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Empirical Generalizations About the Impact of Advertising on Price Sensitivity and Price

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Author Info

  • Anil Kaul

    (Cornell University)

  • Dick R. Wittink

    (Cornell University)

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    Abstract

    Consumers' sensitivities to price changes are an important input to strategic and tactical decisions. It has been argued that price sensitivities depend on factors such as advertising. Prior studies on the effect of advertising on consumer price sensitivity have found seemingly conflicting results. We analyze the characteristics of previous studies in marketing and generate a set of three empirical generalizations. These are (1) an increase in price advertising leads to higher price sensitivity among consumers, (2) the use of price advertising leads to lower prices, and (3) an increase in nonprice advertising leads to lower price sensitivity among consumers. These generalizations have important implications for managers and researchers. Managers need to coordinate their advertising and pricing decisions to attain maximum profits. For researchers, our summary and discussion of empirical results provide directions for future.

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    File URL: http://dx.doi.org/10.1287/mksc.14.3.G151
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 14 (1995)
    Issue (Month): 3_supplement ()
    Pages: G151-G160

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    Handle: RePEc:inm:ormksc:v:14:y:1995:i:3_supplement:p:g151-g160

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    Related research

    Keywords: advertising; pricing research; empirical generalization;

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    Cited by:
    1. Nelson, Jon P., 2001. "Alcohol Advertising and Advertising Bans: A Survey of Research Methods, Results, and Policy Implications," Working Papers 7-01-2, Pennsylvania State University, Department of Economics.
    2. Andrew T. Young & Daniel Levy, 2011. "Explicit Evidence on an Implicit Contract," Working Papers 2011-17, Department of Economics, Bar-Ilan University.
    3. Tülin Erdem & Michael Keane & Baohong Sun, 2008. "The impact of advertising on consumer price sensitivity in experience goods markets," Quantitative Marketing and Economics, Springer, vol. 6(2), pages 139-176, June.
    4. Ailawadi, K.H. & Bradlow, E.T. & Draganska, M. & Nijs, V. & Rooderkerk, R.P. & Sudhir, K. & Wilbur, K.C. & Zhang, J., 2010. "Empirical models of manufacturer-retailer interaction: A review and agenda for future research," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4163972, Tilburg University.
    5. Eric Kemp-Benedict, 2012. "Price and Quantity Trajectories: Second-order Dynamics," Papers 1204.3156, arXiv.org.
    6. Admiraal, P-H. & Carree, M.A., 2000. "Competition and Market Dynamics on the Russian Deposits Market," ERIM Report Series Research in Management ERS-2000-25-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    7. Doraszelski, Ulrich & Draganska, Michaela & Clark, C. Robert, 2007. "Information or Persuasion? An Empirical Investigation of the Effect of Advertising on Brand Awareness and Perceived Quality using Panel Data," Research Papers 1971, Stanford University, Graduate School of Business.
    8. Michael, Steven C., 2003. "First mover advantage through franchising," Journal of Business Venturing, Elsevier, vol. 18(1), pages 61-80, January.
    9. Dawes, John & Nenycz-Thiel, Magda, 2013. "Analyzing the intensity of private label competition across retailers," Journal of Business Research, Elsevier, vol. 66(1), pages 60-66.
    10. Ashraf, Nava & Jack, B. Kelsey & Kamenica, Emir, 2013. "Information and subsidies: Complements or substitutes?," Journal of Economic Behavior & Organization, Elsevier, vol. 88(C), pages 133-139.
    11. East, Robert & Hogg, Annik, 2000. "Advertising for economic change," Journal of Economic Psychology, Elsevier, vol. 21(5), pages 577-590, October.
    12. Takada, Hirokazu & Bass, Frank M., 1998. "Multiple Time Series Analysis of Competitive Marketing Behavior," Journal of Business Research, Elsevier, vol. 43(2), pages 97-107, October.

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