Curry et al., 1995); advertising and price sensitivity (cf.,Eskin and Baron, 1977; Krishnamurthi and Raj, 1985);advertising, temperature, price, and consumer expenditure(Franses, 1991); advertising, price sensitivity, and competi-tive reaction (Gatignon, 1984); advertising and product quality (Kuehn, 1962); advertising and product availability(Kuehn, 1962; Parsons, 1974); advertising competition(Erickson, 1995); advertising expenditure and advertisingmedium (Prasad and Ring, 1976); advertising and prior sales person contact (Swinyard and Ray, 1977); advertisingand personal selling (Carroll et al., 1985); competitive behavior (Hanssens, 1980b); sales force effectiveness andenvironmental hostility (Gatignon and Hanssens, 1987);integrated marketing communications (cf., Beard 1996;Hutton, 1996); persistence modeling (Dekimpe and Hans-sens, 1995a,b); and consumer confidence (Kumar et al.,1995) among others.In most cases, conventional multi-equation time seriesanalysis involves the use of Vector Autoregressive (VAR)models with two or more stationary variables (cf. Hamil-ton, 1994; Enders, 1995). Typically, one differences non-stationary difference variables to make them stationaryand then uses them in a VAR model to investigateunderlying data generation mechanisms (cf., Curry et al.,1995; Dekimpe and Hanssens, 1995b). Differencing non-stationary variables results in loss of information (cf.,Enders, 1995). Cointegration analysis provides a metho-dology for analyzing non-stationary variables, without making them stationary, thereby preventing loss of infor-mation due to differencing.Examples of marketing systems with non-stationaryvariables, which are related to each other and, thus, would benefit from cointegration analysis are plentiful. For in-stance, in a typical diffusion of innovation setting, where anew product is replacing an existing product, the sales of these two products, promotion and advertising spending,along with sales of competing products, are likely to movetogether and thereby be cointegrated. In addition, cointegra-tion analysis is a useful tool to examine sales force effec-tiveness (cf., Gatignon and Hanssens, 1987) and inunderstanding the implications of various pricing decisionsand strategies on marketing performance (cf., Curry, 1993).These explications for application of cointegration analysisin marketing are by no means exhaustive and are meant asmere illustrations of the usefulness of cointegration analysisin investigating marketing interactions.Marketing researchers are just beginning to use coin-tegration analysis to study marketing interactions. Specifi-cally, a couple of studies (Baghestani, 1991; Zanias, 1994)examine the advertising±sales relationship and Franses(1994) has studied the sales of new products. These studiesand our illustrations demonstrate the utility of cointegrationanalysis; however, the intricate nature of theoretical re-search on cointegration limits its use. Our primary objec-tive is to summarize theoretical cointegration literature tofacilitate its use by marketing scholars. Utilizing cointegra-tion analysis requires that all data series under investigationto be integrated of the same order, which implies that onehas to perform statistical tests on the data series under investigation to make sure that the system under investiga-tion is suitable for cointegration analysis. In addition,drawing conclusions from the estimation results of coin-tegration analysis requires more statistical tests. The mainobjective of this article is to demonstrate a comprehensivemethodological framework for analyzing multi-equationtime series data using cointegration analysis. Such a frame-work is of considerable interest to both marketing scientistsand marketing managers, as better understanding of mar-keting interactions is of interest to both parties. Both areinterested in marketing interactions because they want toknow what drives marketing performance. Our framework provides both parties with tools and a systematic method tostudy these interactions. Further, a comprehensive andconsistent framework makes it easy to identify unifying principles that aid in empirical generalization and advance-ment of marketing science (cf., Bass, 1993, 1995; Bass andWind, 1995). Finally, such a framework would be usefulfor pedagogic exposition.To achieve our objectives, we survey recent develop-ments in the econometrics and time series literature tocollate a set of statistical tests and estimation techniques,which are useful in exploration of marketing interactions.
Based on our literature review, we illustrate the usefulnessof cointegration analysis in marketing and provide therationale for expecting specific type of behavior fromvarious marketing variables. Furthermore, we demonstratethe proposed framework to model marketing interactionsfor the famous case of Lydia Pinkham Medicine Com- pany (LPMC).
2. Methodological framework and conceptualunderpinnings
Marketing interactions, by their very definition, implythat interactions among several marketing effort variables,along with their interaction with environmental variables,determine marketing performance. Further, when firms takedecisions concerning marketing effort, they may take mar-keting performance into consideration. In addition, environ-ment interacts with both performance and effort to further complicate matters. For example, the time of the year andadvertising expenditure in the previous month together determine sales which in turn determines advertising ex- penditure this month which in turn influences sales. Multi-equation modeling helps in capturing this dynamic behavior
We choose the statistical tests that in our opinion are most appropriate. We do not claim that these are the only or universally the best statistical tests for the purpose. Our objective is to provide andillustrate the steps of our framework and not to determine the goodness of one test vis-a-vis another.
R. Grewal et al. / Journal of Business Research 51 (2001) 127±144