1. Advertisinggs Long-Term Impact on Brand Price Elasticity Across Brands and Categories
- Author
-
Marc Vanhuele, Berk Ataman, Shuba Srinivasan, Koen Pauwels, Haldemann, Antoine, Ozyegin University, School of Management, Boston University [Boston] (BU), Groupement de Recherche et d'Etudes en Gestion à HEC (GREGH), Ecole des Hautes Etudes Commerciales (HEC Paris)-Centre National de la Recherche Scientifique (CNRS), and HEC Paris Research Paper Series
- Subjects
Price elasticity of demand ,Marketing mix modeling ,and empirical generalization ,Brand awareness ,media_common.quotation_subject ,Advertising ,Mindset ,JEL: M - Business Administration and Business Economics • Marketing • Accounting • Personnel Economics/M.M3 - Marketing and Advertising/M.M3.M37 - Advertising ,Competition (economics) ,JEL: M - Business Administration and Business Economics • Marketing • Accounting • Personnel Economics/M.M3 - Marketing and Advertising/M.M3.M31 - Marketing ,price elasticity ,Comparative advertising ,mindset metrics ,Economics ,[SHS.GESTION]Humanities and Social Sciences/Business administration ,Endogeneity ,Function (engineering) ,[SHS.GESTION] Humanities and Social Sciences/Business administration ,advertising ,long-term effects ,media_common ,dynamic linear models - Abstract
Advertising often aims at creating and reinforcing brand differentiation, which should translate into reduced price competition. Currently unknown are the boundary conditions for long-term advertising benefits, the route through which advertising effects materialize, and the role of competitive advertising in the category. The authors develop a Hierarchical Dynamic Linear Model that links own and others’ advertising in the category to brand price elasticity directly and indirectly through their impact on own and competitive mindset metrics. The model accommodates dynamic dependencies in mindset metrics, controls for endogeneity in marketing, captures competitive reactions and performance feedback in marketing, and explains cross-sectional variation as a function of brand and category characteristics. Model estimation on seven years of data for 350 brands in 39 categories shows that both own and all competitive advertising in the category lower price sensitivity for the average brand, both directly and through advertising awareness. The attenuation of price sensitivity is more pronounced for niche brands in complex and more expensive categories, with higher concentration and purchase frequency. A financial simulation based on the estimates shows that while the price elasticity effect is positive and substantial for high-price brands, it hurts the advertising returns for low-price brands.
- Published
- 2016