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Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast‐Cereals Market
Author(s) -
Shum Matthew
Publication year - 2004
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2004.00010.x
Subject(s) - advertising , brand loyalty , business , purchasing , loyalty , brand awareness , counterfactual thinking , product (mathematics) , marketing , brand management , brand equity , brand extension , psychology , social psychology , geometry , mathematics
In differentiated product markets where consumer preferences are characterized by brand loyalty, an important role for advertising may be to overcome brand loyalty by encouraging consumers to switch to less familiar brands. Using a scanner panel dataset of breakfast‐cereal purchases, I find evidence consistent with the hypothesis that advertising counteracts the tendencies of brand loyalty toward repeat purchasing. Equivalently, advertising reduces switching costs in this market. Furthermore, counterfactual experiments demonstrate that in markets with brand loyalty, advertising is an attractive and effective option—relative to alternative promotional activities, such as price discounts—of stimulating demand for a brand .