Managing advertising investments in marketing channels

This paper investigates how should manufacturers optimally allocate resources to retailer-initiated (retailer) advertising through cooperative advertising programs and own (manufacturer) advertising in a bilateral monopoly. Retailer advertising stimulates immediate sales but may also harm long-term (post-advertising) demand, whereas manufacturer advertising aims at building brand equity and stimulates both immediate and long-term sales. A game-theoretic model in which a manufacturer and a retailer set pricing and advertising decisions over a two-period planning horizon is developed to account for the differences between manufacturer and retailer advertising. We characterize equilibrium solutions for four advertising scenarios for the manufacturer, ranging from no investment in any advertising activity to undertaking own advertising and supporting retailer advertising simultaneously. Comparing the two players’ equilibrium strategies and profits across these scenarios, we find that manufacturers should avoid offering exclusively cooperative advertising programs to retailers. When retailer advertising positively influences long-term sales, manufacturers should offer cooperative advertising supports to retailers in addition to undertaking their own advertising. When retailer advertising negatively affects long-term sales, manufacturers can still undertake own advertising and offer cooperative advertising under certain conditions. However, if these conditions are not met, focusing exclusively on own advertising is their best advertising strategy. Retailers also prefer scenarios in which manufacturers advertise, but may choose not to participate in manufacturers’ cooperative advertising programs. This leads to suboptimal outcomes if cooperative advertising programs are not enhanced by additional incentives (e.g., side payments or other services).     

An exploratory analysis of the determinants of cooperative advertising participation rates

The paper offers an exploratory empirical investigation of the determinants of cooperative advertising participation rates. Using data for 2,286 brands, we examine the relationship of participation rates to national advertising expenditures by brand. We also consider how participation rates vary with average manufacturers’ margins by industry, average retail margins by category, and additional category-level variables. Reflecting the discrete nature of the dependent variable, the analysis employs discrete choice estimation techniques instead of OLS regression. The results reveal a significant quadratic relationship between advertising and participation rates. We interpret this and other significant findings in the context of existing work.     

An integrative framework of cooperative advertising: Should manufacturers continuously support retailer advertising?

A two-period game is developed in a bilateral monopoly where, besides pricing decisions, the retailer and manufacturer can set their advertising and cooperative advertising support rates for each period. It is demonstrated that, in addition to the established continuous cooperative advertising programs, in which the retailer advertises and the manufacturer supports retailer advertising in each period, two other advertising schedules are possible. First, the retailer advertises in each period, while the manufacturer only supports the second-period advertising. Second, whether or not the manufacturer provides a cooperative advertising program in the first period, the retailer only advertises in the second period and receives advertising support. The conditions under which each of these advertising arrangements is implemented are identified. In a continuous cooperative advertising schedule, the manufacturer may change his advertising support over time depending on the nature of the long-term effects of retailer advertising. The implications of these findings are discussed.     

Advertising and Steiner’s Dual Stage Model: Our Assessment

Between 1967 and 1979, we produced a number of studies that explored different facets of the economics of advertising. This work culminated in our 1974 book entitled Advertising and Market Power. Our leading hypothesis was that heavy advertising expenditures often but not always had anti‐competitive effects. And our primary empirical evidence in support of this hypothesis was that industries with heavy advertising expenditures also reported higher profit rates, which we interpreted as indicating that higher prices followed when manufacturers can effectively spend large amounts on advertising. Since that time, Robert Steiner has developed a model of firm behaviour for consumer goods industries. He finds that distribution margins are generally higher where manufacturer prices are lower. Furthermore, heavy manufacturer advertising is likely to depress distribution margins for heavily advertised products. While our earlier work implicitly assumed that distribution margins are generally the same regardless of the volume of advertising, Steiner’s results raise doubt on this assumption. Steiner’s model must therefore be acknowledged when interpreting our earlier findings.     

Dynamic cooperative promotion in the presence of consumer reference effect with competing retailers

This paper studies the cooperative promotion problem in the presence of the promotion reference effect. We consider retailer price-reduction promotion activities that enhance their sales but may impair brand image for the manufacturer. Moreover, because frequently used promotion induces a promotion reference effect on customers, we investigate how the promotion reference effect influences cooperative control strategies. We do so by examining the context in a supply chain with one leading manufacturer and two competing retailers, where the manufacturer implements a cooperative promotion program for the retailers. We use differential game models vis-a-vis dynamic promotion control strategies and cooperative promotion strategies under the scenario of existence and non-existence of the reference effect. Findings show that the presence of a promotion reference effect increases profit for the manufacturer but generates reduced profit for the retailers. We also find that the manufacturer augments the level of national brand advertising when incorporating the reference effect, and retailers raise (lower) their degree of promotion when the negative effect is low (high).     

Chefs’ perceptions of using convenience food products versus scratch cooking

The decision regarding when and to what extent to use convenience food products is a perennial issue in the hospitality industry. To explore this issue, a paper and pencil survey was administered to culinary managers in a large university dining setting. Respondents included 132 chefs representing 10 dining facilities/concepts. The results indicate that even though the time and labor cost savings brought about by the use of convenience food products are perceived as advantageous, the implied consistency of the final product and superior portion control are not as important. Furthermore, customer relationships, catering to special groups, and final products’ eye appeal appear to be better facilitated by nonconvenience foods. Even though it is easier to train culinary staff to use convenience food products rather than nonconvenience ones and these employees appear to be under less psychological pressure in their jobs, they will conversely be less motivated and worse paid.     

The Effect of Product Innovation,Promotion, and Price on Consumer Switching to Private Labels

The channel conflict that exists between retailers and manufacturers of branded products has dynamically shifted as large retailers have expanded their offerings of private label products. This study investigates the ability of consumer packaged goods companies to exert influence in the channel by testing which marketing initiatives implemented by manufacturer brands are more efficient in preventing consumer switching to private labels. We use a hazard model to simultaneously measure the effects due to product innovation, promotion, and price on consumer switching and how strong those effects are. We find that as expected product innovation, promotion, and price exert a negative effect on the consumer likelihood of switching to private labels. However, we find the strongest effect on promotion suggesting the importance of understanding how consumers perceive value in the national brands offer.     

Does manufacturer advertising suppress or stimulate retail price promotions? Analytical model and empirical analysis

Does manufacturer advertising for a brand stimulate or suppress retail price promotions? This study addresses this controversial issue. The authors develop an analytical model that shows that the relationship between manufacturer advertising and retail price promotion depends on the role of advertising. If advertising differentiates brands and suppresses consumer response to retail promotion, then the relationship is negative. But, if advertising is informative enough to increase consumer response to retail promotions, then the relationship is positive. A follow-up empirical analysis shows a strong positive relationship between category advertising expenditure and size of retail price discount, and between advertising and discount frequency. The finding supports the informative role of advertising in the context of retail price promotions. The implications of these findings and directions for future research are discussed.     

The impact of advertising along the conversion funnel

We assemble a unique data set that combines information on supermarket feature advertising with path-tracking data on consumers’ movement within the store as well as purchase information. Using these novel data, we trace out how advertising affects consumer behavior along the path-to-purchase. We find advertising has no significant effect on the number of consumers visiting the category being advertised. The null effect is precisely estimated. At the upper bound of the confidence interval, a one-standard-deviation shift in advertising increases category traffic by only 1.3%. We do find a significant effect at the lower end of the conversion funnel. A one-standard-deviation change in advertising (evaluated at the point estimate) increases category-level sales by 10%. We further decompose the impact on sales and find the increase is driven by the same number of consumers buying a larger number of products of the same brand. We find no evidence of spillover effects of advertising between categories that are stocked in proximity of each other, nor between different products in the same category. Two mechanisms are consistent with these patterns: consumers retrieve memory of the ad only when interacting with the category or only consumers wanting to purchase the brand choose to consume the ad.     

The effect of service quality on trust and commitment varying across generations

We examine the effect of service quality on consumer trust and commitment in the context of obtaining a financial loan and how these relationships vary across different generational cohorts. We find that the service quality offered by a loan officer has a significant effect on consumer trust towards a financial institution, which in turn influences consumer commitment to a financial institution for a future transaction. We also find that relative strengths of a few paths in the model differ across different age cohorts, indicating some generational variability in the relationship between service quality, trust and commitment.     

Optimal generic and brand advertising efforts in a decentralized supply chain considering customer surplus

While the previous researches of advertising efforts decisions focus on only the firms' profit target, no literature introduces corporation social responsibility target into advertising efforts decisions of a supply chain (SC). To fill this gap, we consider a two-stage SC with a manufacturer and a retailer where the SC members consider the customer surplus. Both the retailer and the manufacturer can invest in generic advertising efforts to influence and increase the products' sales volumes. This paper investigates the following four scenarios: (1) The retailer cares the customer surplus (Model I); (2) The manufacturer cares the customer surplus (Model II); (3) Both the retailer and the manufacturer care the customer surplus (Model III); (4) We then extend the model III to the case that the manufacturer invests in both the generic and brand advertising efforts (Model IV). The objective of this paper is to determine the optimal retail price, the optimal advertising efforts, and the optimal profits of SC members, and find the influence of customer concern level on the SC performance. Finally, numerical examples are conducted to investigate the influence of the customer concern levels of the retailer or the manufacturer on the profits of the SC members and the entire SC. We also study the joint impacts of the customer concern levels of the retailer and the manufacturer on the SC performance. We find that the SC obtains the highest profits when the retailer's customer concern level and the manufacturer's customer concern level are relatively high, and the best cooperative strategy for the retailer and the manufacturer is that they improve customer concern level simultaneously.     

Determinants of Interest Rates on Time Deposits and Savings Accounts: Macro Factors,Bank Risk,and Account Features

Using a novel dataset from the Netherlands' banking sector, we examine how macroeconomic, bank‐specific, and account‐specific characteristics affect the interest rates of banking products. Our results show that interest rates have become more sensitive to bank risk since the onset of the global financial crisis. More generally, we show that time deposits reflect more closely the economic environment than bank interest rates on savings accounts do. Interest rates on deposit products vary not only across, but also within banks (i.e., across account of individual banks). We find that maturity‐increasing conditions (i.e., withdrawal fees for savings accounts and product maturity for time deposits) positively influence a product's interest rate.     

The Effect of Media Involvement on Print Advertising Effectiveness

Abstract

There is less than full agreement in the advertising research community over the relationship between involvement and advertising effectiveness. The purpose of this research is to extend that investigation into print. In a pre-post between-subjects design, 926 adults were exposed to test advertisements “tipped” (i.e., inserted) into a publication that they read regularly. Readers' attitudes and purchase intentions for the advertised products were collected before and after exposure to the ads. The results indicated that higher involvement with a publication leads to more favorable perceptions of embedded ads, and higher levels of advertising persuasion, while not impacting recall. Analyses of specialized effects indicated that, for the most part, main-effects results were robust across two types of advertisements, two print publication types, and two classes of products studied. The research has implications for how publishers set, and media planners evaluate, advertising rates, which are calculated predominantly according to the size of a publication's reader base. Based on our results, they should consider involvement when making these decisions.     

Search engine advertisements: The impact of advertising statements on click-through and conversion rates

Search engine advertising has emerged as the predominant form of advertising on the Internet. Despite its increasing importance academic research on this topic is scarce. Several authors have called for more research on how the content of the ad influences its evaluation. This exploratory study builds on this call for more research and examines the impact of evidence type on click-through and conversion rates in a search engine advertising setting. We find that click-through rates are higher for advertisements involving expert evidence and statistical evidence than for advertisements involving causal evidence. On the contrary, we find that causal evidence results in higher conversion rates than other types of evidence. These findings help marketers to fine-tune their advertising in search engines. In particular, if their aim is to attract people to the website, expert evidence and statistical evidence should be used, while causal evidence works best if the main objective is to generate conversions.     

Decomposing the effect of advertising: What happens in the retail channel?

The diverging interests of manufacturers and retailers famously give rise to the double marginalization problem but have consequences far beyond pricing. Advertising is another marketing instrument that is under the control of the manufacturer but its ultimate effect on consumer demand also depends on retailers’ pricing decisions. We decompose the effect of advertising in the channel and highlight an additional route through which advertising affects sales, namely via the changes in the retail price that a strategic retailer makes in response to changes in demand following manufacturer advertising. The total demand effect of advertising thus comprises the direct effects of advertising on market shares, and the indirect effects coming through adjustments that the retailer makes to the in-store prices of all the brands in a given product category in response to the shifted demand due to advertising. We match advertising data for four different categories (both food and non-food) to store-level scanner panel data, which also include information on wholesale prices. Controlling for wholesale prices, we establish in a reduced-form model that the retailer reacts to manufacturer advertising by changing retail prices instead of simply imposing a constant markup on the wholesale price. To further explore the role of the strategic response of the retailer in a systematic fashion and quantify the effects derived in the decomposition, we estimate a discrete-choice model of demand and determine the magnitude of the direct and indirect effects. We find that the indirect effect of advertising through retailer prices is about half the size of the direct effect, and thus substantively affects advertising effectiveness.     

Designing successful temporary loyalty programs: An exploratory study on retailer and country differences

Retailers increasingly adopt temporary loyalty programs (TLPs), in which consumers have limited time, often less than half a year, to save stamps and redeem highly discounted rewards. These programs often run alongside the retailers’ permanent loyalty programs in an attempt to increase customer engagement. Despite the growing popularity of TLPs, the literature on the topic remains limited. We address this gap by looking at the redemption rate, the industry’s primary success indicator, of almost 900 TLPs across a broad set of grocery retailers in 45 countries. We study the effects of four key design characteristics (the duration of the program, the discount offered, the spending requirement before an award can be redeemed, and the reward depth) on the redemption rate, and explore how these effects vary across a broad range of retailer and country characteristics. In doing so, we control for both a retailer’s potential self-selection into running a TLP and the potential endogeneity of the subsequent design choices. We derive a set of actionable results on how to design successful TLPs and show that high redemption rates are not only beneficial for the program operator and reward manufacturer, but also translate into higher sales and profit for the retailer.     

Evidence-based advertising

Complex phenomena such as advertising are difficult to understand. As a result, extensive and repeated testing of diverse alternative reasonable hypotheses is necessary in order to increase knowledge about advertising. This calls for experimental studies: laboratory, field, and quasi-experimental studies. Fortunately, much useful empirical research of this kind has already been conducted on how to create persuasive advertisements. A literature review, conducted over 16 years, summarised knowledge from 687 sources that drew upon more than 3,000 studies (Armstrong 2010). The review led to the development of 195 principles (condition-action statements) for advertising. We were unable to find any of these principles in a convenience sample of nine advertising textbooks and three practitioner handbooks. The advice in these books ignored conditions for the most part. The books also tended to ignore empirical evidence, which is how we learn about conditions; of the more than 7,200 sources referenced in these books, only 30 overlapped with the 687 used to develop the principles. By using the evidence-based principles, practitioners may be able to increase the persuasiveness of advertisements. Relevant evidence-based papers have been published at the rate of 20 per year from 2000 to 2010. The rate of knowledge development could be increased if journal editors invited papers with evidence-based research findings and if open peer review were provided on a continuing basis.     

The Media and Their Advertisers: Exploring Ethical Dilemmas in Product Coverage Decisions

Marketers are increasingly relying on promotional practices (variously labeled as stealth marketing, hybrid messages, covert advertising) based on the diffusion of product information by third parties that appear to be independent of advertisers. In this paper, we examine to what extent the media treat their advertisers favorably, providing these advertisers’ products extra visibility in supposedly neutral editorial content. Empirically, we model the determinant of media coverage of Italian fashion products in an extended dataset of consumer magazines in Italy, France, Germany, UK, and the USA. Research findings show that advertising is an important determinant of product placements in editorial content, and this result is consistent across countries and publishers. Our results imply that resource-rich advertisers engaging in compensatory advertising (that is, advertising investments that compensate poor product quality) might bias media coverage in their favor. Consumers will consequently be exposed twice to favorable messages about those products, in both advertisements and media content, resulting in higher purchases and reduced consumer welfare.     

Is Your Product Facing the Ad's Center? Facing Direction Affects Processing Fluency and Ad Evaluation

This research investigates a frequently encountered and important decision faced by advertisers: how to face profile images of products in advertisements. Three empirical studies find support for a profile-fluency effect: Profile images of products facing inward (versus outward) toward the center (versus edge) of an ad are easier for consumers to process and result in more positive consumer evaluations. In addition, there is evidence that this effect depends on the shopping goal of the consumer. The results have clear implications for current practices in advertising and offer opportunities for future research.     

Determinants of Store Brand Share

Private labels or store brands have witnessed considerable growth in the last few decades, especially in grocery products. However, market shares of store brand vary considerably across categories, markets, and countries. A natural question of interest to academics and practitioners is what factors influence store brand market shares. Drawing on a utility framework, we develop 21 consumer, manufacturer, retailer, and product-market characteristics that can influence store brand share. We test the empirical generalizability of the effect of these determinants through a meta-analysis of data from 54 individual and aggregate market studies. Twenty of the 21 determinants show significant, empirically generalizable effects. We discuss the key findings, their implications, and directions for future empirical research.