Advertising and U. S. Nonalcoholic Beverage Demand

Abstract

As a first effort at modeling nonalcoholic beverage demand in a systemwide framework that includes bottled water, this article examines the impact of advertising on the demand for nonalcoholic beverages in the United States. We employed an AIDS (almost ideal demand system) model of five jointly estimated equations that included advertising expenditures as explanatory variables to evaluate annual U. S. consumption of nonalcoholic beverages for 1974 through 2005. Results suggest that advertising increases demand for fluid milk, soft drinks, and coffee and tea, but not for juice or bottled water. Advertising spillover effects occur in over 50 percent of the cases considered, and such effects can be substantial, particularly for advertising of soft drinks, and coffee and tea. We find that a large increase in the retail price of fluid milk, an increasing trend towards dining out, and positive spillover effects from soft-drink advertising made significant contributions to bottled water's success in recent years.

Demand Analysis for Non-Alcoholic Beverages Consumptin in the United States

“…A 1% increase on the expenditure of the non-diet beverages would approximately increase the quantity demanded by 1.63%. This result is consistent with the past literature (Dharmasena and Caps 2009;Zheng and Kaiser 2008;Alviloa et al, 2010). Remaining products have expenditure elasticity less than 1 (approximately close to 1).…”

“…The economic restrictions such as homogeneity and symmetry can be tested putting linear restrictions on parameters. Moreover, the AIDS model is derived from a specific cost function, which corresponds to a well-defined preference structure (Deaton and Muellbauer, 1980;Zheng and Kaiser, 2008). Past studies on non-alcoholic beverage demand analysis mainly include these products: milk, juices, soft drinks, coffee and tea (Heien and Wessels, 1988;Kaiser and Reberte, 1996;Yen and Lin, 2001;Ueda and Frechette, 2002).…”

“…Many previous studies have used the AIDS model to estimate the demand for meat, alcoholic beverages and nonalcoholic beverages. For instance, Zheng and Kaiser (2008) used the AIDS model to estimate the impact of advertising on non-alcoholic beverages including bottle water and the results indicated that advertising increases the demand for fluid milks, soft drinks, and coffee and tea but no effects on juice and bottled water. Moosa and Baxter (2002) also used the AIDS model to examine the wine and beer consumption with seasonality and time trends.…”

“…However, this result contradicts the conclusion of Yen et al (2004) who found coffee and tea as a luxury good (expenditure elasticity is 1.13). Zheng and Kaiser (2008) found that bottled water is the most price elastic good in non-alcoholic beverages groups. In this research, data are not available for bottle water (data is only available for aggregate level water).…”

“…The existing literature focuses on the demand analysis for non-alcoholic beverage separately for coffee, tea, milk, or other carbonated drinks separately or with a different product combination and most of the studies ignore the seasonal variables. Several past studies examined the demand for non-alcoholic beverages in different countries (Pofahl et al, 2005;Yen et al, 2004;Zheng and Kaiser, 2008). A recent study on the demand for non-alcoholic beverages in Japanese household show that temperature has…”