Market Structure and the Geographic Distribution of Brand Shares in Consumer Package Goods Industries

Abstract

We describe industrial market structure using a unique database spanning 31 consumer package goods (CPG) industries, 39 months, and the 50 largest US metropolitan markets. We organize our description of market structure around the notion that firms can improve brand perceptions through advertising investments, as in Sutton's endogenous sunk cost theory. In the data, observed advertising levels escalate (i.e. larger brands) in larger markets while the number of advertised brands within an industry remains stable. Correspondingly, observed concentration levels in advertising-intensive industries are bounded away from zero irrespective of market size. For two industries, we collect historic order-of-entry data. The geographic distribution of entry is found to account for the levels, rank-orders and covariation in the geographic distribution of brand shares, perceived brand qualities and advertising effort. Interestingly, alternative potential sources of geographic asymmetry on both the supply and demand sides do not mimic the geographic patterns of shares. In general, our findings highlight several striking persistent geographic patterns in the industrial market structures of CPG industries.

Brand Competition in CPG Industries: Sustaining Large Local Advantages with Little Product Differentiation

“…If competition takes place on two markets, a firm may lead in both markets, in one, or in none, depending on local entry patterns. In this case, if order of entry is spatially dependent (as found in Bronnenberg, Dhar and Dubé 2005) this case covers the emergence of geographic concentration of market share as is seen widely in CPG industries. Incentives to deviate in any single market are absent from all these scenarios.…”

“…In addition, there is little to no arbitrage across local markets at the state or even metropolitan level. Hence, as a consequence of CPG products often being objectively similar and different firms having a first mover in different regions (Bronnenberg, Dhar and Dubé, 2005), the central results in this section provide a theoretical basis for why cross-market variability in shares emerges and is stable.…”

“…While local marketshares are clearly not constant across markets, they are in fact constant across time. 1 Bronnenberg, Dhar and Dubé (2005) show that these patterns are commonplace in CPG industries such as coffee, mayonnaise, margarines, pickles, hotdogs, etc. Given any one market and given the similarity of most national brands in the aforementioned categories, the question addressed in this paper is: What sustains large local market advantages in the face of little product differentiation?…”

Estimating Brand Equity from Aggregate Data

“…For instance, Bronnenberg, Dhar and Dube (2005) track historical market shares in the coffee category and find a strong spatial component to the growth of brands in new markets. Bronnenberg and Mahajan (2001) show the presence of significant spatial dependence in the market shares and promotions of brands.…”

Brand competition in CPG industries: Sustaining large local advantages with little product differentiation

“…1 Bronnenberg et al (2006) show that these patterns are commonplace in CPG industries such as coffee, mayonnaise, margarines, pickles, hotdogs, etc. Given any one market and given the similarity of most national brands in the aforementioned categories, the question addressed in this paper is: Why do large local market advantages emerge in the face of little product differentiation, and what sustains them?…”