Sridhar Moorthy

Advertising repetition and quality perception

Abstract Nelson [J. Polit. Econ. 78 (1970) 311; J. Polit. Econ. 81 (1974) 729; Nelson P. The economic value of advertising. In: Brozen Y, editor. Advertising and society. New York: New York Univ. Press, 1974. pp. 43–66] has argued that advertising spending is a signal of product quality for experience goods because consumers can rationally infer that high-quality products would advertise more than low-quality products. In this paper, we compare Nelsons view of advertising with marketing views of advertising using ad repetition as a surrogate for ad spending. Our results show limited support for Nelsons theory but substantial support for ad repetition influencing perceived quality through attitude toward the ad.

A Model Of Price Promotions With Consumer Search

This paper presents a price discrimination model of price promotions. The distinguishing feature of our model is the explicit distinction between regular and promotional prices: Regular prices are chosen first, then promotional prices. Further, while regular prices are always available to everyone, promotional prices are only available when offered, and only to those who search for them. We show that even a monopolist will offer random promotions under these circumstances. Furthermore, as search costs increase, the frequency and depth of promotions increase. With competition for the promotion-oriented consumers, the seller becomes more aggressive in his promotional policies, even more so as search costs increase. The high reservation price consumers, however, end up worse off with competition.

Measuring and Understanding Brand Value in a Dynamic Model of Brand Management

We develop a structural model of brand management to estimate the value of a brand to a firm. In our framework, a brand’s value is the expected net present value of future cash flows accruing to a firm due to its brand. Our brand value measure recognizes that a firm can change its brand equity by investing in advertising. We estimate quarterly brand values in the stacked chips category for the period 2001–2006 and explore how those values change over time. Comparing our brand value measure to its static counterpart, we find that a static measure, which ignores advertising and its ability to affect brand equity dynamics, yields brand values that are artificially high and that fluctuate too much over time. We also explore how changing the ability to build and sustain brand equity affects brand value. At our estimated parameterization, if brand equity were to depreciate more slowly, or if advertising were more effective at building brand equity, then brand value would increase. However, counterintuitively, w...

Advertiser Prominence Effects in Search Advertising

Search advertising is the ordered list of advertisements that appears when a user searches for something in an online search engine. By construction, these ads differ in prominence: ads higher up the list are more prominent than ads lower down the list. However, search ads also differ in prominence in another way: prominence of advertiser. This paper examines how these two types of prominence interact in determining the click-through rate (CTR) of these ads. Using individual-level click-stream data from Microsoft’s Live Search platform and measures of advertiser prominence from Alexa.com, we find that ad position and advertiser prominence are substitutes. Specifically, in searches for camera brands, a retailer not in the top 100 of Alexa rankings has a 30%–50% higher CTR in position 1 than in position 2, whereas a retailer in the top 100 of Alexa rankings has only a 0%–13% higher CTR for the same position improvement. Qualitatively similar results are obtained for several other search strings. These findi...

On the Dynamics of Brand Extensions: The Case of Movies

A key precept of brand extension theory is that brand extension, as opposed to new brand, reduces the risk of new product trial in experience goods categories. In this paper we argue that this property has specific testable implications for the dynamics of sales. In particular, in the movie industry—where brand extension takes the form of sequels—sequels’ sales ought to be more “front loaded” than originals’ sales. On three measures of front-loadedness—ratio of opening week (weekend) box-office to total box-office, average purchase time, and time to peak sales—we verify this prediction robustly. While confirming that new brand extensions are indeed less risky to consumers than new brands, our results also suggest that signaling theories such as those of Nelson (1974) do not have much bite in movies.

Selling Your Product Through Competitors’ Outlets: Channel Strategy When Consumers Comparison Shop

This paper develops a new rationale for decentralization in distribution channels: providing a one-stop comparison shopping experience for consumers. In our duopoly model, when consumers are knowledgeable about their brand preferences, each manufacturer would distribute through its own vertically integrated retail outlets only. When some consumers are unsure about their brand preferences, however, it may be optimal for one of the manufacturers to also distribute through its competitor’s outlets. The resulting equilibrium has several interesting properties. First, only one of the manufacturers chooses to add competitor-outlet distribution, not both—even when the manufacturers are symmetric. Second, the manufacturer distributing through its competitor’s outlets also distributes through its own outlets, i.e., its distribution strategy is a hybrid strategy, combining vertical integration and decentralization. Third, when the manufacturers’ brands are asymmetric, it is the weaker brand that has a stronger ince...

The Marketing of Deals: Maximizing the Profit Impac of Sales Promotions

Consumers often purchase products based on sales promotions that they can redeem only after making the purchase. Such deals typically offer consumers a reward contingent on their performing a certain quantity of consumer effort, and we use the term rebates to refer generally to this family of deals. In this paper, we replicate and extend prior research showing that the time delay between the purchase and the redemption has the potential to cause a perceptual distortion in the value of the future reward and effort. However, we further argue that the appropriate marketing of deals can result in an effect on purchase without an effect on the redemption rate. Using an analytical model and a controlled laboratory experiment, we demonstrate that the marketing of the reward (i.e., highlighting) and the demarketing of the effort can maximize the profit potential of the promotion. We also derive implications of our results for optimal rebate design.