The Measurement of Marketing Efficiency in the Presence of Spillovers: Theory and Evidence

We develop a model of marketing efficiency based on a directional distance function that allows for marketing spillovers. A parametric model is used to test for spillovers from rival marketing and from a firm's marketing activity of its other related products. We then show how this information can be incorporated into a non-parametric model and used to estimate marketing inefficiency. We apply brand level data from the US brewing industry to the nonparametric model to determine the effectiveness of television, radio, and print advertising. We find that advertising spillovers are important in brewing and show that efficiency estimates are inaccurate when spillover effects are ignored. Our results also suggest that marketing efficiency may be an important component to firm success in brewing, a result that may apply to other consumer goods industries. Copyright (C) 2006 John Wiley & Sons, Ltd.