Goodwill and dynamic advertising strategies

Abstract

In this paper, we empirically analyze weekly advertising policies of manufacturing firms in consumer goods markets. We assume firms engage in persuasive advertising, thus policies of firms affect the goodwill of a brand.We introduce a demand and a goodwill production function. A simple transformation of the demand function allows us to identify not only the demand parameters but also the parameters of the goodwill production function. We reconstruct the unobserved goodwill levels using these parameters and past advertising levels. We restrict our attention to Markov Perfect Equilibrium strategies which are functions of payoff relevant state variables. Without imposing further restrictions on the dynamic competitive environment, we investigate the relationship between observed advertising strategies-which are assumed to be MPE-and payoff relevant state variables by means of several reduced form specifications. The most important determinant of advertising intensity turns out to be goodwill. We demonstrate that controlling for an ad campaign significantly improves the explanatory power of the model. JEL Classification: D21, L15,M37.

The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data

“…Related empirical models are the basis of current research on advertising (e.g., Naik et al 1998;Dube et al 2005;Doganoglu and Klapper 2006;Bass et al 2007). Naik et al (1998), in particular, find that the Nerlove and Arrow (1962) model provides a better fit than other models that have been proposed in the literature such as Vidale and Wolfe (1957), Brandaid (Little 1975), Tracker (Blattberg and Golanty 1978), and Litmus (Blackburn and Clancy 1982).…”

Pulsation in a competitive model of advertising-firm's cost interaction

“…These articles find that whether firms involve in a uniform advertising policy or a pulsation counterpart depends on the shape of the advertising response function. On the empirical side while Dube, Hitsch, and Manchanda (2005) and Doganoglu and Klapper (2006) provide support that in many consumer goods competitive markets firms tend to employ advertising pulsation in practice, data provided in Bronnenberg, Kruger, and Mela (2008) and examined by Freimer and Horsky (2012) suggest that competing brands advertise and seize to advertise mostly in-phase.…”

Information versus persuasion : la controverse autour de l’impact de la publicité sur les préférences des consommateurs

“…L'approche de Nelson est par la suite relayée dans le cadre des travaux sur la réputation (Klein et Leffler, 1981). Ces travaux considèrent la publicité comme un investissement puisque cette dernière contribue à accroitre le capital réputation de la firme ou « goodwill value » -ce stock pouvant constituer un important élément de l'intensité publicitaire (par exemple, Doganoglu et Klapper, 2006). La valeur du stock de goodwill fluctue et se déprécie au fur et à mesure du temps, ce qui reflète la perte d'influence progressive auprès des consommateurs des campagnes publicitaires passées.…”