Online Marketing Induced Performance Volatility

Abstract

This paper analyzes how revenue and cash-flow volatility are influenced by own and competitive online marketing spending volatility, by the level of online marketing spending, by the responsiveness of own online marketing spending, and by competitive reactivity. The author develops hypotheses about the influence of these variables on revenue and cash-flow volatility that are rooted in online market response theory. Based on a broad sample of 99 pharmaceutical brands in four clinical categories in India, the author tests these hypotheses and assess the magnitude of the different sources of online marketing-induced performance volatility. The results support our hypotheses and demonstrate that effective online marketing may incur negative financial side effects such as greater financing costs or higher opportunity costs of cash holdings. Thus, common volatility-increasing online marketing practices such as advertising pulsing are effective at the top-line, but may turn out to be ineffective at the bottom-line.