Advertising, Consumer Awareness, and Choice: Evidence from the U.S. Banking Industry

Abstract

Does advertising serve to (i) increase awareness of a product, (ii) increase the likelihood that the product is considered carefully, or (iii) does it shift consumer utility conditional on having considered it? We utilize a detailed data set on consumers' shopping behavior and choices over retail bank accounts to investigate advertising's effect on product awareness, consideration, and choice. Our data set has information regarding the entire purchase funnel, i.e. we observe the set of retail banks that the consumers are aware of, which banks they considered, and which banks they chose to open accounts with. We formulate a structural model that accounts for each of the three stages of the shopping process: awareness, consideration, and choice. Advertising is allowed to affect each of these separate stages of decision-making. Our model also endogenizes the choice of consideration set by positing that consumers undertake costly search. Our results indicate that advertising in this market is primarily a shifter of awareness, as opposed to consideration or choice. Along with advertising, branch density, marital status, race and income are very significant drivers of awareness. We also find that consumers face nontrivial search/consideration costs that lead the average consumer to consider only 2.2 banks out of the 6.7 they are aware of. Conditional on consideration, branch density, the consumer's current primary bank (i.e. inertia), interest rates and education are the primary drivers of the final choice.

Quantifying Inertia in Retail Deposit Markets

“…While, as in these prior studies, I do not distinguish between distinct sources of inertia, I exploit the multi-product nature of the banking industry to structurally separate inertia within and across banks to shed light on underlying choice frictions. This contrasts with recent work by Honka, Hortaçsu and Vitorino (2017) who structurally disentangle awareness, consideration, and choice stage using cross-sectional data on consumer bank choices. 12 While my inertia estimates implicitly capture costs incurred on all stages, information on account choices allows me to analyze inertia within bank as well.…”

“…Similar to, e.g., Handel (2013) and Polyakova (2016) the inertia parameters I estimate can, thus, be interpreted as the implicit foregone gains from a collection of different frictions. Note that the included account fixed effects control for unobserved time-invariant differences of accounts, e.g., in popularity or marketing, partially mitigating the lack of data on individual consideration sets as in Honka, Hortaçsu and Vitorino (2017).…”

“…Honka, Hortaçsu and Vitorino (2017) assume that consumers choose the most popular account offered by a bank despite the existence of account menus due to the lack of data on account choices of consumers.14 See, e.g., DNB (2015).…”

Advertising Strategy in the Presence of Reviews: An Empirical Analysis

“…Kantar Media. Advertising spending data from Kantar Media (and its previous incarnations, TNS Media Intelligence and LNA) have been the basis of a number of studies in the literature (e.g., Caves and Greene 1996, Shum 2004, Kim and McAlister 2011, Honka et al 2017. Our Kantar dataset covers all the traditional advertising media-TV, radio, magazines, newspapers, and outdoor-plus Internet display advertising.…”

Learning-by-Doing and Preference Discovery in Video Game Play

“…Additionally, there has been work considering formation of consumer consideration and search sets (e.g. Mehta et al, 2003;Honka et al, 2017). On the other hand, research on post-adoption behavior has been relatively scant due to the dearth of revealed preference data (Nevskaya and Albuquerque, 2019).…”