Non-Informational Advertising Informing Consumers: How Advertising Affects Consumers' Decision-Making in the U.S. Auto Insurance Industry

Abstract

We investigate the relationship between both advertising content and quantity and several stages of consumers' decision-making, namely, unaided and aided awareness, search (consideration), and purchase. Understanding how the amount and content of advertisements affect consumers' decision-making is crucial for companies to effectively and efficiently use their advertising budgets. Our unique individual-level data contain information on consumers' purchases, consideration and awareness sets, demographic variables, and perceived prices for consumers between 2008 and 2016. We supplement these data with data on advertising quantities for all and advertising content for the main three media channels (TV, Internet, and magazines). We account for the endogeneity of the advertising decision using the regression discontinuity approach suggested by Shapiro (forthcoming). Our results reveal that advertising quantity significantly increases consumer (unaided and aided) awareness, but has no effect on consideration and choice. This finding is consistent with the informative role of advertising. Interestingly, the advertising content that leads to consumers' increased awareness is of non-informational nature (brand name focused and funny/entertaining content) implying that the effect on awareness is coming from non-informational content leading to better brand recall. And lastly, our preliminary results show no systematic evidence of vulnerable consumer groups (racial minorities, low education or low income consumers) being adversely affected by advertising.

Modeling Competition over Multiple Variables under Limited Consumer Awareness*

“…As Roberts and Lattin [1991] put it, "for a given consumer, the brands available on the market usually are divided into brands of which the consumer is aware and those of which he or she is not aware". Tsai and Honka [2018] analyze awareness in the U.S. auto insurance industry. They focus on the top 22 brands and find that the average number of auto insurance brands consumers are aware of is 4.21 for unaided awareness.…”

“…Instead, our findings apply in industries where there are sufficiently many firms. For example, it has been documented that consumers are not aware of all firms that operate in the financial industry (Honka et al [2017]), the auto insurance industry (Tsai and Honka [2018]) or the ground coffee industry (Draganska and Klapper [2011]).…”

“…Tsai and Honka [2018] analyze awareness in the U.S. auto insurance industry. They focus on the top 22 brands and find that the average number of auto insurance brands consumers are aware of is 4.21 for unaided awareness.…”