The Shape of Advertising Response Functions Revisited: A Model of Dynamic Probabilistic Thresholds

Demetrios Vakratsas (), Fred M. Feinberg, Frank M. Bass () and Gurumurthy Kalyanaram ()
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Demetrios Vakratsas: McGill University and ALBA, Faculty of Management, 1001 Sherbrooke Street West, Montreal, Quebec, Canada H3A 1G5
Fred M. Feinberg: University of Michigan Business School, 701 Tappan Street, Ann Arbor, Michigan 48109
Frank M. Bass: School of Management, University of Texas at Dallas, P.O. Box 830688, Richardson, Texas, 75083-0688
Gurumurthy Kalyanaram: GK Associates

Marketing Science, 2004, vol. 23, issue 1, 109-119

Abstract: Prior work in marketing has suggested that advertising —levels beneath which there is essentially no sales response—are rarely encountered in practice. Because advertising policies settle into effective ranges through early trial and error, thresholds cannot be observed directly, and arguments for their existence must be based primarily on a "statistical footprint," that is, on relative fits of a range of model types. To detect possible threshold effects, we formulate a switching regression model with two "regimes," in only one of which advertising is effective. Mediating the switch between the two regimes is a logistic function of category-specific dynamic variables (e.g., order of entry, time in market, number of competitors) and advertising levels, nesting a variety of alternative formulations, among them both standard concave and S-shaped responses. A sequence of comparisons among parametrically related models strongly suggests: that threshold effects exist; that market share response to advertising is not necessarily globally concave; that superior fit cannot be attributed to model flexibility alone; and that dynamic, environmental, competitive, and brand-specific factors can influence advertising effectiveness. These effects are evident in two evolving durables categories (SUVs and minivans), although not in the one mature, nondurable category (liquid detergent) studied.

Keywords: advertising; econometric models; product management; switching regression; dynamic models (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:23:y:2004:i:1:p:109-119

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