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Empirical Generalizations about the Impact of Advertising on Price Sensitivity and Price

Author(s): Anil Kaul and Dick R. Wittink

Source: Marketing Science, Vol. 14, No. 3, Part 2 of 2: Special Issue on Empirical

Generalizations in Marketing, (1995), pp. G151-G160

Published by: INFORMS

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MARKETING SCIENCEVol. 14, No. 3, Part 2 of 2, 1995

Printed in U.S.A.

EMPIRICAL GENERALIZATIONS ABOUT THEIMPACT OF ADVERTISING ON PRICESENSITIVITY AND PRICEANIL KAUL AND DICK R. WITTINK

Cornell UniversityConsumers' sensitivities o price changesarean important nputto strategicand tacticaldecisions.It has been arguedthat price sensitivities depend on factors such as advertising.Prior studies onthe effect of advertisingon consumer price sensitivity have found seemingly conflicting results.

We analyzethe characteristics f previousstudiesin marketingand generatea set of threeempiricalgeneralizations. These are ( 1) an increase in price advertising leads to higher price sensitivityamong consumers, (2) the use of price advertisingleads to lower prices, and (3) an increase innonprice advertising eads to lower pricesensitivity among consumers. These generalizationshaveimportant implicationsformanagersand researchers.Managersneed to coordinatetheiradvertisingand pricing decisions to attain maximum profits. For researchers,our summary and discussionof empirical results provide directions for future.(Advertising; Pricing Research;Empirical Generalization)

IntroductionAdvertising, apart from its numerous direct effects, also has an effect on the pricesensitivityof consumers and on the pricesof goods in a market.1Managersand researchers

are frequently interested in assessing consumers' sensitivities to price as an input tostrategic and tactical decisions about market segmentation, price, marketing activities,as well as competitive marketing strategies.Many studies of the effect of advertising onthe price sensitivity of consumers have been conducted. At firstglance the results of thesestudies appear to be conflicting. For example, some studies suggest that an increase inadvertising leads to an increase in the estimated price sensitivity of consumers, whileother studies have found that an increase in advertising leads to a decrease in the pricesensitivity of consumers. One could blame the economists who developed two theoriesthat predictopposite effects of advertisingon prices and consumers' price sensitivity. Thefirst view, expressed by Comanor and Wilson ( 1979), states that advertising for brandsleads to (artificial) product differentiation, thus creating brand loyalty and lowering' Price sensitivity of consumers is usually measured either by the slope of the demand curve or by the priceelasticity of demand. Of these, price elasticity is the preferredmeasure since it is not sensitive to the units ofmeasurement.

G1510732-2399/95/1403/G 151$01.25

Copyright? 1995, Institute for OperationsResearch and the ManagementSciences


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G152 ANIL KAUL AND DICK R. WITTINK

sensitivity to price as a factor in brandchoices. The resultant marketpower for the firmscould result in higher prices. The second view, put forth by Stigler ( 1961 ) and Nelson( 1970, 1974), statesthat advertisingby providinginformation about brandscan increasethe consideration set and lead to higher price sensitivity among consumers. Higherpricesensitivity should result in lower prices chargedby the firms.The controversy regarding he possible relationshipbetween advertisingand price sen-sitivity has spawnedmany studiesin marketing.Researchershave studiedthis relationshipin differentways, employing methods varyingfrom laboratoryand fieldexperimentationto econometric modeling of historicaldata. In a few studies the relationshipis examinedat the consumer level. Many studies, however, are based on relationshipsestimated fromaggregatedata (e.g., at the product market level). These studies spana largeset of productsituations, e.g., new products, mature products, consumer nondurables and durables,services, and even strategicbusiness units. An overview of 18 studies in which the rela-tionship between advertisingand price sensitivity is examined in one form or another isprovided in Table 1. In this table, we identify the type of study, the type of product, thenumber of brands, the type of advertising, the measure of advertising, the measure ofprice sensitivity, and the type of interaction (result) observed. The last column of Table

TABLE IMeasure of

Typc of Type of No. of Type of Measureof PricePaper Study* Product** Brands Type of Data*** adv.A adv.AA Sensitivity# Result##

Woodside & FE CND One B P H/L SC INWaddle (1975)Prasad and Ring FE CND One B N H/L SC DE

(1976)Lambin (1976) EM Multiple Multiple B N $ EL DEStaelin & Winer FE CND One B N H/L EL DE

(1976)Eskin & Barron FE CND Multiple B N H/L SC IN(1977)Wittink (1977) EM CND One B N $ EL IN

Morianty (1983) FE CNI) MuLltiple B P H/L SC INCGhosht al. (1983) EM CN1D Mlultiple B N Exp. EL DEGatignon (1984) EM Airlines Multiple Consumer level N $ EL INKrishnamurthi& FE CNND One B N H/L EL DE

Raj (1985)Shroeteret al. EM PS Multiple Product category P P EL IN

(1987)Vanhonacker EM CND Multiple B N $ EL DE(1989)Popk-owski- EM CND Multiple B N/P $/P EL DE/INLeszczyck & Rao(1939)Bolton (1989) EM CND Multiple Product category P P EL INBemmaor & FE CND Multiple B P H/L EL INMouchoux (I1991)

Kanetkar (1992) EM CND Multiple Consumer level P Exp. EL INBoulding et al. EM Multiple Multiple SBU Level N $ EL DE(1994)Mitra & Lynch EX CND Multiple Consumer level N H/L EL IN/DE(1993)* FE = Field Experiment:EN-1 Empirical Model; EX = Consumer Level Experiment.** CND = Consumer Nondurable; PS = Professional Service.*** B Brand Level Data.AN = Nonprice/National Advertising;P = Price/Local Advertising." H/L = High/Low; $ = Dollar Expenditure; Exp. --No, of exposures;P = Proportion of Retailers/Firms Advertising.'SC = Slope Coefficient; EL = Price Elasticity.*' D= PriceSensitivity Decreaseswith HigherAdvertising.IN = Price Sensitivity Increaseswith Higher Advertising.


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THE IMPACT OF ADVERTISING ON PRICE SENSITIVITY AND PRICE G1531 indicates that in nine studies price sensitivity increases (IN) with higher advertising,in seven studies it decreases (DE) with higher advertising,and in two cases both effectsare obtained.In this paperwe discuss the effect of advertisingon consumer price sensitivity and onprice, and we report empirical generalizations on the basis of the results obtained invarious marketing studies. By empirical generalization, we mean results that hold whenreplication occurs under very different conditions. We consider only those cases whereat least three studies have provided the same result. Bass (1]994)suggeststhat empiricalgeneralizations should have some measure of enhanced quantification as opposed tomere associations. Our focus is on interactions which are a higher-orderphenomenonthan association. The approachthat we adopt in this paperis to analyzethe characteristicsand the results of previous studies. We provide explanations forand discuss the relevanceof these generalizations. We also provide a criticalperspectiveon the methods used, andthe factors that should be kept in mind when the generalizations are interpreted. Weconclude with a summary and suggestions for future research.

BackgroundOne way to reconcile the apparently conflicting results is by distinguishing differenttypes of advertisingbasedupon its content (Popkowski-Leszczyckand Rao 1989, Bouldinget al. 1994). The first kind of advertising,sometimes referredto as "mood" advertising,is primarily geared toward brand positioning and the communication of unique brandcharacteristics. We referto this kind of advertisingas nonprice advertising.Much of the

manufacturers' national advertisingis of this type (Resnik and Sterni1977). The secondtype of advertising is the kind that informs consumers about the price and availabilityof a brand. Since most of this advertising contains price information, we refer to thisadvertising as price advertising. The majority of advertisingdone by retailers(local ad-vertising) is of this type. Thus, the main point of difference between nonprice and priceadvertising is in the content of advertising, i.e., whether price information is being com-municated or not. To a large extent, local advertisingis price advertising, and nationaladvertising is nonprice advertising. In recent years local advertising has become as im-portant as national advertising for many product categories. According to AdvertisingAge (Dec. 14, 1992) $76.5 billion was spent on national advertisingwhile $55.6 billionwas spent on local advertisingin the United States in 1992. lience. both kinds of adver-tising form an important part of any brand'soverall advertisinig trategy.A change in consumer price sensitivity is usually measured either by the interactionbetween price and advertising in a sales response function (e.g., does the slope for pricechange with advertising) or by a change in the estirnated price elasticity of demand.Researchersemploying experiments tend to focus on the interaction between advertisingand price, while econometric researchers end to use price elasticity as the preferredwayto measure the impact of advertising on price sensitivity. The studies that we base ourgeneralizations upon can be grouped into two distinct types-experimental studies andassociation studies. Experimentalstudies occur either in a laboratoryor in a field setting.The direction of causalityis unambiguous in these studies. The strengthof the (laboratory)experimentalstudies is the causal direction in carefullycontrolledenvironments (internalvalidity), while the strength of the association studies is the generalization of resultsacross a wider context of product categories and environments (external validity). Itshould be clear that field experimental studies offerthe best opportunity for both internaland external validity simultaneously.

Empirical GeneralizationsWe report three empiricalgeneralizationsabout advertisingand its effect on consumerprice sensitivity and otl price:


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G154 ANIL KAUL AND DICK R. WITTINK

(1) An increase inprice advertising leads to higherpricesensitivityamong consumers.Marketingstudieshaveconsistentlyfound that when consumersareexposedto advertisingwhich contains price information or to local advertising,their price sensitivity increases.These results have been shown to hold whether the study used experimental methods orempirical modeling of household or aggregatedata.(a) Experimental studies. Bemmaor and Mouchoux ( 1991) conducted a factorialex-periment to test the interaction between price advertising and price. The advertisingmessage explicitly mentioned price in it. Using price cuts of 5 percent and 15 percentacross five stores, they found that price elasticities increasedby 20 percent to 180 percentfor various productswhen advertisingwas increased.The productsused in the experimentwere regularground coffee, liquid cleaner, disposablediapers,cat litter, hair lacquer,andsparklingwine.Moriarity (1983), in an experimental study for a frequently bought packaged good,found a substantial and significant negative interaction between feature advertisingandretail price.A similarresult is reportedby Woodsideand Waddle( 1975) for the interactionbetween in-store promotion and price for instant coffee.(b) Association studies. Bolton ( 1989) estimated a multivariate model relating dif-ferencesin estimated priceelasticityto marketcharacteristicssuch as brandmarketshare,advertising level, etc. The price elasticities were estimated across markets rather thanwithin a single product class or brand. She found that higher price (retail) advertisingleads to higher price elasticity. The data pertained to four product categories-frozenwaffles, liquid bleach, bathroom tissue, and ketchup.Popkowski-Leszczyck and Rao (1989) have obtained similar results using aggregatedata. They investigatedthe effect of price (local) advertisingon consumers' priceelasticityfor a consumer nondurable product. This advertising was measured by the proportionof retailers (weighted by sales volume) that cooperate in local advertising during thestudy period. Finally, Schroeteret al. ( 1987) studied this relationship in the market forlegal services.They also found that price sensitivitygoes up as advertising ncreases.Theirmeasure of advertising is the proportion of attorneys who advertise in a specific market.Thus, six studies using different methods, from experimental analysis to econometricmodels, have obtained a result consistent with the idea that price advertising leads tohigher price sensitivity. These studies span not only different product categories anddifferent levels of aggregation,but also different measures of advertising intensity suchas advertising spending and the proportion of firms advertisingin a market.The observed higher price sensitivity among consumers could be due to two separatephenomena. One is that the price sensitivity of existing consumers might be increasing.For example, as consumers are exposed to more information, the number of brands thatconsumers consider increases, existing brandsare compared more actively, and price asan attributeincreasesin importance duringthe decision-making process. Another is thatprice advertising attracts new consumers who are more price sensitive, thus leading toan overall increase in the average price sensitivity of consumers of a brand.

(2) The use of price advertisingleads to lowerprices. Research studies primarilycon-ducted by applied economists have examined the impact of local advertising on pricesin a market. These studies consider those products (services) that are not advertised incertain areasdue to legal restrictions.By comparing the prices in the areaswhere adver-tising is allowed to prices in the areas where advertisingis not allowed, while controllingfor other factors that affect prices, inferences are made about the effect of advertising.The finding is that local advertisingleads to lower prices, relative to costs. The productsin these studiesarelegalservices, prescriptionmedicines,eye glasses,andeye examinations.Benham ( 1972) studied the impact of the presence of advertising for eye glasses andeye examinations and concluded that the presenceof advertisingis associated with lower


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THE IMPACT OF ADVERTISING ON PRICE SENSITIVITY AND PRICE G155prices.Kwoka ( 1984) and Haas-Wilson( 1986) while controllingfor qualityeffectsstudiedthe eye glasses market and reached the same conclusion that the presence of advertisingis associated with lower prices for consumers. Cady ( 1976) completed a similar studyfor prescription drugs and found a result consistent with the idea that local advertisingleads to lower prices.One might arguethat the studies which supportthe notion of priceadvertisingleadingto lower prices are merely association studies and thus do not imply causality. Althoughthis is true, we want to point out that in these studies two kinds of marketsarecompared-one where advertisingis allowed and another where advertisingis not allowed. Since thedecision to allow advertisingin a particulararea restswith the legislature,it appearsthatthese results are stronger than those from other association studies. For example, if anexperiment were to be conducted to test the hypothesis in question, advertising wouldbe allowed in some states and not in other states. A comparison of prevailing pricesacross the two groups of states could lead to an unambiguous causal inference. In anexperimental study, states would be randomly assigned to the two groups in terms ofwhetheradvertisingoccurs or not. If the outcomes of the legislativeprocesses(advertisingallowed or not) are not related to prevailingmarket characteristics(especially price sen-sitivity), the observed results from these quasi-experimental studies provide strongevidence.There are several reasons that can explain the result that advertising leads to a lowerprice. An obvious one is that local advertising leads to higher price sensitivity amongexisting consumers which will result in a lower optimal price level for the firms(Dorfmanand Steiner 1954). For example, the advertisingmay have alerted consumers to outletsthey would not have considered in the absence of advertising.The choice of one outletfrom the larger set considered could depend especially on the prices. Also, if advertisingattractsadditional consumers who are more price sensitive than existing customers, theoptimal price level decreases. In addition, the price may decrease because of increasedcompetition (due to advertising)among existingfirms. Retailersmay reducepricesbecausethey are cognizant of advertisedpricesand believe consumers will be influenced by pricedifferences. For the applications mentioned here (legal services, eyeglasses, prescriptionmedicines) it is unlikely that manufacturerswould experience lower marginal costs ofproduction in the presence of local advertising. However, retailers could demand man-ufacturerdiscounts with highersales. It is interesting to note that the products examinedin these studiesarenot ones whereprice is expected to be a criticalattributeforconsumers.However, Urbany et al. ( 1990) document instances in which retailers'beliefs about con-sumers' behavior diverge from consumers' actual behavior. Thus, it may be sufficientfor managers' beliefs to change with advertising. In any event, the result is clear that thepresence of advertising leads to lower prices.

(3) An increase in nonpriceadvertising eads to lowerpricesensitivityamong consumers.Most studies that have included an examination of the impact of nonprice advertisingon consumer price sensitivity have found that national advertising decreases price sen-sitivity (five studies that obtained different results are discussed later).(a) Experimental studies. Staelin and Winer ( 1976) examined the resultsof a heavy-up nonprice advertising experiment for a frequently purchased grocery product usingsplit cable TV. They found a significantdecrease in the absolute value of the firm'spriceelasticity in the consumer half that was subjected to heavier amounts of advertising.Prasad and Ring ( 1976) conducted a similar field experiment where the heavy half wasexposed to largeramounts of advertisingcomparedto the control half.A directcomparisonof the price by television advertisinginteraction term acrossthe two halves of the sampleshowed that the interaction estimate is smaller for the heavy half, implying that theconsumers exposed to heavy advertisingwere less price sensitive. However, Prasadand


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G156 ANIL KAUL AND DICK R. WITTINKRing do not show how the main price effect variesbetween the two groups that differinthe amount of advertisingexposure. Krishnamurthiand Raj ( 1985) analyzed the resultsof another split cable nonprice advertisingexperiment for a frequentlybought consumergood. They also found that increased advertising leads to a significant decrease in re-sponsivenessto brandprices.A common factorin these studiesis that the set of consumersstudied in the experiments remains constant. Thus, any changes in consumer price sen-sitivity are for existing consumers only.(b) Association studies. Lambin ( 1976) examined the price elasticity for 22 heavilyadvertisedbrandsin westernEuropeand found that the absolutevaluesof priceelasticitieswere (weakly) inversely related to a measure of advertising intensity. The advertisingintensity measure captured manufactureradvertisingthat tends to exclude price infor-mation.Ghosh et al. ( 1983) examined the sales of breakfastcerealsfor a diarypanel and foundthat the sales of heavily advertisedbrandstended to be less price elastic than the sales ofless advertised brands. Advertising expenditures were collected from BroadcastingandAdvertising (BAR) reportswhich representnational advertising.Using aggregate-leveldata, Popkowski-Leszczyc and Rao (1989) and Boulding et al.(1994) found that higher nonprice (national) advertisingis associated with lower pricesensitivity. Popkowski-Leszczyc and Rao ( 1989) used bimonthly data on a consumerpackagedgood. Boulding et al. ( 1994), using PIMS data, studied this relationship at thestrategic business unit level. As no information about the contents of advertising forvarious firms was available, they assumed that firms having higher than average priceadvertise only nonprice information while firms with lower than average price wouldadvertise price information. To allow for causal direction, they used the previousperiod'sadvertisingto affect this period's estimate of price elasticity.A similar result was also obtained by Vanhonacker (1989), though he finds somenonlinearity in the estimated relationship. By estimating an econometric model he findsthat as the advertising share of a brand increases, its price sensitivity decreases. Only avery high level of advertising might increase the price sensitivity.The main argument for nonprice advertising to reduce price sensitivity rests on thefact that nonprice advertising is used for positioning purposes thus making the brandmore differentiated which, if successful, may result in a lower price sensitivity for thebrand. This mechanism may also explain why consumer-level laboratory experimentsshow that price elasticities decrease when consumers receive information such as brandnames and quality ratings,as has been shown by Sawyeret al. ( 1979) in an experimentalstudy. Another interpretationis that when nonprice information is provided, consumerssimply pay less attention to prices.Based on these nine studies we conclude that the results are consistent with the ideathat nonprice advertisingreducesthe price sensitivity of consumers. This resulthas beenobtained in studies that have used different types of data, different methods such asexperimentation and econometric modeling, and differentproducts.

Though most studies support the notion that non-price advertisingreducesprice sen-sitivity, some studies (Eskin and Barron 1977, Wittink 1977, Gatignon 1983, Kanetkaret al. 1992, and Mitra and Lynch 1993) suggestthat nonprice advertisingcan lead to anincrease in price sensitivity of consumers under certain circumstances. Since there aretoo few studies that study specific moderating factors, no generalizations about thesefactors can be made. For completeness we do brieflydiscuss these other studies.Mitraand Lynch ( 1993), in an experimentalstudy, showed that non-priceadvertisingcan increase price elasticity by increasingthe number of brands considered, particularlyin product marketsin which consumers have to rely on memory to generatealternatives.The effect of nonprice advertisingwill thus be a net result of the differentiatingaspect ofadvertising which decreases price sensitivity and the reminder effect on consideration


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THE IMPACT OF ADVERTISING ON PRICE SENSITIVITY AND PRICE G157sets that increases price sensitivity. Therefore, one way to interpretthe results of studiesshowing a decrease in price sensitivity is that the reminder effect of nonprice advertisingis not very strong. Alternatively, nonprice advertisingin those studies may have had onlya modestly positive effect on the size of the consideration set of brands. Only Wittink(1977), Eskin and Barron(1977), Gatignon (1984), and Kanetkaret al. (1992) obtainedresults consistent with perhapsa strong remindereffect. Since Eskin and Barron(1977)studied new products (and observedthe same interaction effect in three of the four new-productfieldexperiments), it is quite plausiblethat due to an increasein the considerationsets of consumers, they found that nonpriceadvertisingresulted n higherpricesensitivity,in their case measured by the slope coefficient for price.Wittink(1977) studieda brand in a matureconsumerproductcategory,usingaggregatedata. He found that the estimated price elasticity for the brand was higher in territorieswith higheradvertising, both variablesbeing measured relative to competitors. Of course,as in many other econometric analyses, model misspecification and aggregationare po-tential threats to the validity of his result. In particular,Wittink et al. (1993) show thatparameter estimates for a nonlinear model applied to linearly aggregateddata can beseverely biased. The magnitude of the bias depends on the nature of heterogeneity inmarketing activities within a market. Thus, it is possible that the estimated interactionin his study is due to such differencesin marketing activities across the territories.-Gatignon (1984) also finds advertising to increase price sensitivity. In addition, heshows that competitive reactivitycan moderate the effect of national advertisingon pricesensitivity. In investigating the airline market, he finds that highercompetitive reactivityresults in a higher price sensitivity for consumers. Advertising spending by one firm canresult in a competitive reaction from its competitors. The resultant increase in messagesfrom the firms might redirectconsumers' attention to a variableon which the advertisersdiffer-price. High industry advertising levels can also result in increased brand com-parisons, which similarly may result in increasedprice sensitivity of consumers.Kanetkar et al. (1992) estimated a brand choice model at the consumer level usingscanner panel data and found that higher advertising leads to higher price sensitivity.Though their study does not clearly state the kind of advertising that consumers wereexposed to, given the Behavior Scan data source (Eskin 1985), it seems reasonable tobelieve that consumers were exposed to nonprice advertising. Advertising is measuredby the number of ads that a consumer is exposed to during a time period. The productsused are various brands of dog food and aluminum foil.A common thread in these studies of the effect of nonprice advertising on price sen-sitivity is that the mix of consumers can change with a change in advertising. Thus, achange in the measuredprice sensitivity can be due to a change in this mix of consumersas well as to a change in individual consumers' price sensitivities. Especially for a newproduct (Eskin and Barron 1977) higher advertising may attract additional consumerswho are more price sensitive. Although Eskin and Barronreportthe change in the slopecoefficient for price, it is easy to show that the estimated price elasticity shows the samedirectional effect.Finally, we want to mention some related work. Steiner (1973) presents argumentsand empirical evidence suggesting that manufacturer advertising influences both themanufacturermargin and the retailermargin. Conceptually, the argument is that man-ufacturer advertising increases consumer demand for the advertised brand. The sellingfunction of retailers is facilitated by this advertising, and the advertised brand may beused to attract store traffic. The competition between retailers on the advertised brandincreases, which results in lower retail margins for that brand. By the same token, themanufactureradvertisingincreasesthe power of the manufacturerrelative to the retailer,allowing the manufacturer to increase its margin. Therefore, manufactureradvertisingmay increase manufacturerprices and simultaneously decreaseretailermargins(see also


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G158 ANIL KAUL AND DICK R. WITTINKFarrisand Albion 1980). The result may be a reduction in consumers' price sensitivity(reduced competition) across brands in the presence of nonprice advertising and anincrease in consumers' price sensitivity (increased competition) across stores for thesame brand. The net effect on consumer prices could be positive (Farris and Reibstein1979). Steiner (1973) presents correlational evidence that highly advertised toys havelower distribution margins. Steiner found that as advertising increased greatly between1950 and 1970, the averageretailer margin on toys declined from 49%to 35%.Steiner(1993) provides additional arguments to explain the existence of an inverse associationbetween the margins of manufacturersand retailers.

RelevanceImplications

These generalizations clearly state the differentialeffects of nonprice and price adver-tising on consumers' price sensitivity. Managersshould consider these effectswhen theymake decisions about advertising and pricing. The empirical results indicate that coor-dination between advertisingand pricing decisions is important. It is easy to show thatcoordination will lead to maximum profits for the firm. From a researchpoint of view,these generalizations provide support for both schools of thought regardingthe effect ofadvertising.Future researchshould concentrate on aspects such as the characteristicsofadvertising hat influence the relativerole of, forexample,the differentiationand remindereffects of advertising. Also, the effects on manufacturerand retailermargins should besubstantiated further.Contingencies

We identify three considerations that are relevantto the examination of a relationshipbetween advertisingand consumer price sensitivity.The first s that we need to distinguishbetween the impact that an increase in advertisinghas on the price sensitivity of currentconsumers of a brand and the impact that an increase in advertisinghas on the averagesensitivity of a possibly changing set of consumers. This distinction is important becausean increase in advertising may lead to an increase in the number of consumers whopurchasethe brand. These new consumers may differin price sensitivity compared withthe original set of consumers. Thus, the averageprice sensitivity may change because ofthe new mix of consumers that increased advertisinghas attracted. Studies that use ag-gregatedata cannot ordinarilydistinguish between changes in estimated price sensitivitydue to a change in the consumer mix from changesdue to a change in the pricesensitivityof existing consumers. On the other hand, experimental studies that measure the pricesensitivity for a constant set of consumers do not suffer from this confound. Of course,both effects may be of interest to a manageror researcher.Theoretically, it is of interestto know the impact on (individual) consumers. For managerial decisions the (total)impact on marketplacebehavior may be sufficient.

The second aspect that has to be considered is the measure of price sensitivity. Withaggregatedata, the focus is often on the price effect on unit sales or market share. It isstraightforward o argue that price elasticity is the preferredmeasure. For disaggregate(e.g., household) data, a comparable focus may be the sensitivity of brand choiceto price.The third aspect is concerned with the type of consumers that constitute the market.For example, if the product market consists of highly price-sensitive consumers, thenthe "ceiling effect" would suggest that price advertisingcan only have a limited impacton the price sensitivity of such consumers. By the same token, if the market consists ofprice-insensitive consumers, nonprice advertising can have little impact on these con-sumers' price responsiveness.


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T HE IMPACT OF ADVERTISING ON PRICE SENSITIVITY AND PRICE G 159Conclusions and Suggestions

The study of the relationship between advertisingand price sensitivity has received alot of attention in the marketing literature. We have shown that the results obtained inthese studies provide useful empirical generalizations. These generalizations are basedupon a large numberof studiesinvolving very differentproducts, measures, and techniquesto study this relationship. Potential implications of these generalizationsare relevant formanagers as well as for researchers.One area that has not received much attention in the area of advertising/price inter-actions is the role of moderators in affecting this relationship. Balusubramanian et al.( 1994) have identified several moderators, such as market share, similarity of brands'characteristics or benefits, product life cycle, and the number of competitors. Potentially,the impact of these moderators is large enough to alter the marketing decisions for abrand.Forexample, Bemmaor and Mouchoux ( 1991 ) found thatacross product categoriesthe changes in price sensitivity due to increased advertising varied from 20% to 180%.Thus, there is a need to find product-related and other factors that affect the amount ofchange in price sensitivityin such situations. Similarly, more studies are needed to identifythe exact role of these and other moderators. For managers, the interesting questioncenters on the determination of optimal coordination levels for advertising and price,using information about advertising/price interactions. In addition, managers shouldconsider whether changes in advertisingcharacteristicsaffect the nature or magnitude ofthe interaction.

ReferencesBalusubramanian, S., A. Kaul, L. Klein, S. Sen, A. Silk, and D. R. Wittink (1994), "Price-AdvertisingInter-actions," Working Paper, Yale School of Management, July.Bass, F. M. (1994), "EmpiricalGeneralizationsand MarketingScience,"WorkingPaper,School of Management,The University of Texas at Dallas, February.Bemmaor, A. C. and D. Mouchoux (1991), "Measuringthe Short-term Effectof In-storePromotion and RetailAdvertising on Brand Sales:A FactorialExperiment,"Journal of MarketingResearch, 28 (May), 202-214.Benham, L. (1972), "The Effect of Advertising on the Price of Eyeglasses,"Journal of Law and Economics, 4(October), 337-352.Bolton, R. N. (1989), "The Relationship Between MarketCharacteristicsand Promotional Price Elasticities,"

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