Why Do Firms Invest in Consumer Advertising with Limited Sales Response? A Shareholder Perspective

Marketing managers increasingly recognize the need to measure and communicate the impact of their actions on shareholder returns. This study focuses on the shareholder value effects of pharmaceutical direct-to-consumer advertising (DTCA) and direct-to-physician (DTP) marketing efforts. Although DTCA has moderate effects on brand sales and market share, companies invest vast amounts of money in it. Relying on Kalman filtering, the authors develop a methodology to assess the effects from DTCA and DTP on three components of shareholder value: stock return, systematic risk, and idiosyncratic risk. Investors value DTCA positively because it leads to higher stock returns and lower systematic risk. Furthermore, DTCA increases idiosyncratic risk, which does not affect investors who maintain well-diversified portfolios. In contrast, DTP marketing has modest positive effects on stock returns and idiosyncratic risk. The outcomes indicate that evaluations of marketing expenditures should include a consideration of the effects of marketing on multiple stakeholders, not just the sales effects on consumers.