Tülin Erdem

Brand Credibility, Brand Consideration, and Choice

We examine the role of brand credibility (trustworthiness and expertise) on brand choice and consideration across multiple product categories that vary in regard to potential uncertainty about attributes and associated information acquisition costs and perceived risks of consumption. We find that brand credibility increases probability of inclusion of a brand in the consideration set, as well as brand choice conditional on consideration. We also find that although credibility impacts brand choice and consideration set formation more and through more constructs in contexts with high uncertainty and sensitivity to such uncertainty, credibility effects are present in all categories. Finally, our results indicate that trustworthiness, rather than expertise, affects consumer choices and brand consideration more.

A Dynamic Model of Brand Choice When Price and Advertising Signal Product Quality

In this paper, we develop a structural model of household behavior in an environment where there is uncertainty about brand attributes and both prices and advertising signal brand quality. Four quality signaling mechanisms are at work: 1 price signals quality, 2 advertising frequency signals quality, 3 advertising content provides direct but noisy information about quality, and 4 use experience provides direct but noisy information about quality. We estimate our proposed model using scanner panel data on ketchup. If price is important as a signal of brand quality, then frequent price promotion may have the unintended consequence of reducing brand equity. We use our estimated model to measure the importance of such effects. Our results imply that price is an important quality-signaling mechanism and that frequent price cuts can have significant adverse effects on brand equity. The role of advertising frequency in signaling quality is also significant, but it is less quantitatively important than price. n nIn the printed version of Marketing Science, Vol. 27, No. 6, Erdem et al. 2008 was mistakenly identified as a Research Note. It is a regular article and has been corrected here and in the online table of contents.

The Impact of Advertising on Consumer Price Sensitivity in Experience Goods Markets

In this paper we use Nielsen scanner panel data on four categories of consumer goods to examine how TV advertising and other marketing activities affect the demand curve facing a brand. Advertising can affect consumer demand in many different ways. Becker and Murphy (Quarterly Journal of Economics 108:941–964, 1993) have argued that the “presumptive case” should be that advertising works by raising marginal consumers’ willingness to pay for a brand. This has the effect of flattening the demand curve, thus increasing the equilibrium price elasticity of demand and the lowering the equilibrium price. Thus, “advertising is profitable not because it lowers the elasticity of demand for the advertised good, but because it raises the level of demand.” Our empirical results support this conjecture on how advertising shifts the demand curve for 17 of the 18 brands we examine. There have been many prior studies of how advertising affects two equilibrium quantities: the price elasticity of demand and/or the price level. Our work is differentiated from previous work primarily by our focus on how advertising shifts demand curves as a whole. As Becker and Murphy pointed out, a focus on equilibrium prices or elasticities alone can be quite misleading. Indeed, in many instances, the observation that advertising causes prices to fall and/or demand elasticities to increase, has misled authors into concluding that consumer “price sensitivity” must have increased, meaning the number of consumers’ willing to pay any particular price for a brand was reduced—perhaps because advertising makes consumers more aware of substitutes. But, in fact, a decrease in the equilibrium price is perfectly consistent with a scenario where advertising actually raises each individual consumer’s willingness to pay for a brand. Thus, we argue that to understand how advertising affects consumer price sensitivity one needs to estimate how it shifts the whole distribution of willingness to pay in the population. This means estimating how it shifts the shape of the demand curve as a whole, which in turn means estimating a complete demand system for all brands in a category—as we do here. We estimate demand systems for toothpaste, toothbrushes, detergent and ketchup. Across these categories, we find one important exception to conjecture that advertising should primarily increase the willingness to pay of marginal consumers. The exception is the case of Heinz ketchup. Heinz advertising has a greater positive effect on the WTP of infra-marginal consumers. This is not surprising, because Heinz advertising focuses on differentiating the brand on the “thickness” dimension. This is a horizontal dimension that may be highly valued by some consumers and not others. The consumers who most value this dimension have the highest WTP for Heinz, and, by focusing on this dimension; Heinz advertising raises the WTP of these infra-marginal consumers further. In such a case, advertising is profitable because it reduces the market share loss that the brand would suffer from any given price increase. In contrast, in the other categories we examine, advertising tends to focus more on vertical attributes.

Brands: The Opiate of the Nonreligious Masses?

Are brands the “new religion”? Practitioners and scholars have been intrigued by the possibility, but strong theory and empirical evidence supporting the existence of a relationship between brands and religion is scarce. In what follows, we argue and demonstrate that religiosity is indeed related to “brand reliance,” i.e., the degree to which consumers prefer branded goods over unbranded goods or goods without a well-known national brand. n nWe theorize that brands and religiosity may serve as substitutes for one another because both allow individuals to express their feelings of self-worth. We provide support for this substitution hypothesis with U.S. state-level data (field study) as well as individual-level data where religiosity is experimentally primed (study 1) or measured as a chronic individual difference (study 2). Importantly, studies 1 and 2 demonstrate that the relationship between religiosity and brand reliance only exists in product categories in which brands enable consumers to express themselves (e.g., clothes). Moreover, studies 3 and 4 demonstrate that the expression of self-worth is an important factor underlying the negative relationship.

Invited Paper—Learning Models: An Assessment of Progress, Challenges, and New Developments

Learning models extend the traditional discrete choice framework by postulating that consumers have incomplete information about product attributes and that they learn about these attributes over time. In this survey we describe the literature on learning models that has developed over the past 20 years, using the model of Erdem and Keane as a unifying framework [Erdem T, Keane M (1996) Decision-making under uncertainty: Capturing dynamic brand choice processes in turbulent consumer goods markets. Marketing Sci. 15(1):1--20]. We describe how subsequent work has extended their modeling framework and applied learning models to a wide range of different products and markets. We argue that learning models have contributed greatly to our understanding of consumer behavior---in particular, in enhancing our understanding of brand loyalty and long-run advertising effects. We also discuss the limitations of existing learning models and potential extensions. One key challenge is to disentangle learning as a source of dynamics from other key mechanisms that may generate choice dynamics (inventories, habit persistence, etc.). Another is to enhance identification of learning models by collecting and using direct measures of signals, perceptions, and expectations.

A simple method to estimate the roles of learning, inventories and category consideration in consumer choice

Models of consumer learning and inventory behavior have both proven to be valuable for explaining consumer choice dynamics. In their pure form these models assume consumers solve complex dynamic programming (DP) problems to determine optimal choices. For this reason, these models are best viewed as “as if” approximations to consumer behavior. In this paper we present an estimation method, based on Geweke and Keane (2000), which allows us to estimate dynamic models without solving a DP problem and without strong assumptions about how consumers form expectations about the future. The relatively low computational burden of this method allows us to nest the learning and inventory models. We also incorporate the “price consideration” mechanism of Ching, Erdem and Keane (2009), which essentially says that consumers may not pay attention to a category in every period. The resulting model may be viewed as providing a more “realistic” or “descriptive” account of consumer choice behavior.

How Much Do Consumers Know About the Quality of Products? Evidence from the Diaper Market

To measure the extent of incomplete information about brand qualities faced by consumers, recent research in marketing and economics has extended traditional static choice models to explicitly allow for consumer learning. These models tend to be complicated and make stringent assumptions such as Bayesian updating. In this paper, we provide a simpler alternative method to measure how much consumers know about the quality of quasi-durable products. Our key insight is that for products that depreciate over time and require repeated purchases, individuals’ observed inter-purchase spells provide another measure of brand qualities in terms of durability. This is simply because the higher the durability, the longer a product can last in general, and hence its observed inter-purchase spells should also be longer. Based on this argument, we propose an empirical framework to estimate both the perceived brand quality (based on revealed preference data) and brand durability (based on brand-specific inter-purchase spells) and apply it to a scanner panel dataset for diapers. Our estimates allow us to compare these two measures of qualities and infer the extent of incomplete information faced by parents. With our results, we can address questions such as: Do parents make the right choice in the diapers category? Can they save some money by switching from a national brand to a store brand or the other way around? How much savings can they get?

Empirical Models of Learning Dynamics: A Survey of Recent Developments

There is now a very large literature on dynamic learningufeff models in marketing. Learning dynamics can be broadly defined as encompassing any process whereby the prior history of a consumer or market affects current utility evaluations (e.g., social learning, search, correlated learning, information spillover, etc.). In the present chapter, we focus on discussing this rapidly growing literature that deals with this broader view of learning dynamics.

The Information-Economics Perspective on Brand Equity

The focus of this monograph is the information-economics theoretic framework of brand equity. Adopting this view, Erdem and Swait [1998] argue that consumer-based brand equity is the value of a brand as a credible signal of a products positioning. In their framework, the content, clarity, and credibility of the brand signal creates intangible benefits, enhances perceived quality, and decreases consumer-perceived risk and information costs, and hence increases consumer utility, which underlies the added value associated with a brand. The central (and motivating) construct in this view is the credibility of brands as signals.

Counter-Cyclical Price Promotion: Capturing Seasonal Category Expansion Under Endogenous Consumption

This paper provides a new and complementary explanation for a pricing puzzle for seasonal products, namely, counter-cyclical pricing, drawing on the category-expansion effects of price promotions. Our study emphasizes the seasonal fluctuation in promotion frequency rather than the change in aggregate mean price across seasons, which motivates most existing studies. We propose a rationale for the counter-cyclical price promotions: consumers are more likely to increase category demand in response to promotions during periods of high demand, causing seasonally varying promotion effects on category expansion. We show promotion effects are amplified during high-demand periods if the product category is subject to stockpiling and endogenous-consumption behavior; that is, consumption is a function of inventory. Using scanner-panel data on the canned soup category, we find households purchase patterns are consistent with the endogenous consumption hypothesis. We investigate the seasonally varying promotion effects using the framework of a dynamic inventory model with forward-looking consumers (Erdem, Imai, and Keane, 2003; Hendel and Nevo, 2006) by allowing the consumption rate to be endogenous to household inventory and subject to the exogenous seasonal fluctuation in category preference. Our results indicate the long-run promotion effects are underestimated by 32% during periods of high demand if endogenous consumption is ignored, and that with endogenous consumption, the long-run promotion effects increase by 24% across seasons, implying a larger gain of promotions during high-demand periods, which is a motivation for the counter-cyclical price promotions.