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Quant Mark Econ (2009) 7:207236
DOI 10.1007/s11129-009-9066-z
Received: 11 December 2007 / Accepted: 2 April 2009 / Published online: 8 May 2009 Springer Science + Business Media, LLC 2009
Abstract We use a panel data set that combines annual brand-level advertising expenditures for over three hundred brands with measures of brand awareness and perceived quality from a large-scale consumer survey to study the effect of advertising. Advertising is modeled as a dynamic investment in a brands stocks of awareness and perceived quality and we ask how such an investment changes brand awareness and quality perceptions. Our panel data allow us to control for unobserved heterogeneity across brands and to identify the effect of advertising from the time-series variation within brands. They also allow us to account for the endogeneity of advertising through recently developed dynamic panel data estimation techniques. We nd that advertising has consistently a signicant positive effect on brand awareness but no signicant effect on perceived quality.
Keywords Advertising Brand awareness Perceived quality
Dynamic panel data methods
JEL Classication L15 C23 H37
C. R. Clark
Institute of Applied Economics, HEC Montreal and CIRPEE, 3000 Chemin de la Cote-Sainte-Catherine,Montreal, Quebec H3T 2A7, Canadae-mail: [email protected]
U. Doraszelski
Department of Economics, Harvard University, 1805 Cambridge Street, Cambridge, MA 02138, USA e-mail: [email protected]
M. Draganska (B)
Graduate School of Business, Stanford University, Stanford, CA 94305-5015, USA e-mail: [email protected]
The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data
C. Robert Clark Ulrich Doraszelski
Michaela Draganska
208 C.R. Clark et al.
1 Introduction
In 2006 more than $280 billion were spent on advertising in the U.S., well above 2% of GDP. By investing in advertising, marketers aim to encourage consumers to choose their brand. For a consumer to choose a brand, two conditions must be satised: First, the brand must be in her choice set. Second, the brand must be preferred over all the other brands in her choice set. Advertising may facilitate one or both of these conditions.
In this research we empirically investigate how advertising affects these two conditions. To disentangle the impact on choice set from that on preferences, we use actual measures of the level of information possessed by consumers about a large number of brands and...