Advertising's Impact on Brand Price Elasticity

Berk Ataman, Koen Pauwels, Shuba Srinivasan and Marc Vanhuele ()
Additional contact information
Berk Ataman: Koç University
Koen Pauwels: Northeastern University
Shuba Srinivasan: Boston University
Marc Vanhuele: HEC Paris

No 1500, HEC Research Papers Series from HEC Paris

Abstract: Managers often count on advertising to create and reinforce brand differentiation, which should, in theory at least, translate into lower price sensitivity for their brands. But to what extent does it do so, what is the route through which this effect of advertising materializes, and what are the boundary conditions? The authors develop a Dynamic Linear Model that links advertising to brand price elasticity directly and indirectly through consideration and main brand preference mindset metrics. Model estimation on six and a half years of data, on average, for 350 brands in 39 categories of fast-moving consumer goods shows that advertising indeed decreases the magnitude of price elasticity. The effect is mainly direct (97.5%) and partly indirect (2.5%), through brand preference. The direct effect shows that advertising predominantly decreases price sensitivity among the consumers who already consider the brand and among the consumers who already prefer it. When converted into incremental revenue impact, monetary gains from this increased pricing power are especially pronounced for expensive brands in complex and frequently purchased categories. The findings thus help managers demonstrate the benefits of advertising in sustaining brand performance.

Keywords: Advertising; price elasticity; mindset metrics; long-term effects; dynamic linear models; and empirical generalization. (search for similar items in EconPapers)
JEL-codes: M30 M31 M37 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2024-01-24
New Economics Papers: this item is included in nep-com, nep-ind, nep-ipr and nep-mkt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4694207 Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1500

DOI: 10.2139/ssrn.4694207

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 78351 Jouy-en-Josas cedex, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().