Biomedical Engineering Reference
In-Depth Information
Forward spillover occurs when the equity of a given firm's “parent” product
(i.e., one that has been in the market longer) affects a “child” product; and reciprocal
spillover occurs when efforts on behalf of the child product affect the parent product.
Spillover in product or brand portfolios arises when the equity of one or more of the
firm's products or brands affects the equity of the others—this is conceptually
broader than the forward and reciprocal spillover noted above. Marketing alliance
spillover crops up when consumers' evaluation of the alliance affects the evalua-
tions of the partner firms or brands.
Information spillover occurs when consumers assess the unadvertised attributes
of a firm's product from the advertised attributes. Such spillover also arises when a
firm gains knowledge from the R&D efforts of a competing firm. Further, in the
context of R&D partnerships and in organizational settings where the efforts of
multiple agents affect the firm's performance (or the performance of a subset of its
brands) or the R&D outcomes, a multi-agent externality can arise.
Next, prior-perception and dynamic-perception spillovers develop when compet-
ing products in a given category are introduced sequentially and the perceptions of
the latter entrant are affected by the market's experience with the early entrant.
Counter-extension spillover happens when a (focal) firm expands into an unrelated
category and unintentionally brings the two categories closer in the consumers'
mind; this facilitates counter-extensions by competitors into the focal firm's original
category. Scandal spillover arises when firms that are not directly involved in the
scandal are also affected by it (e.g., when Vioxx was voluntarily recalled by Merck,
the harmful effects of Cox-II inhibitors became more salient and affected how other
drugs such as Celebrex were perceived; see e.g., US FDA
2004
).
An across-market spillover can occur in multi-market contact settings where
competitive actions in one market affect the firms' decisions in other markets; an
across-market spillover can also occur when a product is introduced in multiple
(international) markets and the time to takeoff in one market affects the takeoff
timing in other markets. Another setting where an across-market spillover arises is
in geographically proximal markets where the governmental regulations vary—as
in the case of DTCA, which is legal in the USA and not so in Canada; and such
advertising done in the USA affects consumers in the Canadian market.
Now we note briefly the underlying mechanisms or key features that help explain
why the various spillovers may arise: (1) the process by which consumers access
information and assess its usefulness—in particular, signaling theory (e.g., Wernerfelt
1988
) and the accessibility-diagnosticity framework (Feldman and Lynch
1988
) are
often invoked to explain spillovers; (2) inter-linkages either in the consumer demand
across products/markets or in the R&D output across firms; (3) competing managers
take a portfolio approach when making decisions across markets which are other-
wise independent (the multi-market contact theory; e.g., Parker and Roller
1997
);
(4) the effect of government regulation in a given market; and (5) the variation in
governmental regulations across markets.
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