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Rotman Insights Hub | University of Toronto - Rotman School of Management

When you have a new product launch, should you go big or more targeted?

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David Soberman

When a company launches a new product, a big ad spend across many platforms is helpful to gain a solid foothold with consumers, but that same tactic can hamper long-term category growth.

That’s according to a study from professor David Soberman from the Rotman School of Management. Co-authored with Yi Xiang and Hubert Gatignon and published in the February 2022 edition of Production and Operations Management, “The Effect of Marketing Breadth and Competitive Spread on Category Growth” looks at how quickly a category might grow when considering how marketing spending is distributed both across levers — such as traditional advertising, direct selling, digital advertising, etc — and across firms (or companies) that compete in the category.

The more evenly marketing dollars are spent across these different levers, the higher the spread. When marketing spending is directed or focused on a single lever, it’s considered low spread, says Soberman.

When there are few competitors, marketing that is spread across many levers isn’t as effective for growth — and it can even slow down overall market growth — according to the research. In comparison, when there are a large number of competitors, greater marketing spread can accelerate market growth. When a new market is in its early stages, a new entrant needs to have at least one entry point to the market through one of the marketing levers, the researchers found.

Early in the life of a category, a key driver of growth is the number of new entrants and the ease with which they gain a foothold. “High levels of marketing spread early in the life of a category make it difficult for new entrants to gain momentum or even enter the category in a way that breaks through, the paper proposes,” Soberman says. “On the other hand, if marketing is focused on one to two levers, that might leave an opening for a new competitor.”

When a player is going into a new market, they need to assess what level they will need to get a reaction – an amount that will be very specific to a category, he says. 

“Once the market reacts, should you be active in all the marketing levers?” he says “The answer is yes.”

However, the higher the marketing spread, the more difficult it becomes for competitors to break through and take market share.

As a category matures (and the number of competitors in the market increase), a high level of spread accelerates market growth because more customers are reached.

Competitive spread — or the number of companies spending evenly on marketing — on the other hand has a different effect on category growth. When there are few companies in the market, a low level of competitive spread means that at least one is spending enough to get a reaction from consumers, says Soberman

However, when there are many companies in the market, spending levels are higher, and the negative relationship between competitive spread and category growth all but evaporates.

“Marketing spend is like going up to bat,” says Soberman. “You either want to go big or go home.”

Ultimately, the amount of ad spend necessary to break through depends on the category, says Soberman. If you have a new innovative product, the dollars needed for an effective ad launch campaign may be quite different than the dollars needed to “breakthrough” in a heavily advertised existing category.

“This research provides evidence that unless a firm reaches a sufficient level of spending on various levers, the reaction of the market is weak,” adds Soberman. “It also provides an explanation for why we might see high levels of marketing spread early on in the life of a category, but also provides a prescription to managers to say if I’m going to enter this category with a new product, I need to have enough money to get a reaction from customers.”

David Soberman is a professor of marketing at the Rotman School of Management, and the Canadian national chair of strategic marketing.