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.
In 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, Strang 1980, Low and Mohr 1992 and Low and Mohr 1994, suggesting consumer decision-making outcomes (Mela, Gupta, and Lehmann, 1997), and offering prescriptions that lead to allocation plan optimization Sethuraman and Tellis 1991 and 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 relationship 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 understanding 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).
