and Lehmann, 1997), and offering prescriptions that lead to allocation
plan optimization (Sethuraman and Tellis, 1991; Neslin, Powell, and Stone, 1995). While these prescriptions address distributor factors (e.g., inventory carrying cost and trade promotion pass-thru), manufacturers may find the effectiveness of
their allocation strategy lessened if the type of exchange rela-

Address correspondence to K. Anselmi, East Carolina University, School of
Business, Department of Marketing, 3126 General Classroom Bldg., Greenville, NC 27858-4353. Phone: 252-328-6369.
Journal of Business Research 48, 113–122 (2000)
 2000 Elsevier Science Inc. All rights reserved.
655 Avenue of the Americas, New York, NY 10010

tionship a manufacturer has with its distributors is not included as a decision variable. The nature of buyer-seller behavior is captured in the type of exchange relationship (Dwyer,
Schurr, and Oh, 1987).
Packaged-goods manufacturers use their exchange relationship with distributors as a mechanism to govern their relationship with distributors. Governance is at issue for manufacturers as they seek control for the final exchange with consumers.
Exchange relationships range in type from discrete to relational

(Macneil, 1980) on a continuum that becomes increasingly
interdependent, cooperative, and complex (Macneil, 1981). The
focus of discrete exchange is on a single transaction and the
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
a manufacturer and its distributors is guided by norms that
serve to control proper and acceptable behavior by describing
how parties behave and, also, prescribing how they ought to
behave (Macneil, 1980, p. 38). When exchange is viewed as
long term, norms represent important social and organizational mechanisms of control (Gundlach and Achrol, 1993).
In the absence of a long-term view, where an exchange
relationship is guided by self-interest and may be characterized
by opportunism, a manufacturer’s allocation decision may be
compromised by distributor actions that push products (in
the form of promotion) to be commodity-like and not allow
for the differential effects of the brand. These types of exchange
relationships may inhibit investment in the future of the brand
(in the form of advertising) and restrict the allocation between

advertising and promotion from its marginal level. This compromise in allocation strategy is at the center of distributor
governance for packaged-goods manufacturers as they seek
to gain market share and build a long-term brand franchise.
The purpose of this article, then, is to further our underISSN 0148-2963/00/$–see front matter
PII S0148-2963(98)00115-5

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standing of a manufacturer’s advertising and promotion allocation decision by examining the influence of the type of exchange relationship a manufacturer has with its distributors.
The potential moderating role of a brand’s relative market
share also is addressed. Within a given exchange type, manufacturers may respond differently in their allocation between
advertising and promotion based on the market position of
their brand.
The allocation between advertising and promotion may be
expressed as a ratio (A/P), which is the proportion of the
total advertising and promotion budget accounted for by each
activity (Strang, 1975). In this study context, a manufacturer’s

promotion allocation is directed towards both consumers (e.g.,
sampling) and the trade (e.g., price discounts). While the promotion allocation is defined to include both types of promotion,
trade promotions have been the predominant type of promotion
for packaged-goods manufacturers (Cox Direct, 1996).

Industry Background:
Trade Promotions and the
Shift in Power to Distributors
During the past 15 years, packaged-goods manufacturers have
increased their promotion allocation as a part of their total
advertising and promotion expenditures from 57% in 1981
to 73% in 1992 (Mohr and Low, 1993) and to 75% in 1995
(Cox Direct, 1996). Driving this promotion allocation increase
was trade promotions. Trade promotions are special incentives
(e.g., price discounts and free case offers) provided to distributors for the pass-thru of a price reduction to consumers and,
in many cases, the feature/display of a product (Blattberg and
Levin, 1987). In 1970, trade promotions represented only 7%
of the total advertising and promotion expenditures (Schiller,
Zachary: Not Everyone Loves a Supermarket Special. 1992.
Business Week, February 17. pp. 64–68) by 1995, packagedgoods trade promotions had increased to 51% (Cox Direct,

1996). Of the total funds spent on promotion in 1995, trade
promotions accounted for more than two-thirds of the expenditures (the remaining expenditures were spent on consumer
promotions).
This reallocation of funds in the advertising and promotion
budget reflects a shift in power to distributors (Buzzell, Quelch,
and Salmon, 1990). While competing packaged-goods manufacturers have pursued growth in mature markets by pouring
product into the distribution pipeline and using trade promotions to ease the flow, distributors have become gatekeepers
controlling the extent of a manufacturer’s influence with the
consumer. This gatekeeper role has allowed distributors to
demand increased levels (depth) of trade promotion for limited shelf access and display features. At the same time, manufacturers have faced retaliation by distributors if they enforced
the trade promotion contract that requires a discount to be
passed on to the consumer for the total quantity purchased

K. Anselmi

(Buzzell, Quelch, and Salmon, 1990). These practices have further eroded the manufacturers’ control of its exchange with
distributors and consumers and have provided for a shift in
channel profits to distributors. Industry sources estimate that
up to 35% of a supermarket chain’s profit and up to 75%
of a wholesaler’s income are derived from retaining trade

promotions and not passing them on to the consumer (MacClaren, 1992).
For packaged-goods manufacturers, trade promotions can
offer the benefits of short-term sales increases, merchandising
and shelf space advantages (Mohr and Low, 1993), economies
of scale and carrying cost reductions (Zerrillo and Iacobucci,
1995). Unfortunately, only 16% of trade promotions have
been estimated to be profitable (Abraham and Lodish, 1990).
Yet, some packaged-goods manufacturers have sold over 90%
of their volume on promotion (Abraham and Lodish, 1987).
This escalation in trade promotion depth and frequency has
resulted in an increased intensity in promotions, a reduction
in promotion pass-thru by distributors, and an increased sensitivity to promotion by consumers (i.e., switching behavior).
The net result for manufacturers has been a rise in the cost
of trade promotions without the attendant rise in benefit.
Additionally, the shift to trade promotions has been at the
expense of advertising (Mohr and Low, 1993). A reduced
advertising allocation restricts a manufacturer’s ability to create brand awareness and image (Zerrillo and Iacobucci, 1995).
A weakened image decreases a consumer’s ability to distinguish brand attributes and thus value. Consumers become
price sensitive (Mela, Gupta, and Lehmann, 1997), which
suggests to distributors that the product is substitutable. Reduced advertising expenditures have negative implications for

a brand franchise (Mohr and Low, 1993) and can hasten a
brand’s decline (Strang, 1980).
Current marketing literature suggests that for marketing environments reflecting increased promotional intensity, decreased pass-thru and increased consumer sensitivity, increased
levels of advertising are appropriate (Neslin, Powell, and Stone,
1995). But, can a packaged-goods manufacturer act upon this
prescription without distributors giving competitors greater
shelf space, feature/display, and trade promotion pass-thru and,
thus, a short-term loss in market share and economies of scale
for the manufacturer? Although shifting to an increased advertising allocation may seem appropriate in theory, the type of
exchange relationship between a manufacturer and its distributors may lessen the effectiveness of this prescription.

The Influence of
Exchange Relationship Type
Macneil (1980) developed a typology of exchange that ranges
on a continuum from discrete (low level) to relational (high
level) and is manifested in the norms of the relationship. The
exchange relationship type includes norms of solidarity, the
importance of the relationship, in and of itself (Kaufmann and

Advertising and Promotion Allocation Stategy

Stern, 1988), and mutuality, the evenness of exchange profits
and the assurance of an adequate return to each party (Macneil,
1980, p. 44; Kaufmann and Stern, 1988). Exchange relationship type also includes flexibility, the ability of the relationship
to change with circumstances (Heide and John, 1992), and
role integrity, the view that the relationship is complex (Kaufmann and Dant, 1992), requiring the sharing of information
to carry out each party’s specialized activities (Gundlach and
Achrol, 1993). Each norm also may be characterized as ranging from discrete to relational.
Discrete exchange represents expectations of party autonomy and the pursuit and attainment of individual goals. The
focus of discrete exchange is on a single transaction, separate
not only from all other current relations but all past and future
exchanges (Macneil, 1978). Whalen (1995) characterized exchange relationships between packaged-goods manufacturers
and distributors, during the period of escalating trade promotions, whereby manufacturers “sought to sell as much product
as possible to distributors who were just looking for a deal.”
The norms of these relationships reflect the expectation that
both manufacturers and distributors pursue individual goals.
Distributors increasingly have sought profitability from procurement without regards to brand value.
Short-term incentives and contracts are often used to curtail
the self-interest in discrete exchange (Heide, 1994), but many
packaged-goods manufacturers have chosen not to enforce

the reciprocity of the promotion contract regarding brand
display/feature or price reductions to consumers. This reluctance in enforcement by manufacturers has allowed distributors to pursue opportunism in the form of forward buying.
Forward buying can be described as quantity purchased on
promotion without an intention to carry any of a manufacturer’s discount to the consumer. Neslin, Powell, and Stone
(1995) suggested that forward buying renders trade promotions ineffective.
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
future (Macneil, 1978). The norms of relational exchange are
based on expectations of bilateral goals and a long-term view
(Macneil, 1980). Relational norms serve as a general protective
device (Stinchcombe, 1986), providing alternative governance
in ways not supplied by contracts (Gundlach and Achrol,
1993). Heide and John (1992) suggested that a characteristic
of relational norms is their prescription for behavior that curtails the self-interest that may lead to opportunism.
Low and Mohr (1992, 1994) suggested, based on in-depth
interviews with packaged-goods managers, that a stronger
relationship between a manufacturer and its distributors leads
to an increased advertising allocation (and consumer promotion activities deemed franchise building) and a decreased trade
promotion allocation. A long-term view of the relationship between a manufacturer and its distributors and an increased

concern for evenness in exchange profits can allow the differ-

J Busn Res
2000:48:113–122

115

ential effect of a brand to emerge, be maintained, or enhanced
through advertising. Increased advertising allows a manufacturer to develop a franchise (value in the minds of consumers),
thereby, reducing brand substitutability (switching behavior)
and allowing for allocation optimality (marginal level). The
relational norms of the exchange provide confidence to a
manufacturer that in relinquishing contract control (i.e.,
through trade promotions), a condition of vulnerability will
not be created (Heide and John, 1992). In turn, distributors
benefit from the predictability of brand demand and lower
display costs under relational exchange.
During 1996, with the adoption of Efficient Consumer Response (ECR) by some distributors, the amount spent by manufacturers on trade promotions declined an estimated 1 to 4%
while advertising allocations increased 1 to 3% as a part of
their total advertising and promotion expenditures (Tenser,

1997). ECR, a movement currently gaining acceptance in the
grocery industry, is a systems approach to enhance consumer
value with a focus on practices that increase the efficiency of
the total supply chain and not just the efficiency of an individual component (Kurt Salmon Associates, Inc., 1993). The practices of ECR require a joint effort by packaged-goods manufacturers and distributors that is cooperative and interdependent,
reflecting the norms of relational exchange. This emerging
trend in allocation would suggest that as exchange relationships become more relational with both manufacturers and
distributors recognizing the goals of the other, manufacturers
may allocate more to advertising. Based on anecdotal evidence
and review of relevant literature, the following hypothesis was
developed for this study:
H1: The type of exchange relationship between a manufacturer and its distributors influences the manufacturer’s
allocation between advertising and promotion for a
brand. Greater levels of relational (discrete) exchange
increase the advertising (promotion) allocation.

The Moderating Role
of Relative Market Share
While this study proposes that the type of exchange relationship between a packaged-goods manufacturer and its distributors may be a decision variable in the manufacturer’s allocation
between advertising and promotion for a brand, the influence
of the exchange relationship may be more complex. Within
a given exchange relationship type, a manufacturer’s allocation
response may be different based on the competitive strength
of its brands.
A brand draws strength from its market share in relation to
its competition. This strength reflects the scale and bargaining
effects of the brand in its served market (Buzzell and Gale,
1987). Relative market share reflects how strong a market leader
is compared with the next largest competitor or how weak a
follower is compared with the market leader, a critical factor

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that absolute market share may not capture (Kerin, Mahajan,
and Varadarajan, 1990, p. 42). While the competitive strength
of a brand does not correspond to a given exchange relationship type for a manufacturer (brand competitors from low to
high relative market share can experience a given type of
exchange relationship), manufacturers bring this market position or power into their relationship with distributors.
Blattberg, Briesch, and Fox (1995) found that low share
brands in general receive less pass-thru of trade promotions
to the consumer than large share brands. Strang (1980) suggests that manufacturers allocate more to promotion for low
share brands, since they face a greater risk of a loss in distribution. Moreover, when low share brand manufacturers experience discrete exchange, additional incentives must be offered
in order to curb distributor self-interest. Although manufacturers of low strength brands benefit from consumer interest
and increased sales due to trade promotions (Hoch and
Deighton, 1989), the discrete nature of a manufacturer’s relationship with its distributors may push the promotion allocation beyond its marginal level. As exchange relationships become more relational and manufacturer vulnerability to
distributor opportunism is lessened, manufacturers of low
strength brands may begin to engage in franchise building
and increased advertising. Small share relational brands may
experience increased ad message efficiency (Deighton, Henderson, and Neslin, 1994) and learned message effectiveness
(Ha, Young-Wan: Consumer Learning as a Hypothesis-Testing
Process. Unpublished doctoral dissertation, University of Chicago, Graduate School of Business, 1987) as a result of these
franchise building efforts.
Manufacturers of brands with high relative market share
may exercise greater control in their exchange relationship
with distributors and thus their allocation response to advertising and promotion for the product. Since large share brands
in general are less price or deal elastic (Bolton, 1989) and
experience a greater level of trade promotion pass-thru (Blattberg, Briesch, and Fox, 1995), manufacturers of high strength
brands compared with low strength brands often indicate a
larger or dissimilar advertising allocation difference under
discrete exchange and a smaller or similar advertising allocation difference under relational exchange. Thus, incremental
advertising efforts for a high strength brand may have less
impact on the allocation between advertising and promotion
than for a low strength brand due to budget size and scale
economies. The shift in allocation between advertising and
promotion may be less dramatic for brands with high relative
market share as manufacturers bring this bargaining power
into their exchange relationship and governance with distributors. Thus, the following hypotheses are suggested:
H2a: The effect of the type of exchange relationship between a manufacturer and its distributors on the
manufacturer’s allocation between advertising and
promotion is dependent on the relative market share
of the brand.

K. Anselmi

H2b: Greater levels of relational (discrete) exchange increase a manufacturer’s advertising (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.

Method
Context and Sample
The strategy perspective of this study was that of the manufacturer, and the context was specific to packaged-goods. Manufacturers representing a cross-section of the departments and
categories of a supermarket were chosen as respondents. The
range of product differentiation and manufacturer governance
strategies allowed for variance on the effects of relationship
type, relative market share, and their interaction on the allocation between advertising and promotion.
The sampling frame for this study was a segment of the
subscriber base of a national brand management publication.
The audience for the publication is packaged-goods manufacturers who market through the food, drug, and mass channels.
Individuals who indicated all or partial responsibility for a
product were chosen as informants. An individual responsible
for the management of a product is the medium through which
information about the product flows between environment
and firm. Position titles of the informants varied with company
size, business unit organization, and approach to the market.
Titles included descriptive management terms, such as brand,
product, category, trade, business, marketing, and sales.
Informant competency was evaluated using the qualification
method of Kumar, Stern, and Achrol (1992). A level of knowledge response was requested for the study areas of product
strategy, relationship with distributors, and market environment. Specifically, respondents were asked their level of knowledge concerning “this product’s list price and promotion strategy,” “our relationship with distributors concerning this
product,” and “the environment in which this product competes.” Any respondent indicating less than a three on the
seven-point Likert-like measures (1 5 do not have adequate
knowledge, 7 5 have adequate knowledge) were removed. The
mean value of product strategy knowledge was 6.6 (SD 5
0.74), relationship with distributors knowledge was 6.1
(SD 5 0.99), and market environment knowledge was 6.5
(SD 5 0.76). Additionally, the mean value of months of company service was 115.5 (SD 5 88.1), and months responsible
for the product was 63.9 (SD 5 56.1), suggesting the respondents were informed in those areas covered by the survey.
To evaluate cross-category product representation, each
respondent indicated the category in which the product competes. A category index from a major scanner data service was
used for classification, consisting of 11 departments (e.g.,
dry grocery) with 122 product categories (e.g., cereal). Each
department and 77 categories were represented with no one
category representing more than 6.3% of the response set. A

Advertising and Promotion Allocation Stategy

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117

Table 1. Descriptive Profile of Manufacturer/Product in the Response Set
Characteristic

Frequencya

Percentage

4
20
23
40
27
84

2.0
10.1
11.6
20.2
13.6
42.5

184
21

89.8
10.2

11
39
137
16

5.4
19.2
67.5
7.9

M

SD

47.1
27.3
24.7

21.3
23.3
18.6

Manufacturer
Total annual sales
Less than 5 million
5–50 million
50–100 million
100–500 million
500 million
More than 1 billion
Product
Geographic distribution
National
Regional
Stage of life cycle
Introduction
Growth
Maturity
Decline

Sales percentage by distributor type
Traditional supermarket (e.g., Kroger)
Nontraditional format (e.g., Sam’s Club)
Wholesaler/distributor (e.g., Fleming)
a

Missing values not included.

descriptive profile of manufacturer/product characteristics in
the response set is provided in Table 1.

Data Collection
Data were collected for this study by using a mail survey. In
order to maximize response rates and reduce response bias,
procedures suggested by Walker, Kirchmann, and Conant
(1987) were adapted to this study. Two survey waves generated 206 responses or 11.7% of the 1,804 sampling frame.
The response rate was tempered by the proprietary nature of
the information requested, the time constraints of informants,
and the movement of informants between manufacturers.
An a priori power analysis (Cohen, 1977, p. 439) was performed to determine the number of responses needed to find
significance in the statistical tests. The required responses for
0.80 and 0.90 power were 164 and 210, respectively, given an
R 2 effect size of 0.07, an alpha 0.05, and the maximum number
of variables in the equations. Cohen (1977, p. 413) suggests
that for a regression model, an R 2 effect size of 0.02 is small
and 0.13 is medium. In the relevant literature (Boyle, Dwyer,
Robicheaux, and Simpson, 1992; Heide and Miner, 1992;
Heide, 1994) small to medium R 2 effect sizes may be found.
A response rate that exceeded 200 questionnaires was targeted
and achieved.
Nonresponse bias was evaluated by a comparison of first
and second wave respondents. Achrol and Stern (1988) suggested that wave equivalence acts as a proxy for external validity

on the basis that late respondents are like nonrespondents. No
significant differences between wave respondents were found
on the hypothesis variables or on a number of sample profile
variables (e.g., sales percentage to traditional supermarkets).

Measures
The survey instrument was pretested following the recommendations of Fowler (1993, p. 102). The pretests were conducted
at both a large and small Midwestern packaged-goods manufacturer. Five individuals from the large firm and one individual from the small firm, each having full responsibility for a
product, completed the survey. Individual discussions, based
on respondent schedules, also were conducted. Discussions
averaged 60 minutes and began with a script by the researcher
followed by an open period for general comments. Results of
the pretest suggested minor changes in survey layout and
wording and thus adequate face validity of the measures.
The basis for placement of exchange relationship type on the continuum from discrete to relational is manifested in the norms of the relationship (Kaufmann and Stern, 1988). A scale (Likert-like) of equally weighted
norms with items drawn from previous studies was used to
measure exchange relationship type. The norms of solidarity,
mutuality, flexibility, and role integrity were measured in this
study as they form a dimension set commonly found in the
literature (Kaufmann and Stern, 1988; Boyle, Dwyer, Robi-

EXCHANGE RELATIONSHIP TYPE.

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cheaux, and Simpson, 1992; Kaufmann and Dant, 1992;
Gundlach and Achrol, 1993). These norms are central to
most exchange relationships and embodied in the exchange
relationship between packaged-goods manufacturers and distributors. In this study, distributors are defined as a group
that includes traditional supermarkets (e.g., Kroger), nontraditional retail formats (e.g., Kmart Supercenters), and the wholesale/distributor level of distribution (e.g., Fleming). Gundlach
and Achrol (1993) suggested that norms span the domain of
the construct and are highly interrelated but conceptually
distinguishable.
Solidarity. The norm of solidarity is defined as the degree
to which exchange partners view the relationship itself as
important (Kaufmann and Stern, 1988). The solidarity norm
reflects an orientation that ranges from a focus on an individual
transaction to a focus on the relationship. Solidarity was measured using items from Kaufmann and Dant (1992) and Kaufmann and Stern (1988). One item from Kaufmann and Dant
(1992) reflecting information exchange was not used. Information exchange was operationalized in the norm of role
integrity by Gundlach and Achrol (1993) and is the position
taken in this study.
Mutuality. Mutuality refers to the evenness in the division of
exchange profit that assures adequate returns to each partner
over the course of the exchange (Macneil, 1980, p.44). Division of profits under high levels of mutuality is evaluated over
the long term rather than on an individual transaction basis
(Kaufmann and Stern, 1988; Boyle, Dwyer, Robicheaux, and
Simpson, 1992). The norm of mutuality was measured using
the scale of Boyle, Dwyer, Robicheaux, and Simpson (1992).
Flexibility. The norm of flexibility refers to the bilateral expectation that adjustments in the substance and terms of the
exchange will be made in accordance with changing circumstances. Exchange is open ended when flexibility is displayed
(Boyle, Dwyer, Robicheaux, and Simpson, 1992). Flexibility
was measured using the scale of Kaufmann and Dant (1992).
Role Integrity. The norm of role integrity refers to the extent
to which roles of the exchange partners are viewed as complex
and multidimensional and extend beyond individual transactions (Kaufmann and Stern, 1988; Kaufmann and Dant, 1992).
Role integrity includes the expectation that each partner will
provide information that is meaningful for the specialized
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
information exchange from Heide and Miner (1992) and Kaufmann and Dant (1992).
The validity of the exchange relationship type norms was
assessed by examining item-to-total correlations for the set
of items corresponding to each theoretical subconstruct and
conducting principal components analysis. Unidimensionality
of each norm was evidenced by high single factor loadings

K. Anselmi

(Carmines and Zeller, 1979). With orthogonal rotation, the
explained variance for each single factor structure and the
range of loading values was 65% and 0.80 to 0.81 for solidarity, 61% and 0.67 to 0.87 for mutuality, 65% and 0.77 to
0.85 for flexibility, and 55% and 0.61 to 0.85 for role integrity.
A separate principal components analysis was performed
to assess the validity of exchange relationship type as a measure
of the four (equally weighted) underlying norms. Final items
from each norm and items from a measure of outcome/behavior-based control (measured in the study) yielded a single
factor structure for exchange relationship type. With orthogonal rotation, the explained variance was 32%. and the range
of loading values was 0.37 to 0.72, thus suggesting unidimensionality of scale items. Coefficient alpha for the exchange
relationship type scale was 0.67. Achrol and Stern (1988)
suggested that for theoretical research, a reliability coefficient
greater than 0.60 is the conventionally accepted criterion. In
summary, the evidence suggests that exchange relationship
type has adequate measurement properties.
The competitive strength of the brand
was measured by its relative market share. Buzzell and Gale
(1987) suggested that relative market share is more precise
in calibrating competitive advantage than absolute market
share. Relative market share is preferred over absolute market
share when cross-sectional data is used and market share
values, in sum, exceed 100% (Varadarajan and Dillon, 1982).
In this study, the data is across product categories, and market
share values exceed the sum constraint. The single indicator
is computed by dividing the market share of the brand by
the market share of the leading competitor. The measure
of relative market share was transformed with a logarithmic
transformation to account for the decreasing number of dominant brands.
RELATIVE MARKET SHARE.

ADVERTISING AND PROMOTION ALLOCATION. Strang (1975) suggested that the allocation between advertising and promotion
can be expressed as a ratio or a single percentage. For simplicity, the percentage allocated to advertising was used as the
dependent variable in this study. Either allocation provides
for a test of the hypotheses.
Final scale items for the construct of exchange relationship
type (after purification) and for the single-item measures of
relative market share and advertising allocation are shown in
the Appendix. Table 2 provides information on summary statistics for these measures.

Findings
Data Analysis
The hypotheses were tested using hierarchical moderator regression analysis. The independent variables were mean-centered to reduce multicollinearity between the main and interaction terms (Aiken and West, 1991). Following guidelines
suggested by Cohen and Cohen (1983), the interaction variable

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Table 2. Means, Standard Deviations, Reliabilities, and
Intercorrelations of Study Measures
Measure
Relative market share (log)
Exchange relationship type
Advertising allocation
Number of items
M
SD
Coefficient alpha

Correlation Coefficient
1
2
3
0.08
0.21a
1
20.075b
0.524
—

—
0.27a
8
4.409
0.753
0.67

—
—
1
30.085
23.845
—

n 5 206.
a
p , 0.01 (two-tailed test).
b
Relative market share (log) ranges from 21.45 to 0.93.

was entered into the regression model after its components to
partial out the “conditional” main effects from the interaction
term. Examination of Mahalanobis distances and residuals
scatterplots suggested regression assumptions were met.

Results
Table 3 presents results of the regression model. The effect
of relationship type was predicted to influence the allocation
between advertising and promotion for a brand. As exchange
becomes more relational, packaged-goods manufacturers increase their advertising allocation (standard coefficient 5 0.22,
p , 0.01) and therefore decrease their total promotion allocation. Thus, hypothesis 1 is supported.
The omnibus test (change in R 2) for the interaction term is
significant. Additional variance is explained in the advertising
allocation by the interaction, and thus supports hypothesis
2a. The effect of the type of exchange relationship on a manufacturer’s advertising allocation is moderated by the relative
market share of the brand.
Hypothesis 2b predicted that greater levels of relational
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 advertising 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
nature of the significant interaction.

119

Table 3. Summary of Hierarchical Moderator Regression Analysis:
The Influence of Relative Market Share, Exchange Relationship Type,
and Their Interaction on a Manufacturer’s Advertising Allocation
Step/Variable

Standardized
Coefficient

Step 1
Main effects
Relative market share (log)
Exchange relationship type
Step 2
Main effects
Relative market share (log)
Exchange relationship type
Interaction
Relative share 3 exchange type

t-Value

0.186
0.234

2.04a
3.02b

0.161
0.220

2.09a
2.87b

20.173

22.24a

R 2 5 0.10b for step 1; DR2 5 0.03b F(3, 151) for step 2.
a
p , 0.05.
b
p , 0.01.

Discussion
The marketing literature has begun to offer an understanding
of the complex decision packaged-goods manufacturers face
in their allocation between the frequently opposing strategies
of advertising and promotion by identifying antecedent factors
(Low and Mohr, 1992, 1994), suggesting consumer decisionmaking outcomes (Mela, Gupta, and Lehmann, 1997), and
providing prescriptions for the optimization of their allocation
decision (Sethuraman and Tellis, 1991; Neslin, Powell, and
Stone, 1995). The results of this study suggest that the norms
of the exchange relationship, as moderated by the relative
market share of the brand, may influence a manufacturer’s
advertising and promotion allocation decision.
The findings of this research suggest that a move by packaged-goods manufacturers away from the economic incentives
of promotion must be in concert with the norms that guide the

Figure 1. The interaction of relative market share and exchange
relationship type on a manufacturer’s advertising allocation.

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2000:48:113–122

relationship. This congruence binds a manufacturer’s brand
advertising and promotion allocation strategy to the type of
exchange relationship it has with distributors. The influence
of the exchange relationship type may allow a packaged-goods
manufacturer to differentiate a product and develop brand
image through greater levels of advertising in relational exchange (a relationship guided by mutual interest) or, conversely, may allow distributors to push a product to be commodity-like by requiring greater levels of promotion in discrete
exchange (a relationship guided by self-interest). A manufacturer in a discrete exchange relationship that increases its
advertising (and thereby, decreases its promotion) allocation
may experience a loss of distribution as distributors seek substitutions. Conversely, an increased promotion (decreased advertising) allocation by a manufacturer in relational exchange
may increase a brand’s vulnerability to competition as consumers engage in switching behavior and distributors perceive
less need for the product. Thus, an advertising and promotion
allocation strategy for a brand that is incongruent with the
type of exchange relationship between the manufacturer and
its distributors may be less effective in achieving the manufacturer’s goal of increasing its brand market share and building
a long-term franchise.
The relative market share of the manufacturer’s brand has
a moderating effect on the norms of the relationship by bringing the competitive strength of the brand into the exchange
between the manufacturer and its distributors. In this study,
the magnitude of allocation response was greater for manufacturers of low strength brands than those with high strength
brands. Manufacturers of high strength brands may be able
to temper the self-interest of discrete exchange and the interdependence of relational exchange by bringing market power
into the exchange relationship. This market power allows them
to exercise greater control in response to product elasticities.
Manufacturers of low strength brands (low relative market
share) are more responsive in their allocation between advertising and promotion with changes in the manufacturer’s relationship with its distributors. Low strength brands may experience greater pressure for trade promotions in discrete exchange
as they struggle to maintain shelf space and promotion recognition. Relational exchange may present low strength brands
with the opportunity to establish a loyal franchise, but also
the responsibility to develop the consumer base through a
greater advertising allocation. This finding suggests that low
strength brands may be able to form long-term relationships
with distributors. A summary distribution of brand relative
market share values across exchange relationship type values
is provided in Table 4.

Limitations and Directions
for Further Research
The findings of this study must be considered in light of some
limitations. The study results are descriptive. Though the

K. Anselmi

Table 4. Joint Frequency Distribution of Relative Market Share and
Exchange Relationship Type: Summary Valuesa
Relative Market Share
0.02–0.50
0.51–1.00
1.01–2.00
2.01–8.50

c

Exchange Relationship Typeb
2–3
3–4
4–5
5–6
6–7
2
2
1
0

17
10
9
11

29
16
19
21

7
7
11
7

1
0
0
0

a

Missing values not included.
Seven-point scale ranging from discrete (1) to relational (7). Minimum value in frequency 5 2.50. Maximum value in frequency 5 6.25.
c
Relative 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
market leader. Minimum and maximum values in frequency provided in classifications.
b

model tests yield results that are consistent with the hypotheses, the cross-sectional design limits the ability to rule out
alternative causal inferences. A longitudinal design that follows
how manufacturers (re)allocate between advertising and promotion as a result of changes in their exchange relationships
with distributors could strengthen model inferences and contribute to allocation prescription development.
Data were collected from single brand informants on the
manufacturer’s side of the dyad. A dyadic perspective in data
collection would improve the measure of exchange relationship type and enhance study results.
In this study, advertising and promotion are viewed as
distinct strategies. The definition of each strategy becomes
blurred when execution of each is combined, such as when
an advertising message is delivered with a coupon in a freestanding insert. This execution could be deemed as franchise
building (Strang, 1975) yet be included in the promotion
allocation. A blurring of the definitions may understate the
influence of exchange relationship type and relative market
share on a brand’s advertising and promotion allocation. The
separation of advertising and promotion by its brand franchise
building effects offers an avenue for further research. This
alternative strategy framework, suggested by Prentice (Prentice, Robert M.: The Role of Advertising and Promotion in
Building Enduring—and Profitable—Brand Franchises. Unpublished mimeograph, 1975, unpublished) and extended by
Strang (1975), may offer a better understanding of exchange
relationship effects on promotion strategy allocation. Individual or grouped activities deemed franchise building (e.g., media advertising, sampling, coupons with effective selling messages) or nonfranchise building (e.g., trade promotions, refund
offers, reduced-revenue packs) could serve as dependent variables in allocation strategy investigations.
Although the study model concerns a specific manufacturer’s product, the influence of exchange type may be predictive
of a number of brands across the manufacturer’s product line.
Future research may investigate the influence of a brand’s

Advertising and Promotion Allocation Stategy

portfolio position reflecting its market position relative to
other brands within a manufacturer’s product line.

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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 “longterm venture.” (r)
2. Our relationship with distributors could best be