The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data

We use a panel data set that combines annual brand-level advertising expenditures for over three hundred brands with measures of brand awareness and perceived quality from a large-scale consumer survey to study the effect of advertising. Advertising is modeled as a dynamic investment in a brand’s stocks of awareness and perceived quality and we ask how such an investment changes brand awareness and quality perceptions. Our panel data allow us to control for unobserved heterogeneity across brands and to identify the effect of advertising from the time-series variation within brands. They also allow us to account for the endogeneity of advertising through recently developed dynamic panel data estimation techniques. We find that advertising has consistently a significant positive effect on brand awareness but no significant effect on perceived quality.

Image feedback effects of brand extensions: Evidence from a longitudinal field study

This paper examines the issue of image feedback effects and potential drivers of these effects by analyzing real-world extensions that have been introduced successfully in the market, using a longitudinal field study. Within the context of typical FMCG extensions, the authors find strong evidence that even for successful extensions, negative image feedback effects can occur, particularly when the perceived quality of the extension fails to meet the quality level of the parent brand. Strong brands tend to be more vulnerable to negative image feedback effects because consumers have a higher reference level for their extensions than for those of weaker brands. The likelihood of negative feedback effects decreases as the level of perceived fit and consumers’ perceptions of the general extendibility of the parent brand increases. But managers cannot, at least in the short run, mitigate negative image feedback effects through increased advertising support. Finally, the findings demonstrate that the feedback effects of a new extension product on parent brand image diminish over time.

Leveraging brand equity to attract human capital

We propose that brand equity can influence job seekers’ perceptions of job opportunities. Our results suggest that job seekers view working for a strong brand as a way to build the power of their résumé. The belief that strong brands build powerful résumés is, in part, the outcome of job seekers’ beliefs that working for a strong brand will allow them to advance to better positions internally, provide them job-related training and skills, and demonstrate their willingness to work hard. In turn, job seekers express a greater desire to work for strong brands as measured by salary requirements and perceptions of job appeal in experiment 1 and job choice in experiment 2.

Compromising the compromise effect: Brands matter

Consumer behavior research has a long history indicating that preferences are influenced by the relative positions of members of a choice set. The realism of this work, however, is somewhat limited because alternatives are typically labeled with letters rather than with real brand names. We investigate the boundaries of prior research by testing whether preferences for alternatives in compromise and superior positions generalize to a more realistic market scenario that includes choices between real brands. In particular, we conduct two studies that examine if preferences for brands in a choice set are moderated by the inclusion of more or less familiar brand names. We find that consumers prefer extreme brands when compromise brands are relatively less familiar and compromise brands when they are relatively more familiar. In this scenario brand familiarity and not the position of the alternatives determine choice. In situations where a choice alternative is superior, we find no moderation due to brand familiarity.

Entry for supermarket feature me-too brands: An empirical explanation of incidence and timing

Anticipating the speed of market entry can help the feature pioneer and me-too brands develop more informed product launch strategies. This paper explains imitation speed, broken down into the incidence and timing of imitation, across 144 imitators and 847 nonimitators in 22 consumer packaged goods subcategories. On average, it takes 85 weeks for a me-too brand to introduce its feature imitation. Increasing category market share increases the incidence of imitation and, conditional on their occurrence, decreases the time to market of feature imitators. Faster entry arises for store brands as they are more likely to imitate and tend to take shorter times to market. Price premium does not have a significant effect on the incidence or timing of a me-too brand as it tends to dissipate after the first year. Brands imitate innovative features more often than noninnovative features. Some evidence indicates these imitators can take a longer time to enter the market. New product managers may benefit from the direction as well as the magnitude of these results.

Demand and distribution relationships in the ready-to-drink iced tea market: A graphical approach

The relationship between distribution coverage and market share for an incumbent brand and for new entrants in the ready-to-drink iced tea market during its growth phase is explored using state space diagrams. This graphical visualization method was originally developed to disentangle lead–lag relationships between short nonstationary time series, a situation in which standard econometric methods have difficulty. In this research we show the usefulness of this method for long time series in offering complementary insights to econometric models, in providing a simple and managerially useful tool, and in conducting exploratory data analysis to guide subsequent modeling decisions. In the ready-to-drink iced tea market, usage of this method shows that during introduction of new brands and growth of the category, demand leads distribution, but that as the market matures, the dominant incumbent can defend with a distribution-leading-demand dynamic. Further, distribution coverage eventually becomes relatively stable so that short term fluctuations in demand (probably due to responses to promotion) have minimal impact on distribution.

Private labels ain’t bona fide! Perceived authenticity and willingness to pay a price premium for national brands over private labels

Abstract

As private labels are consolidating their gains in national markets, a conventional recommendation to national brand manufacturers would most likely be to invest more in marketing in order to increase the perceived quality gap between national brands and private labels. It is assumed that the quality gap would boost consumer willingness to pay a price premium for national brands over private labels. Differing from this conventional approach, the current study focuses on the perceived authenticity gap between national brands and private labels, to explore whether and how this factor influences the effect of marketing and manufacturing variables on willingness to pay. This relationship is relevant in milieus where consumers might take brand authenticity rather than quality perceptions to guide their brand evaluations. The current study finds that the perceived authenticity gap mediates the effect of only some particular conventional marketing tools on willingness to pay. The study suggests that national brand managers should take the presence of private labels in the national markets as an opportunity to exploit the dynamics of authenticity evaluations, rather than as a threat.     

Information and Export Performance

Exporters’ performance in a given market may affect their exports to the rest of the world. Importers base their future transaction decisions upon the information revealed by exporter’s performance in other countries. This paper estimates significant effects from these information spillovers on the export patterns of fourteen developing countries, and somewhat smaller effects for a sample of exporters from six developed countries. On the other hand, it is in developed countries’ markets that the largest information spillovers are generated. Indeed, increases in market share in the United States allows for significant increases in exports to the rest-of-the world associated with information spillovers. But developing country markets could also generate important amounts of information for regional exporters. Hong Kong is the top market in terms of generating information for other East Asian exporters, and the Argentinean and Chilean markets play an important role for exporters from other Latin American countries.

Banking Competition and SMEs Bank Financing. Evidence from the Italian Provinces

This work investigates whether local differences in banking competition impact on the amount of bank debt used by Italian small and medium sized manufacturing firms. Sample selection and Double Hurdle models are adopted as the process, which results in the choice of bank financing may differ from that determining its amount. Our main finding is that more competitive banking markets seem to be associated with relatively higher usage of bank debt by less transparent firms. On the other hand, a higher banking competition seems to have no effect on the probability of receiving bank loans.

Competitive product lines with quality constraints

Competing firms often use product lines to screen different types of customers. Examples include, in general markets, product lines that screen the purchasing ability or preference for quality; in credit markets, product lines that screen the risk of the projects with different collateral; in insurance markets, product lines that screen the risk of accident with different coverage; and in labor markets, wage schedules that screen the employees’ abilities with different education levels. In some of these markets there can be some natural quality constraints: a maximum available quality in general markets, no negative collateral in credit markets; coverage not above 100% in insurance markets; minimum education level in labor markets. We present sufficient conditions for the existence of a pure strategies equilibrium (in such markets) under differentiation and a continuous distribution of customer types. We show that the equilibrium exists if there is a sufficiently high degree of differentiation among firms. Furthermore, we show that this equilibrium involves, under certain general conditions, pooling of customer types at the top and at the bottom of the distribution of customer types. The middle types may still be screened by the firms.

The shipping strategies of internet retailers: Evidence from internet book retailing

Managing the shipment of goods to consumers is one of the central aspects of retail competition on the internet. In this article, we analyze internet retailers’ shipping strategies using data from the internet book retailing industry. We find that, controlling for a variety of observable firm characteristics, firms with lower product prices offer lower shipping fees and higher quality shipping in terms of average delivery time, compared to firms with higher product prices. These patterns cannot be readily reconciled with a large class of models of competition under perfect consumer information. Theories based on imperfect consumer information can explain the findings better.

Convergence in the high-technology consumer markets: Not all brands gain equally from adding new functionalities to products

Convergence in the electronics sector has allowed the addition of new functionalities to products (e.g., mobile television to a cell phone). It is proposed that the goal congruence of the added functionality (i.e., whether it has similar or different goals as the base product) would affect the relative gain to high versus lower quality brands. While lower quality brands would gain when a congruent functionality is added, high quality brands would gain from an incongruent addition. The former hypothesis was confirmed significantly and the latter marginally in two experimental studies.

Patterns and Determinants of Entry in Rural County Banking Markets

In this paper I consider 115 rural markets in the USA, and both describe and explain patterns of bank and thrift entry over the past 10 years, with particular interest in the decisions of top bank holding companies to enter rural markets and the influence their presence has on entry of smaller banking institutions. The paper explores several dimensions of entry and competition in rural banking markets. In terms of explaining both numbers of banks across markets and gross and net entry within markets, market size and its growth seem to be major factors, consistent with recent literature. The role of leading bank holding companies is found to be important in stimulating entry of smaller rivals. This result is consistent with earlier work suggesting that merger and acquisition activity tends to stimulate de novo entry, while also with the view that large firm presence may be a signal to potential entrants of future growth prospects in the market.

A Structural Model for Evaluating the Sector-specific Impacts of Preferential Trade Agreements

This paper develops and estimates a structural model of imperfect competition in international markets. The model incorporates a flexible non-linear demand framework with structural price equations. A general Conjectural Variation approach is developed to characterize strategic interaction. This allows the simultaneous evaluation of the sector-specific terms of trade effects of a Preferential Trade Agreement (PTA), and the extent of international competition in the sector under consideration. The model is then used to evaluate the impact of the Lebanese–Egyptian PTA on the iron and steel import sector in Lebanon. Results confirm the need for a structural approach in the empirical assessment of PTAs.

The impact of advertising on consumer price sensitivity in experience goods markets

In this paper we use Nielsen scanner panel data on four categories of consumer goods to examine how TV advertising and other marketing activities affect the demand curve facing a brand. Advertising can affect consumer demand in many different ways. Becker and Murphy (Quarterly Journal of Economics 108:941–964, 1993) have argued that the “presumptive case” should be that advertising works by raising marginal consumers’ willingness to pay for a brand. This has the effect of flattening the demand curve, thus increasing the equilibrium price elasticity of demand and the lowering the equilibrium price. Thus, “advertising is profitable not because it lowers the elasticity of demand for the advertised good, but because it raises the level of demand.” Our empirical results support this conjecture on how advertising shifts the demand curve for 17 of the 18 brands we examine. There have been many prior studies of how advertising affects two equilibrium quantities: the price elasticity of demand and/or the price level. Our work is differentiated from previous work primarily by our focus on how advertising shifts demand curves as a whole. As Becker and Murphy pointed out, a focus on equilibrium prices or elasticities alone can be quite misleading. Indeed, in many instances, the observation that advertising causes prices to fall and/or demand elasticities to increase, has misled authors into concluding that consumer “price sensitivity” must have increased, meaning the number of consumers’ willing to pay any particular price for a brand was reduced—perhaps because advertising makes consumers more aware of substitutes. But, in fact, a decrease in the equilibrium price is perfectly consistent with a scenario where advertising actually raises each individual consumer’s willingness to pay for a brand. Thus, we argue that to understand how advertising affects consumer price sensitivity one needs to estimate how it shifts the whole distribution of willingness to pay in the population. This means estimating how it shifts the shape of the demand curve as a whole, which in turn means estimating a complete demand system for all brands in a category—as we do here. We estimate demand systems for toothpaste, toothbrushes, detergent and ketchup. Across these categories, we find one important exception to conjecture that advertising should primarily increase the willingness to pay of marginal consumers. The exception is the case of Heinz ketchup. Heinz advertising has a greater positive effect on the WTP of infra-marginal consumers. This is not surprising, because Heinz advertising focuses on differentiating the brand on the “thickness” dimension. This is a horizontal dimension that may be highly valued by some consumers and not others. The consumers who most value this dimension have the highest WTP for Heinz, and, by focusing on this dimension; Heinz advertising raises the WTP of these infra-marginal consumers further. In such a case, advertising is profitable because it reduces the market share loss that the brand would suffer from any given price increase. In contrast, in the other categories we examine, advertising tends to focus more on vertical attributes.

Gender differences in new brand name response

Conventional guidelines for naming new products overlook possible individual-level differences that may affect response to new brand names. This research draws on sound symbolism theory to investigate whether gender affects response to new brand names. Specifically, two studies are conducted to examine whether females respond more favorably than males to brand names with front vowels and whether males respond more favorably than females to brand names with back vowels. Results indicate that gender is associated with brand name response and that the gender asymmetries appear to be more pronounced in product categories where masculinity–femininity is a more salient product attribute. An implication is that gender targeting can be facilitated through the use of particular letters in brand names.

Framing the Corporation: Royal Dutch/Shell and Human Rights Woes in Nigeria

Transnational corporations are often implicated in conflicts over environmental problems and human rights in developing countries. As a result they become targets of both local and transnational campaigns. Given the lack of resources and influence of local activists, campaigning groups often turn to consumer audiences abroad to pressurize a certain company or brand. That requires agenda-setting and “framing” of the issues concerned in order to gain consumers’ attention. Local activists and campaigning groups use the public sphere to call attention to allegedly dubious corporate policies and practices that lie behind the consumer goods offered for sale in the Western world. Based on an analysis of the public discourse about the operations of the oil multinational Royal Dutch/Shell in Nigeria in the year 1995, this paper suggests that once the corporation is framed as a moral actor, it gets difficult for the corporation to deny its responsibility for human rights—even though the actual influence of the corporation may be limited.

Advertising budgets in competitive environments

Firms can approach advertising competition either by setting advertising budgets (as in the percentage of sales method) or target sales levels (as in the objective and task approach). We study firms’ incentives to adopt one or the other posture using a two-stage model of duopolistic competition. In the first stage, each firm chooses to commit either to an advertising budget, letting its sales follow from the market response function, or to a desired sales level, promising to adjust its advertising spending accordingly. In the second stage, firms choose the actual levels of their advertising budget or sales target. When prices are exogenous, we show that, due to strategic effects, if a firm benefits from its rival’s advertising (as when advertising increases awareness of the product category) then setting an advertising budget dominates setting a sales target. On the other hand, if a firm is harmed by its rival’s advertising (as when advertising increases the firm’s share of a fixed market), then committing to a sales level dominates. We extend these results in several directions and show that when firms engage in price competition as well as advertising the nature of advertising and product-market competition interact to determine whether setting an advertising budget or sales target dominates.

Price competition with repeat, loyal buyers

Extant theoretical models suggest that greater consumer loyalty increases a firm’s market power and leads to higher prices and fewer price promotions (Klemperer, Quarterly Journal of Economics 102(2):375–394, 1987a, Economic Journal 97(0):99–177, 1987b, Review of Economic Studies 62(4):515–539, 1995; Padilla, Journal of Economic Theory 67(2):520–530, 1995). However, in some markets large, national brands that are able to generate more consumer loyalty than their rivals offer lower prices and promote more frequently. In this paper, we develop a two-period game-theoretic, asymmetric duopoly model in which firms differ in their ability to retain repeat, loyal buyers. In this market, we demonstrate that it is optimal for a firm that generates more loyalty to offer a lower average price and promote more frequently than a weaker competitor. Numerical analysis of a more general infinite period version of this asymmetric model leads to three additional results. First, we show that there is an inverted-U relationship between a weak firm’s ability to attract repeat, loyal consumers and strong firm profits. Second, we show that the relative ability of firms to attract repeat buyers affects whether serial and contemporaneous price correlations are positive or negative. Finally, we highlight the effect of dynamics on firms’ expected prices and profits.

Too close to be similar: Product and price competition in retail gasoline markets

We examine how product and pricing decisions of retail gasoline stations depend on local market demographics and the degree of competitive intensity in the market. We are able to shed light on the observed empirical phenomenon that proximate gasoline stations price very similarly in some markets, but very differently in other markets. Our analysis of product design and price competition between firms integrates two critical dimensions of heterogeneity across consumers: Consumers differ in their locations and in their travel costs, as in models of horizontal differentiation. They also differ in their relative preference or valuations for product quality dimensions, in terms of the offered station services (such as pay-at-pump, number of service bays or other added services), as in models of vertical differentiation. We find that the degree of local competitive intensity and the dispersion in consumer incomes are sufficient to explain variations in the product and pricing choices of competing firms. Closely located retailers who face sufficient income dispersion across consumers in a local market may differentiate on product design and pricing strategies. In contrast, retailers that are farther apart from each other may adopt similar product design and pricing strategies if the market is relatively homogeneous on income. Using empirical survey data on prices and station characteristics gathered across 724 gasoline stations in the St. Louis metropolitan area, and employing a multivariate logit model that predicts the joint probability of stations within a local market differentiating on product design and pricing strategies as a function of market demographics and local competitive intensity, we find strong support for the central implications of the theory.