Does advertising indicate product quality? Evidence from prelaunch and postlaunch advertising in the movie industry

Literature on the informative role of advertising indicates that advertising quantity can serve as an indicator of product quality. As product life cycles grow shorter, firms in many industries spend significant amounts on advertising during the prelaunch period to create large initial demand. Thus, the role of prelaunch advertising may differ from that of postlaunch advertising, and a proper understanding of these differences is important. This study provides an empirical investigation of whether advertising is a reliable indicator of quality before and after product launches, using the data from the movie industry. Analyses of 1078 movies released during 2003–2011 show that postlaunch advertising is a reliable quality indicator and increases revenues, whereas prelaunch advertising is not a reliable quality indicator, even if it leads to higher revenues.     

Consumer deliberation and quality signaling

Consumers are often uncertain about their product valuation before purchase. They may bear the uncertainty and purchase the product without deliberation. Alternatively, consumers can incur a deliberation cost to find out their true valuation and then make their purchase decision. This paper proposes that consumer deliberation about product valuation can be an endogenous mechanism to enable credible quality signaling. We demonstrate this point in a simple setup in which product quality influences the probability that the product has high valuation. We show that with endogenous deliberation there may exist a unique separating equilibrium in which the high-quality firm induces consumer deliberation by setting a high price whereas the low-quality firm prevents deliberation by charging a low price. Compared to the case of complete information, the price of the high-quality firm can be distorted upward to facilitate consumer deliberation, or distorted downward to avoid the low-quality firm’s imitation. In an extension we show that dissipative advertising can facilitate quality signaling. The high-quality firm can utilize advertising spending to avert imitation from the low-quality firm without distorting price downward, earning a higher profit than that without advertising. However, advertising mitigates the distortion at the expense of consumer surplus and social welfare.     

Consumer personality and lifestyles at the box office and beyond: How demographics,lifestyles and personalities predict movie consumption

While movie studios have leveraged data traditionally through demographics, there may be missed opportunities in securing further granular insights through personality and lifestyle scales. Due to the amount of hyper-competition among movies but also across platforms, marketers and advertisers may revisit consideration of how consumer personality and consumer lifestyle may aid them in predicting movie frequency consumption across genres and platforms. This study deployed a survey and collected a national randomized sample (N=301). Implications include cultivating consumer profiles and anticipating how certain personalities and lifestyles may help measure certain movie genre and movie platform consumption.     

Celebrity ambassador/celebrity endorsement – takes a licking but keeps on ticking

The paper examines the use of advertising and celebrity endorsement in promoting wristwatches from the beginning of the 20th century up until today. It shows a progression from simple informational advertisements stressing the technical, aesthetic and social appeals of the watches to more complex ones appealing to self-image and the use of celebrity endorsement. However, some – albeit not all – luxury wristwatch manufacturers have abandoned their use of celebrity endorsers. We note the need for businesses to undertake advertising aimed at appealing to consumer self-image, often reinforced by celebrity endorsement. The paper explores why the celebrity endorsement of brands may be effective or otherwise. We question, however, the cost-effectiveness of celebrity endorsement, and whether methods such as parasocial advertising through social media sites may offer an alternative. Like the brands they promote, advertising theories also have life cycles and the need to find new theories and update or abandon existing ones continues apace.     

Should sequels differ from original movies in pre-launch advertising schedule? Lessons from consumers' online search activity

Sequels have become a profitable strategy in the U.S. motion picture industry because of their strong name recognition. However, while the established positioning of a sequel may help insulate it from competing firms' advertising messages, its familiarity may cause moviegoers to be more easily satiated with advertising from the sequel. Therefore, this study examines how sequels differ from original concept movies in terms of their ad effectiveness. We focus our analysis on pre-launch periods, given these periods' importance in shaping the financial outcomes of motion pictures. We consider the weekly online search volume of a movie as a measure of consumer interest in it, and thus as an intermediate response to pre-launch advertising. We then develop a model that assumes ad effectiveness can decline, due to copy and repetition wearout, and increase, due to forgetting, over time. We find that copy wearout is greater for original movies, while repetition wearout and forgetting are greater for sequels. These findings suggest that sequels should allocate more in early pre-launch periods and less immediately before release, relative to originals, to maximize pre-launch consumer interest.     

I Want You Back: The Interplay Between Legal Availability and Movie Piracy

Abstract

Although it is well known in the academic literature that anti-piracy measures can reduce the demand for pirated content, there are relatively few papers analyzing how legal availability impacts piracy. In this study, we answer two relevant research questions: (1) Does the availability of movies in legal digital channels reduce the demand for digital piracy? (2) Is the level of piracy prior to a movie’s release in a legal digital channel a reliable signal of legal demand after release? We answer these questions using a unique data set provided by a major motion picture studio. Our data contain 1520 catalog movies introduced to iTunes between April 2011 and April 2012. We find that iTunes availability leads to an 11.8% decrease in monthly piracy. We also find that pre-release piracy positively correlates with post-release electronic sell-through sales but not with video-on-demand sales.     

The capital market spillover effect of product market advertising: Evidence from stock price synchronicity

We analyze whether product market advertising has a spillover effect on stock price synchronicity by transmitting firm-specific information to the capital market and attracting more investor attention. Using a sample of Chinese listed firms from 2009 to 2017, we find that firms with greater advertising expenditures have lower stock price synchronicity. The results are robust after we address endogeneity concerns. In accord with our hypothesis that product market advertising increases the amount of firm-level information capitalized into stock prices through the information channel, we find that the impact of advertising on synchronicity is more pronounced for firms with a higher degree of information asymmetry and firms in the consumer-product industry. Further tests show that product market advertising enhances the ability of current period returns to reflect future earnings, and thus rules out that the negative relationship between advertising and synchronicity is driven by noise trading. Our results imply that product market advertising plays an informative role and improves information efficiency in a capital market.     

An empirical analysis of national and local advertising effect on price elasticity

This paper investigates the interaction effect of advertising and price on the market share of a consumer nondurable product. We postulate a model in which local advertising is thought to primarily affect the consumers' purchase by making the demand more price sensitive, and national advertising to affect the consumers' preference, thus making the demand less price sensitive. Moreover, we hypothesize that local advertising interaction will have more immediate effect, while national advertising interaction will have longer term interaction effects. We apply these ideas empirically, and find support for our hypotheses. Thus, the interaction effect of advertising and price can be characterized by both increased and decreased price sensitivity, depending on the type of advertising. Moreover, these effects may be present simultaneously for the same product.     

Variations in the contractual terms of cooperative advertising contracts: An empirical investigation

Cooperative advertising arrangements between manufacturers and resellers contain two principal components in their payment schedules: a participation rate and an accrual rate. We analyze 2,156 cooperative advertising plans to see how they vary across consumer and industrial products, as well as between convenience and nonconvenience consumer products. We also study how participation and accrual rates vary by the level of manufacturer concentration across product categories. We find that both participation and accrual rates are higher for consumer products than for industrial products and within consumer products are higher for convenience products than for nonconvenience products. We find mixed results for the effect of manufacturer concentration on these rates. We discuss how these results are consistent with existing perspectives on cooperative advertising.     

Advertising and Word-of-Mouth Effects on Pre-launch Consumer Interest and Initial Sales of Experience Products

This study examines how consumers' interest in a new experience product develops as a result of advertising and word-of-mouth activities during the pre-launch period. The empirical settings are the U.S. motion picture and video game industries. The focal variables include weekly ad spend, blog volume, online search volume during pre-launch periods, opening-week sales, and product characteristics. We treat pre-launch search volume of keywords as a measure of pre-launch consumer interest in the related product. To identify probable persistent effects among the pre-launch time-series variables, we apply a vector autoregressive modeling approach. We find that blog postings have permanent, trend-setting effects on pre-launch consumer interest in a new product, while advertising has only temporary effects. In the U.S. motion picture industry, the four-week cumulative elasticity of pre-launch consumer interest is 0.187 to advertising and 0.635 to blog postings. In the U.S. video game industry, the elasticities are 0.093 and 1.306, respectively. We also find long-run co-evolution between blog and search volume, which suggests that consumers' interest in the upcoming product cannot grow without bounds for a given level of blog volume.     

Investor sentiment and advertising expenditure

A strategic issue facing marketing managers is ‘how much and when’ to spend on advertising. We argue that investor sentiment in the stock market may influence advertising expenditure by affecting firms' ability to raise new funds. We show that during periods of low (high) investor sentiment, firms decrease (increase) their advertising expenditure, even though the effectiveness of advertising is greater (lower) during such periods. We also find that these results are stronger for financially constrained firms that rely more on external financing. Our findings suggest that marketing managers can improve the efficiency of their advertising expenditure by raising (reducing) it during periods of low (high) sentiment.     

The effectiveness of movie trailer advertising

Prior to a movie release in theaters, trailer advertising provides valuable information that can help viewers and investors form expectations about the movie's future success. While previous research has looked at the financial implications of movie advertising budgets, the effects of trailers' creative characteristics on abnormal returns have not yet been investigated. Using a sample of movie trailers, results from our event study and cross-sectional analysis show that the appeal of the movie plot revealed in the trailer, the number of scene cuts and the inclusion of violent, sexual, or humorous scenes influence the movie's abnormal returns. However, the use of special effects in the movie trailer does not impact investors. Results also suggest that investors react more strongly to first than to follow-up trailers released for the movie, and that early release of the first positively impacts the movie's returns.     

Firm-specific assets and the internationalization–performance relationship in the U.S. movie studio industry

We study the role that firm-specific assets (FSAs) play in the processes underlying the internationalization–performance relationship. International business scholars have begun studying the interrelationship between FSAs, internationalization, and performance; however, this research is still emergent, and has produced inconclusive results. We believe that this may be due, in part, to research designs involving the same FSAs across many industries, even though individual industries may rely on different FSAs in their internationalization strategies. We address this issue in a single industry study of U.S. movie studios, which typically rely on blockbuster production capabilities as FSAs in their internationalization efforts. We show how these FSAs co-evolve with firms’ degree of internationalization, and how each factor mediates the positive effect of the other on performance. Our results highlight the importance of studying specific industries and their salient FSAs when assessing their role of such resources in the internationalization–performance relationship.     

Substitution or Promotion? The Impact of Price Discounts on Cross-Channel Sales of Digital Movies

Technology is transforming the marketing function in many ways, and this transformation is particularly apparent for information goods such as movies where digital technologies provide marketers with new distribution channels, which in turn create new opportunities for cross-channel effects. However, these digital channels also provide researchers with new opportunities to measure micro-level customer behavior to understand the impact of cross-channel effects in real-world settings.In this paper, we study cross-channel effects between movies sold in digital purchase (commonly known as Electronic Sell Through or EST) and digital rental (commonly known as Video-On-Demand or VOD) markets. We do this using a unique sales dataset from a major digital movie retailer provided by a major movie studio. Our analysis takes advantage of a 14-week field experiment that allows us to measure the impact of price discounts on own- and cross-channel sales. We use this experiment to estimate own and cross price elasticities, whether price discounts cannibalize future sales, and most importantly whether price discounts in one channel affect sales for the same product in a presumably competing channel.Our analysis indicates that digital movie consumers are highly sensitive to price promotions. However, we also find that, contrary to expectations, price promotions in a digital sales channel for a movie do not seem to cannibalize digital rentals. Indeed, our results suggest that, if anything, price promotions for digital movie sales can increase digital rentals. We explore a variety of explanations for this counterintuitive result, including the possibility that the ease of information transmission online through third-party websites, blogs, and online discussion areas may create information spillovers such that price discounts in one channel may increase product awareness in other competing sales channels. From a managerial perspective, our results suggest that cross-channel cannibalization can be reduced or even reversed in the presence of information spillovers, and that there are many new opportunities for marketers to directly measure these cross-channel effects using experimental data from online platforms.     

Television ad-skipping,consumption complementarities and the consumer demand for advertising

Endogenous consumption of advertising is common. Consumers choose to change channels to avoid TV ads, click away from paid online video ads, or discard direct mail without reading advertised details. As technological advances give firms improved abilities to target individual consumers through various media, it is becoming increasingly important for models to reflect the endogenous nature of ad consumption and to consider the implications that ad choice has for firms’ targeting strategies. With this motivation, we develop an empirical model of consumer demand for advertising in which demand for ads is jointly determined with demand for the advertised products. Building on Becker and Murphy (The Quarterly Journal of Economics, 108(4), 941–964 1993)’s ideas, the model treats advertising as a good over which consumers have utility and obtains demands as the outcome of a joint utility maximization problem. Leveraging new data that links household-level TV ad-viewing with product purchases, we provide empirical evidence that is consistent with the model: ad-skipping is found to be lower when a household has purchased more of the advertised brand, and purchases are higher when more ads have been watched recently, suggesting that advertising and product consumption are jointly determined. Fitting a structural model of joint demand to the data, we evaluate consumer welfare and advertiser profitability in advertising targeting counterfactuals motivated by an “addressable” future of TV. We find that targeting on the predicted ad-skip probability is an attractive strategy, as it indirectly selects consumers that value the product. Reflecting the positive view of advertising in the model, we also find that net consumer welfare may increase in several targeting scenarios. This occurs because under improved targeting, firms shift advertising to those who are likely to value it. At the same time, consumers that do not value the ads end up skipping them, mitigating possible welfare losses. Both forces are relevant to assessing advertising effects in a world with improved targeting and ad-skipping technology.     

Pricing and persuasive advertising in a differentiated market

This paper examines the effects of consumer preferences, firms’ costs, and advertising efficiencies on firms’ pricing and persuasive advertising strategies. We show that as the firms’ horizontal differentiation increases, the firm with a lower value-added product tends to increase persuasive advertising, whereas its competitor tends to reduce advertising. Second, the firm receiving a favorable shock in product valuation will complement the favorable change with additional persuasive advertising rather than reduce advertising spending. Third, an equal improvement in advertising efficiency in the industry will lower the profits for both firms, whereas a decrease in advertising efficiency in the industry can benefit both firms. Fourth, a larger shock that improves a firm’s product valuation or unit cost is more likely to induce higher advertising spending in the industry. Lastly, an exogenous increase in the separation between firms’ product valuations or perceived qualities may actually reduce the price dispersion in the industry.     

Moderately thin advertising models are optimal,most of the time: Moderating the quadratic effect of model body size on ad attitude by fashion leadership

The authors hypothesize and find that an advertising model’s body size has an inverted U-shaped relationship with ad attitude in the apparel product category, in which moderately thin advertising models are optimal. They assess the moderating effect of consumers’ fashion leadership on this quadratic relationship, proposing that this moderation may shift the optimum and/or create a flatter inverted U-shape. In the empirical studies, the authors find both types of moderation may occur and that there may be conditions under which slightly larger, intermediate sized models are most effective for fashion followers and that under other conditions model body size seems to be irrelevant for fashion leaders. As expected, the authors find a positive effect of ad attitude on brand attitude and purchase intentions.     

An investigation of the influence of cinema environment on advertising effectiveness

Many advertisers are looking to cinema advertising as a nontraditional medium to reach consumers. Although several scholars have examined the effectiveness of this advertising vehicle, there is a dearth of empirically grounded research on how to improve such effectiveness. This study, based on the reactance and the equity theories, is probably the first academic project investigating how to manipulate an advertising environment in a real movie theatre to maximize advertising effectiveness. Results indicated that audiences in a distractive environment held a more positive attitude toward cinema advertising in general, but those in a restrictive environment were more likely to remember the advertised brands. In addition, the provision of ticket price information improved audiences’ acceptance of cinema advertising, but did not enhance recall. Moreover, the influence of ambient scent emitted into the atmosphere in a cinema room on ad recall dissipated when movie viewers became accustomed to such stimuli. Based on these findings, theoretical discussions and recommendations for practising managers were made.     

Young adults' perceptions of product placement in films: An exploratory comparison between the United Kingdom and Hong Kong

Even though young adults are a major audience of films and the main target group for product placement, very few studies explore how youngsters across cultures perceive and interpret this marketing communication tool. This study explores this issue through thirty-two in-depth interviews conducted in the United Kingdom and Hong Kong. The comparative analysis focused on four aspects: (1) young consumers' movie consumption habits and their exposure to product placement; (2) their general views towards product placement and advertising; (3) their perception of different execution styles of product placement and its impact and (4) the regulatory and ethical concerns of product placement. Results indicate that the young generation actively engages in interpreting brand integration in films and they were generally positive about it. Although interpretations of product placement are reported on an individual basis, this study suggests that culture may also affect how individuals perceive product placement. This exploratory study raises important issues about cultural differences in the perception of brands placed in films and provides insights for further research in the area of product placement.     

The Role of Implicit Theories in Evaluations of “Plus-Size” Advertising

In this research, we examine plus-size female consumers' reactions to the use of plus-size female models in advertising. We demonstrate that not only objective body size but also implicit beliefs about the malleability of one's size affect attitudes toward a product advertised by a plus-size model. Further, we find that this interactive effect is mediated by perceived similarity to the model, and appears only when the plus-size model is used to advertise a body-relevant product. These findings contribute to the burgeoning study of larger-sized female models in advertising and suggest that “plus-size” is not a one-size-fits-all label.