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The Targeting of Advertising

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Author Info

  • Ganesh Iyer

    () (Haas School of Business, University of California, Berkeley, Berkeley, California 94720-1900)

  • David Soberman

    () (INSEAD, Boulevard de Constance, Fontainebleau, France 77305)

  • J. Miguel Villas-Boas

    () (Haas School of Business, University of California, Berkeley, Berkeley, California 94720-1900)

Abstract

An important question that firms face in advertising is developing effective media strategy. Major improvements in the quality of consumer information and the growth of targeted media vehicles allow firms to precisely target advertising to consumer segments within a market. This paper examines advertising strategy when competing firms can target advertising to different groups of consumers within a market. With targeted advertising, we find that firms advertise more to consumers who have a strong preference for their product than to comparison shoppers who can be attracted to the competition. Advertising less to comparison shoppers can be seen as a way for firms to endogenously increase differentiation in the market. In addition, targeting allows the firm to eliminate “wasted” advertising to consumers whose preferences do not match a product’s attributes. As a result, the targeting of advertising increases equilibrium profits. The model demonstrates how advertising strategies are affected by firms being able to target pricing. Target advertising leads to higher profits, regardless of whether or not the firms have the ability to set targeted prices, and the targeting of advertising can be more valuable for firms in a competitive environment than the ability to target pricing.

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File URL: http://dx.doi.org/10.1287/mksc.1050.0117
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Bibliographic Info

Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 24 (2005)
Issue (Month): 3 (May)
Pages: 461-476

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Handle: RePEc:inm:ormksc:v:24:y:2005:i:3:p:461-476

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Related research

Keywords: media precision; advertising; targeting; price discrimination;

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Citations

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Cited by:
  1. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
  2. Hamilton, Stephen F., 2009. "Informative advertising in differentiated oligopoly markets," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 60-69, January.
  3. Rademaker, Claudia A., 2011. "Hinders for Eco-friendly Media Selection," Working Paper Series in Business Administration 2011:7, Stockholm School of Economics, revised 14 Feb 2012.
  4. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Levine's Working Paper Archive 661465000000000284, David K. Levine.
  5. Andreas M. Hefti, 2011. "Attention competition," ECON - Working Papers 028, Department of Economics - University of Zurich.
  6. repec:ebl:ecbull:v:12:y:2007:i:10:p:1-12 is not listed on IDEAS
  7. Yonghong An & Michael R Baye & Yingyao Hu & John Morgan, 2010. "Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects," Working Papers 2010-17, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  8. Anderson, Simon & Ciliberto, Federico & Liaukonyte, Jura, 2010. "Getting into Your Head(Ache): The Information Content of Advertising in the Over-the-Counter Analgesics Industry," MPRA Paper 24916, University Library of Munich, Germany.
  9. Bharat Anand & Ron Shachar, 2009. "Targeted advertising as a signal," Quantitative Marketing and Economics, Springer, vol. 7(3), pages 237-266, September.
  10. Nolan Miller & Amit Pazgal, 2007. "Advertising budgets in competitive environments," Quantitative Marketing and Economics, Springer, vol. 5(2), pages 131-161, June.
  11. Rosa Branca Esteves, 2007. "Customer Poaching and Advertising," NIPE Working Papers 12/2007, NIPE - Universidade do Minho.
  12. Stühmeier, Torben, 2012. "Target Advertising and Market Transparency," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62021, Verein für Socialpolitik / German Economic Association.
  13. Allender, William J. & Richards, Timothy J., 2009. "Measures of Brand Loyalty," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49536, Agricultural and Applied Economics Association.
  14. Rennhoff, Adam D. & Serfes, Konstantinos, 2009. "Retailer price distributions and promotional activities," Economics Letters, Elsevier, vol. 103(2), pages 91-95, May.
  15. Lola Esteban & José Hernández, 2011. "Specialized advertising and price competition in vertically differentiated markets," SERIEs, Spanish Economic Association, vol. 2(2), pages 255-282, June.
  16. Andrea Galeotti & José Luis Moraga-González, 2004. "A Model of Strategic Targeted Advertising," CESifo Working Paper Series 1196, CESifo Group Munich.
  17. Sina Henningsen & Rebecca Heuke & Michel Clement, 2011. "Determinants of Advertising Effectiveness: The Development of an International Advertising Elasticity Database and a Meta-Analysis," BuR - Business Research, German Academic Association for Business Research, vol. 4(2), pages 193-239, December.

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