Advertising And Consumer Awareness Of New, Differentiated Products
AbstractThis article proposes a novel approach to assess the dynamic effect that advertising expenditures have regarding which products consumers include in their choice sets. In a discrete-choice model consumers face choice sets that evolve according to their awareness of each product. Advertising expenditures have a dynamic effect in the sense that they raise consumer awareness of a product, increasing present and future sales. To estimate this effect the authors explicitly model the firms' dynamic advertising decisions and illustrate the model using data from the Spanish automobile market. The results show that the effect of advertising on awareness is dynamic and that accounting for it is crucial in explaining the evolution of product sales over its life cycle. Furthermore, we show that the awareness process can be significantly sped up by advertising. Thus there is a great heterogeneity in the awareness process among products depending on the level of advertising expenditures and it may range from one to six years.
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Bibliographic InfoPaper provided by CEMFI in its series Working Papers with number wp2011_1104.
Date of creation: Oct 2011
Date of revision:
Advertising; discrete choice models; consumer choice set; awareness process; new products.;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
- M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-14 (All new papers)
- NEP-COM-2011-11-14 (Industrial Competition)
- NEP-DCM-2011-11-14 (Discrete Choice Models)
- NEP-IND-2011-11-14 (Industrial Organization)
- NEP-MKT-2011-11-14 (Marketing)
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