| By: |
Alicia Barroso (Universidad Carlos III de Madrid);
Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: |
This article proposes a novel approach to assess the dynamic effect that
advertising expenditures have regarding which products consumers include in
their choice sets. In a discrete-choice model consumers face choice sets that
evolve according to their awareness of each product. Advertising expenditures
have a dynamic effect in the sense that they raise consumer awareness of a
product, increasing present and future sales. To estimate this effect the
authors explicitly model the firms' dynamic advertising decisions and
illustrate the model using data from the Spanish automobile market. The
results show that the effect of advertising on awareness is dynamic and that
accounting for it is crucial in explaining the evolution of product sales over
its life cycle. Furthermore, we show that the awareness process can be
significantly sped up by advertising. Thus there is a great heterogeneity in
the awareness process among products depending on the level of advertising
expenditures and it may range from one to six years. |
| Keywords: |
Advertising, discrete choice models, consumer choice set, awareness process, new products. |
| JEL: |
L13 L62 M11 M37 |
| Date: |
2011–10 |
| URL: |
http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2011_1104&r=dcm |