If the quality of the marketing effort is sufficient, a right amount invested in advertising will increase market share. This includes increased sales, but can also intangible values such as increased loyalty, satisfaction, and brand awareness. 

 

The article explains ad expenditures using three variables: marketing expenses, increased sales induced by said expenses, and finally the offset between the two variables. 

It posits that if quality is held constant, expenditures in advertisement are positively related to market share. 

R&D has a positive effect on market share as long as it leads to innovative products that can satisfy customer needs better than existing goods. If the R&D expenditures also lead to entry barriers the effect is even more pronounced (Szymanski et al. 1993). 

Regularly releasing new products, features, or innovative service models can create a positive reputation about the company as it regularly invents new ways to better serve their customers’ needs, particularly in high barrier to entry categories. 

A company may also receive a price premium as a result of R&D efforts due to the fact that, “customers may be willing to buy more of the goods and pay a premium price for these more innovative and better quality products.” The resulting higher demand for the products/services of a company with high R&D expenditures is more likely to offset the cost of investment.

Relevant examples of R&D investments leading to increased market shares can be found in the pharmaceutical industry. Pharmaceutical companies often have high R&D expenditures early in the medical development process (to cover trials, certifications, etc.). However, upon the successful development and launch of a new medicine, patents provide pharma companies with a strong entry barrier, and therefore, will be able to enjoy higher market share. R&D can also in many cases make production processes more efficient, and combined with being able to charge high price premiums this will lead to increased profitability.