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The impact of advertising on consumer price sensitivity : a behavioral analysis

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The impact of advertising on consumer price sensitivity : a behavioral analysis
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Mitra, Anusree, 1961-
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ix, 184 leaves : 28 cm.

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Advertising research ( jstor )
Advertising signs ( jstor )
Brands ( jstor )
Candy bars ( jstor )
Comparative advertising ( jstor )
Consumer advertising ( jstor )
Consumer prices ( jstor )
Consumer research ( jstor )
Price elasticity ( jstor )
Prices ( jstor )
Advertising -- Research ( lcsh )
Consumer behavior ( lcsh )
Dissertations, Academic -- Marketing -- UF
Marketing thesis Ph. D
Pricing -- Research ( lcsh )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

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Thesis:
Thesis (Ph. D.)--University of Florida, 1990.
Bibliography:
Includes bibliographical references (leaves 177-182).
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Also available online.
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Typescript.
General Note:
Vita.
Statement of Responsibility:
by Anusree Mitra.

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THE IMPACT OF ADVERTISING ON CONSUMER PRICE SENSITIVITY:
A BEHAVIORAL ANALYSIS














By

ANUSREE MITRA















A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA ON PARTIAL FULFILLMENT
OF THE THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY



UNIVERSITY OF FLORIDA


1990

















In loving memory of my mother--my strongest supporter, best friend and constant source of wisdom and strength, who always inspired me to scale greater heights.












ACKNOWLEDGMENTS

It is true--there really is light at the end of the tunnel! I'm not sure that I fully realize the implication of the statement as yet. But what I do feel is appreciation for all those who have helped make this dissertation a reality.

I wish to offer my deepest thanks and heartfelt gratitude to the person without whom this dissertation would have always remained a dream--my advisor and chairman, Professor John Lynch. At times when everything else seemed to be going wrong, when life posed problems that made academic targets seem quite meaningless, his constant support

was all I had. He has been beside me on this project from start to finish and has provided insightful comments and careful critiques, all of which significantly influenced the

conceptual analysis and research methodology. Like a true friend he has has been jubilant at my successes and has urged me on when my spirits were flagging. John has taught me, by his own example, that striving for excellence can exist side by side with compassion and empathy for people.

I am grateful to Professors Joe Alba and Wes Hutchinson

for their encouragement and guidance. Their suggestions

provided direction for making refinements in the study design. Thanks are also offered to Professor Bart Weitz for

helping position this work and to Professor Rich Romano for sharing insights about the economics literature.

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I would like to thank Nielsen-Cadbury Canada, Rowntree Macintosh Canada and Hershey Canada for making available the

television commercials and also for generously providing samples of the candy bars that were used for the experiment.

Very special thanks go out to Eric Olson, for writing the computer program that was used for the study. In spite of his busy schedule, he has made himself available and forgave all the impositions that I made on his time. I

shudder to think of how much longer the data collection and analysis would have taken, had it not been for him. Eric

entertained all my requests--small and big, and as a poor graduate student I could not offer any monetary incentive suitable for the amount and quality of effort that he put in.

Although in such instances words are quite inadequate to express the depth of feeling, for the lack of a better option, it is with words that I must offer my sincerest thanks to him for making this dissertation possible within a reasonable length of time.

The past few years have been hard, but I was also lucky

to have a few good friends whose faith in me has been a reservoir of strength that I could draw on when everything else seemed hopeless. I wish to express heartfelt thanks and gratitude to Malay and Dola Ghosh, Sudip and Sarmila, and all my friends in the Marketing Department, who in their respective ways, have helped me through the rough times.

Finally, I would like to express my sincere thanks to my

family for their constant support and unquestioning faith in iv








me. At times when the future seemed uncertain and bleak, what kept me going was the vision of their happy faces on seeing me realize a target that I had ventured out to achieve, a long time ago.


















































v












TABLE OF CONTENTS


P acLa

ACKNOWLEDGMENTS ....................................... iii

ABSTRACT .............................................. viii



CHAPTERS

1 INTRODUCTION ................................... I

Effects of Advertising on Price Elasticity ... 3 A Behavioral Approach ........................ 4
Objective .................................... 5


2 TOWARD A CONCEPTUAL FRAMEWORK FOR EXAMINING
THE IMPACT OF ADVERTISING ON CONSUMER PRICE
SENSITIVITY ..................................... 8

Chapter Overview .............................. 8
Economic Theoretic Views on the Impact of
Advertising .............................. 8
Impact of Advertising on Consumer Price
Sensitivity ............................. 12
Conceptual Framework ......................... 18


3 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: CONCEPTUAL
HYPOTHESES AND STUDY DESIGN ..................... 32

Objective .................................... 32
Background ................................... 32
Hypotheses ................................... 46
Overview of Research Methodology ............. 47


4 PRETESTS ........................................ 51

Overview ..................................... 51
Experiment I ................................. 52
Experiment 2 ................................. 68




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5 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: RESEARCH
METHODOLOGY .................................... 73

Chapter Overview ............................. 73
Sub jects ..................................... 74
Stimuli ..................................... 75
Experimental Factors ......................... 76
Dependent Variables .......................... 78
Stimulus Design .............................. 79
Procedure .................................... 80


6 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: RESULTS ........ 89

Overview ..................................... 89
Results ...................................... 89


7 GENERAL DISCUSSION AND IMPLICATIONS ............ 119


APPENDIX ............................................... 139

Introduction and Preliminary Instructions ... 140
Price Profiles for the Twelve Brands
Across First Eight Shopping Trips ...... 158

REFERENCES ............................................. 177

BIOGRAPHICAL SKETCH .................................... 183




















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Abstract of Dissertation Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy


THE IMPACT OF ADVERTISING ON CONSUMER PRICE SENSITIVITY: A BEHAVIORAL ANALYSIS

By

Anusree Mitra

August 1990



Chairman: John G. Lynch, Jr. Major Department: Marketing

The dissertation investigates the impact of advertising on consumer price sensitivity. Two opposing schools of

economic thought, the information school and the market power

school, have postulated divergent theoretical accounts about the way advertising influences consumer behavior and have made conflicting predictions about the direction of change in price sensitivity. The fragmentary empirical evidence does not provide clear support for either theory.

This dissertation postulates that two basic theoretical

constructs 'mediate the effect of advertising on price sensitivity: size of the consideration set and the dispersion of brand utilities. It is suggested that advertising content

and the decision environment have a potentially different effects on these two constructs.

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Three experiments are conducted to examine the role of such factors in determining the relationship between advertising and price elasticity. The first two studies examine the effects of advertising on the mediating

constructs, and provide evidence that advertising could have an effect on the memory for brand names and on the relative preference for the brand alternatives.

The third experiment uses a computer based shopping simulation to test(the relationship between advertising and price elasticity, mediated by the two key constructs. Subjects went on shopping trips under two types of decision environments and three advertising conditions. The effects on the size of the consideration set, the dispersion of brand preferences and price elasticity were examined.

The results indicate a very strong interaction effect of

advertising and decision environment on the size of the consideration set. The content of advertising also had a significant impact on revealed preference for the various brands. The direction of change in price elasticity was as predicted on the basis of the hypothesized mediating roles of the basic theoretical constructs.

The experiments provide an improved understanding of the

relationship between advertising and price elasticity, by isolating the underlying causal mechanisms. The results highlight the important mediating influence of consideration set size and dispersion of brand-utilities in predicting when advertising will have a particular effect.

ix












CHAPTER I

INTRODUCTION

In today's competitive environment, consumers are exposed to a significant amount of mass media advertising on a regular basis. Each day brings with it new exposures to this powerful method of marketer- controlled communication. Because advertising is such an inescapable part of a

consumer's life, consumer researchers have paid considerable attention to the study of consumer responses to this element

of the marketing mix. The marketing practitioner, too, is interested in consumer responses to advertising, which

represents a strategic management tool that the firm can employ to achieve its goals of maximizing profits or market share. Advertising expenditures comprise a substantial portion of the firm's promotion budget; hence the marketer is interested in the long-term consequences of advertising

versus other methods of building customer loyalty (Moran 1978).

Aside from the firms and the consumers who are directly

involved with its consequences, economists and regulators also study the effects of advertising. The economist,

primarily interested in the interactions between the behavior of the firm and the behavior of the consumer, mainly focuses on the determination of the equilibrium level of advertising, its effect on total consumption, industry profits, industrial

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concentration and price levels (Albion & Farris 1981; Norris 1984) Economists are not concerned with consumer responses to advertising per se, but mainly with its implications from a social welfare perspective. The regulatory agencies are

charged with the responsibility of providing a fair and competitive environment in which firms may operate, and of ensuring that marketers' activities do not prove to be detrimental to consumer welfare. Thus, the economic effect of advertising is also of interest to the public policy maker

in charge of advertising regulation and consumer protection (Bloom 1976).

Even though they are studying the same phenomena, specialists in one field often have little awareness for the activities of researchers in closely related fields. But

there remain a number of valid reasons why the interaction between disciplines is important. In many cases, the output of one field of study serves as the input of another. Also,

the tools and techniques of one discipline can be effective in answering questions previously studied only by a different discipline. Finally, good policy decisions can benefit from the knowledge and insights that different disciplines have to offer. Thus, our understanding of the economic effects of advertising may be greatly enhanced by the adoption of an interdisciplinary approach.

The focus of this dissertation is on the economic effect

of advertising on consumer behavior. This is a topic that








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has received considerable attention in industrial

organization and social welfare economics. Although the

research on the economic effects of advertising originated in the field of economics, its conclusions have been the subject

of a long-standing controversy. Economic theory does not make any reliable predictions regarding the effects of advertising. The pragmatic implication of this lack of theoretical foundation is that none of these controversial issues can be settled by a priori reasoning. This has

resulted in unresolved disputes about whether advertising raises or lowers profits, leads to increases or decreases in prices paid, increases or decreases industry competition, and

the like, with sweeping generalizations made on particular samples of data (Albion & Farris 1981).


Effects of Advertising on Price Elasticity

Although much of the prior research in this area has discussed this issue in the context of industry competition,

this dissertation will examine the effect of advertising on consumer price sensitivity. Economists have provided

divergent theoretical accounts and have made conflicting

predictions about the economic effects of advertising based on implicit assumptions about consumer responses to the information provided by advertising. The empirical research

that has appeared in the economics and marketing literature has only tested deductions from these theories and has not








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been able to offer any conclusive evidence on this controversial issue.

In this past research, advertising is conceptualized in terms of the total expenditure on this element of the marketing mix. None of these studies has explicitly taken into account variations in advertising content. It is

suggested in this dissertation that the results could vary with advertising content, because consumer responses to different types of advertising messages are likely to differ. It is the central thesis of this paper that assertions about the potential effects of advertising on the consumer require a more detailed analysis of the consumer's decision process.


A Behavioral A-mroach

This dissertation adopts a behavioral approach in an attempt to arrive at an improved understanding of the impact

of advertising on consumer price sensitivity. It draws on insights from behavioral literature and focuses on the

consumers choice decision with the objective of identifying the various possible mechanisms by which advertising might affect price sensitivity. In the conceptual framework that is adopted, it is suggested that the effect of advertising on price elasticity could be better understood by examining how

advertising influences two mediating variables: the size of the consideration set and the dispersion of brand-utilities.








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Advertising-induced changes in the size of the consideration set. The consumer's 'consideration' set consists of those brands that the consumer actively considers at the time of choice. It is proposed that advertising might have a role in placing a brand in the consumer's consideration set and/or keeping other brands out of the set.

In other words, advertising might influence consumer choice by ensuring that the sponsored brand is considered at the time of decision making and by simultaneously determining the

other alternatives that will be considered along with the advertised brand.

Advert ising- induced chan-ges-on interbrand dispersion in utilities. Another way in which advertising for a particular

brand might affect choice is by changing the dispersion of utilities for the various alternatives. Thus if advertising results in some brands being perceived to be clearly superior

to competitive offerings, these brands are likely to be relatively insulated from price competition. These factors are likely to have implications for price sensitivity.


Objective

This dissertation attempts to demonstrate that prior conceptualizat ions that have addressed only one possible relationship between advertising and price sensitivity are too simplistic. In other words, there are different causal

mechanisms by which advertising influences consumer price








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sensitivity. The objective of this paper is to provide insights on the mechanisms by which advertising might affect consumer behavior and to identify conditions under which these are likely to hold. Using price elasticity as the dependent measure, several propositions that follow from behavioral assumptions about consumer responses to advertising are tested in a laboratory setting.

Chapter II begins with a survey of the literature on the economic effects of advertising. Relevant theoretical and empirical research on the effect of advertising on price elasticity is reviewed. The limitations of previous research

in making any theoretical statements about the effects of advertising on consumer behavior are discussed. A conceptual framework is proposed that attempts to better understand and predict the effects of advertising on consumer price sensitivity.

In Chapter III the specific focus of the dissertation is articulated. An experiment designed to test several research

hypotheses on advertising's economic effects is presented. Chapter IV presents some propositions, methods and results of

two experiments that were designed to serve as pretests for the Experiment 3, which examined the effects of advertising on price elasticity. Chapter V presents the research

methodology employed to test the hypotheses. Chapter VI

presents the results of the third experiment, which provide strong support for the primary hypotheses.








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Chapter VII provides a general discussion of the various

findings and the implications of these results for research on the effects of advertising on consumer behavior.

Managerial and public policy implications of these findings and directions for future research are also highlighted.












CHAPTER II

TOWARD A CONCEPTUAL FRAMEWORK FOR EXAMINING THE IMPACT OF
ADVERTISING ON CONSUMER PRICE SENSITIVITY Chapter Overview

Historically, the effect of advertising on price sensitivity has been researched by economists. This chapter

reviews the relevant background literature on this topic. Two major economic theories of advertising's effects on price elasticity are presented along with empirical evidence. The next section details the conceptual framework that is

proposed to e examine the economic effect of advertising on consumer behavior.


Economic TheoretLc--Views of the Role of Advertisincr

The dominant paradigm in economics assumes that each economic unit (the firm or the consumer) acts as if it is solving a constrained maximization problem. The simultaneous solution of these problems for every economic unit is called a 'market equilibrium.' The most important example of this paradigm is the general equilibrium model of perfect competition in which there are two types of economic units-consumers and firms. Certain characteristics of the

consumers' preferences or 'tastes' are taken as axioms of the

model and consumer tastes may be mathematically represented by a utility function. It is assumed that the consumer is


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rational and chooses quantities of various goods to consume in an attempt to maximize utility. In such a model, prices are determined through the market equilibrium of demand for goods by consumers and their supply by firms.

Economic price theory did not include advertising until the seminal work of Chamberlain (1933). Since that time, it

has been theorized in normative models that there is an optimal level of advertising, which is inversely related to price elasticity (Dorfman & Steiner 1954; Nerlove & Arrow 1962). However, there does not exist a generally accepted theoretical view about the economic consequences of advertising. Given this lack of any generally accepted

theoretical formulation, divergent streams of research have appeared in the literature. Thus, at the risk of

oversimplifying the subtleties of individual economist's positions, we can broadly characterize these as falling into one of two schools of thoughtwhich have been labelled as the

'Advertising = Market Power' view and the 'Advertising = Information' view (Albion & Farris 1981). These two research traditions differ markedly with respect to their assumptions about the way advertising affects consumer behavior.

The market power perspective considers advertising a means of -oersuasion. In other words, advertising can change

consumer tastes and artificially differentiate the product from close substitutes thereby insulating the firm from price competition. Thus, advertising enables the individual firm








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and the industry as a whole to charge higher prices and obtain higher profits (Comanor & Wilson 1979) Central to this thesis is the concept of product differentiation. Proponents of the monopoly view (Steiner 1978) often cite the

example of national brands of aspirin which dominate the market, in spite of the fact that private-label products are

physically identical and sell for less than half the price. The market power view also postulates that advertising by incumbents also creates barriers to entry for new firms in an

industry and leads to increased concentration (Bain 1956; Kaldor 1950) This model, though founded on assumptions about consumer reactions to advertising, mainly focuses on the nature of competition within the industry. That is, the focus is on supplier rather than consumer behavior.

An alternative to the change-of -tastes approach has developed from the economics of information theories, beginning with the work of Stigler (1961). According to this

view, advertising acts to change the information upon which consumer decisions are based, but not the criteria for judgment. For example, advertising might succeed in

convincing a consumer that a certain product has a lower price, is more durable and is easier to use than another product, but it does not alter the consumer's beliefs about the relative importance of the attributes. Tn other words, it is assumed that consumers have well-defined rankings of desired attributes which are unaffected by advertising.








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Thus, advertising simply serves to announce a product's existence and/or attributes. This view holds that advertising is a means of market competition; its function is

to provide information to consumers, thereby increasing the number of known substitutes. This results in lower prices and reduces monopoly power (Nelson 1970,1974b; Telser 1963).

Proponents of the information view of advertising

distinguish between 'search' goods, whose quality can be evaluated prior to purchase, and 'experience' goods, whose quality can only be evaluated through experience after purchase (Nelson 1974a, 1974b, 1975). Advertising for search goods provides direct information about product quality.

There is no incentive on the part of the advertiser to provide inaccurate information about search goods, as consumers are able to recognize the difference between advertised and actual quality prior to purchase. Nelson has argued that the only information contained in advertising for experience goods is the fact that the brand is advertised and is therefore likely to provide more utility per dollar. The

rationale for this is that producers of high quality brands have a greater incentive to advertise, as there is a greater likelihood of repeat purchases for such brands compared to low quality brands. Thus consumers may rationally treat the firms' advertising expenditures as a signal of product

quality (Kirmani & Wright 1989; Milgrom & Roberts 1986; Nelson 1974). Thus for both search and experience goods,








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advertising provides consumers with valuable information

about products and consequently reduces consumer search costs.

Evidence of the price-reducing effects of advertising has been drawn from the prescription drug and retail eyeglass industries. Retail prescription drug prices were found to be

higher in states that restricted prescription drug price advertising than they were in states that did not (Cady 1976). Price and non-price advertising restrictions were found to increase retail eyeglass prices by 20 to 100 percent (Benham 1972). Moreover, this excess consumer cost did not appear to have brought about any offsetting public health or safety benefits.

From the above discussion, it is clear that there are two general viewpoints among economists about the role of advertising. According to one, advertising is a means of persuasion and according to the other, advertising is a means of transmitting information. These philosophic differences between the economists have influenced their

conceptualization of the relationship between advertising and price elasticity, which is discussed in the next section.


The Im-oact of Advertisincr on Price Elasticity Theoretical Foundations

The concept of elasticity of demand occupies a very important position in economics because it is a measure of








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market power. The price elasticity of demand refers to the relative change in quantity demanded in response to a relative change in price. Specifically it is defined as the

percentage change in the quantity of a product demanded in response to a percentage change in price. The relationship between advertising and price elasticity is therefore of central concern to economists concerned with advertising's effect on industry competition.

In the market power model, advertising is postulated to

lead to artificial product differentiation and to lower the perceived substitutability among competing alternatives. The

arguments presented in these theories (Bain 1956; Comanor & Wilson 1979) suggest that advertising reduces the price elasticity of demand for firms, allowing them to charge prices above marginal costs and earn higher profits. On the

other hand, the information view assumes that consumers do not have perfect information about product qualities, prices and other relevant product characteristics. In this model, price elasticity is taken to be a function of consumer awareness and qualitative knowledge about close brand substitutes rather than their mere existence. Advertising increases the number of known substitutes and also provides information about them. In this way, it increases price sensitivity and reduces monopoly power (Nelson 1970,1974a, 1974b,1975,1978).








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From this discussion it is clear that the two schools of economic thought postulate different roles for advertising on

the basis of certain implicit assumptions about consumer responses to this marketing variable. However, these

assumptions about advertising's potential effect on consumer behavior remain essentially untested. In addition, past

conceptualizations have not been able to isolate the various

mechanisms by which advertising influences consumer price sensitivity. Thus it is likely that each of the two opposing

viewpoints on advertising's potential effect on consumer behavior might hold under a certain set of conditions. It is proposed that a more general framework that takes account of these different relationships between advertising and consumer price sensitivity will be able to offer more insights on this issue. It is suggested in this paper that a

more detailed analysis of consumer responses to advertising making use of insights from behavioral research will provide

an improved understanding of the effects of advertising on the price elasticity of demand. The objective of the present research is therefore to study individual consumer responses

to advertising and price changes. It is hoped that this integrated perspective might ultimately provide more secure behavioral foundations for generalizations at the firm and industry level, but it should be noted that this is not the objective of this research. Hence this research does not








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attempt to answer questions regarding the implications of advertising for market competition versus monopoly power. Empoirical Evidence

There have been few empirical studies that directly test

the relationship between advertising and price elasticity (Ornstein 1977) .Some researchers in economics have found support for the monopoly view of advertising, using data at the brand-level (Lambin 1976) and at the industry-level (Comanor & Wilson 1974) Thus, both aggregated and disaggregated econometric studies have shown advertising to reduce the price elasticity of demand. Some marketing

researchers who have specifically tested for the effect of advertising on elasticities have also found support for the view that advertising decreases price elasticity of demand (Krishnamurthi & Raj 1985).

However, it becomes more difficult to make general statements about the impact of advertising on price elasticity when we examine the work done by other researchers

in marketing. Using cross-sectional and time-series data, Wittink (1977) found a positive relationship between advertising and price elasticity, consistent with the information approach. Other researchers who have also drawn similar conclusions, i.e., that advertising increases price

sensitivity, have not measured price elasticity in response to advertising, but have examined price sensitivity through

price advertising interactions (Eskin 1975; Eskin & Baron








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1977; Prasad & Ring 1976) Eskin & Baron, for example,

report a negative interaction between advertising and price, i.e., the simple effect of price on quantity sold increased with an increase in advertising. They interpret this to mean

greater responsiveness (higher price elasticity) to price when advertising is increased. However, the elasticity of demand depends not only on the slope but also on the original

position on the curve. Thus it is not possible, simply by observing a negative interaction between price and

advertising, to make general statements about changes in price elasticity in response to advertising. It is easy to imagine situations in which price elasticity might decrease, even though the analysis of variance tests show a negative interaction, as was observed in the Eskin & Baron study. A related problem stems from the disguised nature of the data employed by these researchers. To preserve confidentiality, Eskin and Baron applied a positive linear transformation to their sales data. Such linear transformations on the data will not affect the price-advertising interaction, but the elasticities will be affected. Due to these factors, it is

difficult to make valid generalizations about the effect of advertising on price elasticity from an examination of price advertising interactions.

Limitations. Past research into the effect of

advertising on price sensitivity suffers from certain limitations. The evidence appears to be mixed, but the lack








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of comparability across studies on the conceptual izat ion and design makes it impossible to generalize from such evidence. Part of the problem arises from the lack of consistency among authors in what they mean by 'advertising.' Variations in advertising content, which might have a potential effect on price sensitivity, have not been considered (Albion & Farris

1980,1981; Lambin 1976) As we shall see in the following sections, advertising messages are not identical, and different types of advertising can be expected to have potentially different effects on price sensitivity. In light of this, it is meaningless to view advertising as a homogeneous activity and hypothesize its potential effect on price sensitivity without regard for the variation in content. The use of different types of dependent measures of

price sensitivity with respect to advertising (e.g. priceadvertising interactions or price elasticities) might also account for part of the conflicting evidence.

Second, the causal relation between advertising and a measure of market power such as price elasticity is also a controversial point (McAulife 1987) A correlation between advertising and price elasticity does not prove that

advertising is the cause of an increase or decrease in price elasticity, especially because such correlational studies have not controlled for other possible causal factors. Even

if a causal relationship exists, it is not clear what the direction of causality is, since it has also been shown that








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the optimal level of advertising depends on the price elasticity of demand (Dorfman & Steiner 1954). Studies done

in the econometric tradition, which seem to support the monopoly view of advertising (e.g., Comanor & Wilson 1974; Lambin 1976), did not explicitly control for extraneous variables that might have had a potential effect on the results. In the absence of a controlled experiment specifically testing for the relationship, it is not possible to make any statement about its causal nature. Other

researchers who have used controlled field experiments (Eskin

& Baron 1977; Krishnamurthi & Raj 1985) could possibly make claims about causality. But in the absence of controls factors such as advertising content and the stage in the product life cycle, which could have a potential effect on the results obtained, they too have not been able to provide conclusive evidence about the causal relation between advertising and price elasticity.


A Conceptual Framework

This section presents a generalized conceptual framework for examining the relationship between advertising and price sensitivity. In this dissertation, price sensitivity is to

be measured directly by examining price elasticities. An attempt is made to establish a causal link between consumer responses to advertising and the resulting price sensitivity; this is to be experimentally tested under controlled








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conditions. This approach will consider the possible ways in

which different kinds of advertising (primarily varying in content) affect consumer responses to advertising and the resulting price sensitivity.

It is suggested that if the objective is to better understand the causal relationship between advertising and price sensitivity, an appropriate focus of study could be consumer choice as a function of price sensitivity. Hence the question, properly framed, is: how does advertising affect consumer choice? Various choice models and mechanisms

have been suggested in the literature (Corstjens & Gautschi 1983; Hutchinson 1986). One particular theoretical

formulation of the choice process (Nedungadi 1987) is very insightful in this context, where the primary focus is on how

advertising influences price sensitivity through its effect on consumer choice. In this model, brand choice is

conceptualized as a two-stage process. In order to be

selected, a brand must (a) first be included in the

consumer's consideration set and (b) be preferred to others in the set. In other words, an alternative must first be brought to mind and actively considered and must also be perceived to offer the maximum utility among all members of the set. It follows that the probability of a brand being finally chosen can be changed by influencing its inclusion in the consumer's consideration set or by altering the perceived utility of that brand relative to others in the set.








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Lynch and Bloom (1987) use this conceptual izat ion of choice in their proposed framework for examining the effects of advertising on consumer price sensitivity. They suggest that advertising could influence the probability of choice by

determining the size of the consumer's consideration set. Advertising that increases the probability of inclusion of the advertised brand in the consideration set increases the size of the set, and advertising that inhibits the

probability of simultaneous inclusion of competing brands, reduces the size of the consideration set. In short,

advertising could have either a positive or negative effect on the size of the consideration set. All else equal, the elasticity of demand for any given brand to changes in its price will be greater the larger the number of brands that are simultaneously considered.

Advertising could also potentially influence the dispersion of brand-utilities. It could increase the

perceived utility for the sponsored brand and decrease the perceived utilities for competing brands. Advertising could change perceptions about market offerings or alter the criteria consumers use to evaluate products. In this way, by changing the consumer's preferences for the various

alternatives, advertising could have a positive or negative effect on the probability of choosing the advertised brand.








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Advert is ing- induced Chancres in the Size of the Consideration


The consideration set consists of the group of brands that the buyer actively considers when making a choice (Campbell 1969) These brands become the alternatives in the buyer's choice decision. It has been suggested (Alba and Chattyopadhay 1985; Hauser & Wernerfelt 1990; Nedungadi 1987) that the consumers faced with an assortment of brands attempt

to concentrate on a subset of alternatives in order to gain efficiency in shopping. Therefore, marketers need to

organize their efforts in such a way that their particular brand is included in the consumer's consideration set. The consideration set is a dynamic entity varying over different types of choice situations (Nedungadi 1987) Thus, the

marketer's task involves more than simply ensuring consumer awareness of the brand's existence; the brand has to be retrieved and considered at the time of choice. Advertising

could ensure that the advertised brand is included and also prevent simultaneous inclusion of other brands. Thus

advertising could have a positive or negative effect on the size of the consumer's consideration set.

In the real world, there are many instances of an

advertiser attempting to place the sponsored brand in the consumer's consideration set. For example, reminder

advertising often attempts to provide retrieval cues at the time of choice (Keller 1987) Such efforts might ensure that the advertised brand is included in the consumer's








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consideration set. Empirical research has also shown that advertising for a brand can substantially inhibit the recall of competing brands (Alba & Chattyopadhyay 1986). This has important implications for situations in which an alternative has to be remembered to be considered. For example, when consumers decide which stores they want to patronize, all the alternatives are not arrayed in front of them. Thus, they have to retrieve relevant information from memory. In this case, if advertising for a few stores dominates the media, these stores are likely to be salient in the consumer's mind

relative to unadvertised stores. In this way, advertising might ensure inclusion of the advertised brand for

consideration and thus influence the choice decision by altering the size of the consideration set (Silk & Urban 1978).

The effects of advertising on consumer decisions allow us to derive its implications for revealed price sensitivity. If price is considered to be an argument in a multi-attribute

utility function (Huber et al. 1986), then all other things being equal, the greater the number of brands in their final

consideration set, the more price sensitive consumers are likely to be (Lynch & Bloom 1987) Thus, if advertising

increases the size of the consideration set by ensuring inclusion of advertised brands, it leads to increased price sensitivity. This implies that advertising for a particular

brand leads to increased price sensitivity for competing








23


brands that are already included in the consideration set. Advertising for a brand might also inhibit the inclusion of potential competitors in the consideration set and thereby result in reduced sensitivity to changes in its own price. These changes in consumer price sensitivity caused by

advertising are mediated by the size of the consideration set. In this study, all brands are advertised and therefore the institution of advertising results in an increase in the size of the consideration set.

From the preceding discussion it is clear that the consideration set is an important construct for examining the effect of advertising on consumer choice. One possible way in which advertising could influence consumer price

sensitivity for the advertised brand is simply by changing the size of the consideration set in which this brand is included. The effects just described are purely the result of memory factors. The next section discusses changes in price elasticity that result from advertising-induced changes in preference.

Advertising-induced Changes in Preference given Inclusion in
the Consideration Set

Economic analysis generally treats advertising as a

homogeneous activity that is evaluated independently of why it might increase demand (Leffler 1982). Yet, the effect of

advertising need not be the same in different markets or in different situations within a market. For example, price








24


comparison ads of standardized products might increase price sensitivity both by providing more information as suggested by economic analysis and by the behavioral mechanism of increasing salience of price and inhibiting the salience of non-price attributes (Bettman & Sujan 1987; Feldman & Lynch 1988; Lynch & Bloom 1987). 'Image' advertising of

heterogeneous, differentiated products might reduce price sensitivity by increasing the importance of non-price attributes in the consumer's utility function. Hence, an examination of this relationship should be prefaced by the particulars of the products advertised and the message

delivered by the ad. If advertising is a multifaceted, heterogeneous activity, general statements as to the economic effects of advertising might not be possible or interpretable. Rather, it would be more reasonable to examine systematically conditions under which advertising can

be expected to have a positive or negative effect on price sensitivity.

In the economic literature (and even in the marketing literature which has attempted to examine price-advertising interactions) the content of advertising has never been considered. Rather, the amount of advertising has been emphasized. However, perhaps the content of advertising is what is important in terms of its potential effect on price sensitivity, and this is an important factor to be considered

in the examination of this relationship (Albion & Farris








25


1981; Lambin 1976) It may be meaningless to judge the

information potential of advertising on consumer behavior without regard to its content. In this regard, it would be too simplistic to postulate, as some economists (Nelson 1970,

1974, 1978) have done, that all advertising is informative rather than manipulative or persuasive, because this assumes that consumers have fixed preferences and the only objective of the ad is to provide functional information. Based on

evidence from the behavioral literature, some authors suggest that an ad for a brand can change perceptions of the product and hence can affect the probability of choice (Alba & Hutchinson 1990; Bettman & Sujan 1987; Hoch & Ha 1986; Lynch & Bloom 1987).

As noted above, the probability that a consumer chooses a particular brand depends upon his/her preference or utility for the brand relative to competing alternatives (Cortsjens & Gautschi 1983; Nedungadi 1987) Research on consumer

preferences and attitudes has relied heavily on the use of multi-attribute models. Within the general paradigm of

multi-attribute models, one can envision several possible ways in which an attitude toward a particular brand can be changed (Lutz 1975; Wilkie & Pessemier 1973) Basically,

these models postulate that individuals' attitudes toward a brand is some function of their beliefs about the extent to which the brand possesses certain attributes, and their evaluation of the importance of these attributes. Thus,








26


attitudes are construed as a linear combination of brand beliefs and importance-weights on certain attributes.

Marketers often attempt to use advertising to increase the perceived utility for the sponsored brand. One of the key benefits of the multi-attribute approach is that it offers useful guidance in this regard. Consumer researchers suggest several advertising strategies which can improve

consumer attitudes toward the advertised brand relative to competitors (Boyd et al. 1972; Lutz 1975). In line with the

theoretical formulation stated above, all these strategies attempt to improve consumer preferences for the advertised brand in one of the following ways: (a) by changing existing beliefs about the brand or competing brands, (b) by

increasing the importance of an attribute on which the brand is strong, (c) by decreasing the importance of a weak attribute, and (d) by adding an entirely new attribute (Boyd et al. 1972).

In the preceding paragraphs, the various possible ways

in which advertising might change consumer preferences for the sponsored brand have been outlined. This leads to an increased likelihood of it being chosen, if it is already included in the consideration set. This is likely to have implications for price sensitivity. The mechanisms by which they could occur are discussed below.

First, advertising for the sponsored brand could change

the distribution of preferences and create a situation in








27


which the ordering of preferences is not sensitive to changes in price. The greater the dispersion in the consumers' mind among the utilities of the alternative brands, the less price

elastic should be their demand for any individual brand. Advertising might lead to some brands being perceived to be clearly superior relative to others. In other words,

advertising, by increasing the perceived utility for the advertised brand relative to that of competing brands, might lead to a lower price elasticity for the sponsored brand.

A second way in which advertising might potentially reduce price sensitivity is by increasing the salience of non-price attributes and thereby decreasing the importance of price. Thus, advertising can cause consumers to 'frame' their choices in terms of the evaluative criteria suggested by advertisers (Alba & Hutchinson 1990; Bettman & Sujan 1987; Hoch & Deighton 1989). It has been reported that increasing the salience of product attributes suppresses the ability to

recall unmentioned attributes (Alba & Chattyopadhyay 1985). Also, by increasing the salience of a particular attribute, advertising might ensure that this attribute is used in subsequent evaluations, and thereby increase the effective weight given to that attribute (Feldman & Lynch 1988). Taken

together, this suggests that advertising, by increasing the salience of non-price attributes, could lead to decreased price sensitivity.








28


The preceding paragraphs have discussed the role of advertising on consumer price sensitivity mediated by altered preferences as a result of advertising. It has been pointed out that advertising could lead to decreased price sensitivity for the advertised brand either by enhancing the

importance of non-price attributes in consumer choice or by changing the perceived overall utility for that brand and the

difference in utility between that brand and the consumer's most preferred brand. Some authors suggest that this would

be less true for consumers with higher levels of expertise (Alba & Hutchinson 1990; Lynch & Bloom 1987) Interi2lay- between Advertisincr-induced Preference and the
Consideration Set

The framework so far has conceptualized the impact of advertising on price sensitivity as being mediated by changes in either the size of the consumer's consideration set or the perceived utilities of various brands. From this perspective

of the choice process and the role advertising plays in it, it might seem as if the size of the consideration set is independent of consumer preferences for the competing alternatives. However, the perceived utilities of the different product offerings, aside from having a direct effect on price sensitivity, might also limit the size of the consumer's consideration set.

Through the direct effect on preferences, advertising might also have an indirect effect on the size of the








29


consideration set. Ad-induced changes in utility may cause some alternatives to become dominated and, therefore, removed from the consideration set. In other words, advertising, by

changing brand preferences, might determine the number and type of brands that the consumer considers at the time of choice. Advertisers often attempt to differentiate the product on certain advertised dimensions. The increased

salience of this differentiating attribute might lead to a greater attention being given to that attribute at the time of choice (Gardner 1983) The prominence given to the

attribute might have an effect on the choice heuristic employed by consumers. If noncompensatory choice processes

are modelled as though it were compensatory, this would affect the revealed importance of the attribute (Johnson & Meyer 1984).

The market power view of advertising asserts that

advertising differentiates products and creates a situation in which the advertised brand is perceived to have few close substitutes. This might be taken to imply that when the advertised brand is included in a consumer's consideration set, few other brands are simultaneously included. This is because the perceived benefit from including additional brands in the consideration set will be less when some

clearly preferred brand is already included (Hauser & Wernerfelt 1990) Since price sensitivity is a function of the perceived substitutability among brands, differentiating








30


advertising, by changing preference structure, reduces the size of the consideration set. This leads to decreased price elasticity. In this case, it might also affect the

composition of the set, such that the variance in utilities for brands in the consideration set is less than the variance

for all brands in general. This might imply higher crossprice sensitivity for brands included in the consideration set.

In this section, the interdependence between preference and the size of the consideration set was discussed.

Advertising, by changing the relative utilities for the various product offerings, is likely to alter the size and composition of the consideration set, which in turn has implications for price sensitivity. Summary

Prior conceptualizations regarding the relationship between advertising and consumer price sensitivity have been

too simplistic in that they have looked for main effects of advertising. Thus the literature remains confusing and the disputes unresolved. It is proposed that we can arrive at a better understanding of the phenomenon by looking at higherorder interactions involving many other factors and a more sophisticated treatment of consumer choice behavior.

The proposed framework discussed above attempts to isolate various possible causal mechanisms by which

advertising affects consumer price sensitivity by affecting








31


the awareness of substitutes and the ability to remember substitutes of which one is aware. First, it might change the size of the consideration set by affecting the awareness

of substitutes and the ability to remember substitutes of which one is aware. Second, it might alter preferences for

the advertised brand given inclusion in the consideration set. Third, it might also reduce the size of the consideration set through preferential mechanisms. The

greater the variance in utilities, the less the incentive to consider brands other than one's most preferred ones, in the hope that a price discount for a less-liked brand would cause it to be preferred to the normally favored brands.

The next chapter details an experiment that is designed to empirically test the concepts discussed in the framework.












CHAPTER III

AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: CONCEPTUAL HYPOTHESES AND STUDY DESIGN Objective

This study attempted to examine the relationship between

advertising and price sensitivity mediated by two key constructs: the size of the consideration set and the dispersion of brand-utilities.


Background

The Consideration Set

Consumers are faced with a multiplicity of alternatives in course of making their regular purchase decisions. In

each product category, consumers are aware of a large number of brands and have to make their choice from among these brands. To simplify their decision making, they must make their selection from a smaller group of brands (Alba & Chattyopadhyay 1985; Hauser & Wernerfelt 1990; Nedugadi 1987;

*In other words, the consumer's final choice is made from the consideration set--a certain subset of alternatives from the total number of options available in the market. This

definition is similar to the 'evoked set' notion used by marketing researchers (Campbell 1969; Howard & Sheth 1969; Narayana & Markin 1975; Parkinson & Reilly 1979).





32








33


The concept of a consideration set is important for the understanding of consumer choice. First, it emphasizes that

mere awareness of a brand is not sufficient for it to be a candidate in the consumer's final choice set. The brand has

to be actively considered at the time of decision making. The brands that consumers consider at the time of choice form

a small subset of the total number of alternatives of which they are aware (Silk & Urban 1978). Second, the consideration set is not a static entity. Of course,

research in consumer behavior has often implicitly assumed that the consumer chooses from a fixed set of brands.

Typically, consumers are presented with a set of brands and information about them, and are asked to make a choice or to indicate their preferences (Lynch & Srull 1982). But in

practice, the size and composition of the consumer's

consideration set is determined by certain voluntary and involuntary factors. The size of the consideration set is a positive function of the consumer's ability and motivation to retrieve and consider a certain number of brands for evaluation at the time of choice. Thus anything that

positively affects the ability of the consumer to retrieve brands from memory will increase the size of the

consideration set, and factors that negatively affect this ability will tend to reduce the size of the consideration set. Similarly, factors that alter the motivation of the consumer to retrieve information from memory will have an








34


effect on the size of the consideration set. For example, the inclusion of highly preferred brands in the consideration set is likely to reduce the motivation to consider additional brands for evaluation and choice. This will reduce the size

of the consideration set and also affect its composition. Hence the consideration set is likely to vary over time, depending on whether factors that are present when the choice

is made result in an increase or decrease in the ability and motivation to retrieve brands for consideration. Presence or Absence of Advartisincr

Advertising for the brand is an important factor that can influence brand choice by affecting the ability and the motivation to place the sponsored brand in the consideration set. In today's competitive environment, the consumer is faced with an assortment of brands and has to focus on a subset of brands in order to gain efficiency in shopping. Under such a scenario, marketer-controlled advertising can serve important purposes that help consumers make the choice decision from among the numerous alternatives that they encounter.

This study will consider the effects of the institution

of advertising on price elasticity. In other words, this research will compare the case when none of the brands advertise to that when all brands engage in advertising.

Reminder advertising. First, advertising can result in

keeping the sponsored brand salient in the consumer's mind.








35


The ability to recall a brand depends on the accessibility of

the brand in memory. It has been noted earlier that mere awareness of the brand is not enough for it to be considered at the time of choice. In order to be chosen, the brand must

be retrieved from long-term memory and included among the subset of alternatives that comprise the consumer's

consideration set. Advertising for even well-known brands keeps the brand salient in the consumers mind and increases the probability that it would be retrieved at the time of choice (Hauser and Wernerfelt 1990; Silk & Urban 1978;).

Consider a situation in which the marketers use

advertising for their brands, but the advertising is of a reminder nature. That is, its major objective is to keep the

brand name accessible in memory, and thereby increase the probability that the sponsored brand is included in the consumers consideration set. In fact, some authors note that in many instances, the aim of advertising is to place the brand in the consumer's evoked set (Wilkie & Farris 1976,

Wittink 1977) Though the evoked set they are referring to is more akin to an 'awareness set', it is possibly true that

keeping the brand salient in the consumer's mind through reminder advertising also enables it to be considered at the time of choice. In other words, reminder advertising

provides retrieval cues at the time of choice, and thereby increases the size of the consideration set.








36


As stated in the earlier section, this study will consider the effects of advertising when all brands are advertised. If all firms pursue this strategy, there should not be any inhibition effects resulting from the salience of a few brands in memory as has been observed by some

researchers (Alba & Chattyopadhyay 1986) I n such a case, reminder advertising of all brands will increase the salience

of brands in memory and thereby increase the size of the consideration set.

Differentiatincr advertising. Marketers might also try to use advertising to differentiate their brands from competitive offerings and thereby reduce the number of

perceived substitutes. In the real-world, advertising is often used to position a parity product away from substitutes with the objective of insulating the brand from competition. This type of advertising leads to an increase in the

dispersion of brand-utilities among the alternatives in the consideration set. In other words, differentiating

advertising will result in some brands being perceived to be clearly superior to others and thereby increase the probability of these brands being chosen (Hauser & Wernerfelt 1990).

If the focus was on the variations in a single brand's advertising, this could either increase or decrease interbrand variance of interbrand utilities. For example, if

the top brand advertises, then this increases variance of








37


utilities. If a less attractive brand advertises, this will decrease the variance. In this study, all brands advertise. Under such a scenario, information contained in differentiating advertising will result in an increase in the

dispersion of utilities compared to the situation when none of the brands advertise.

Besides affecting preferences for the brands in the consideration set, differentiating advertising can affect the

size of the consideration set itself. As noted earlier, consideration set size is a function of not only the ability, but also the motivation of the consumer to retrieve brands from memory. Differentiating advertising might be expected to positively affect the ability to retrieve brands by keeping brand names salient in memory. Thus, compared to the

situation in which none of the brands are advertised, differentiating advertising, by increasing the ability to recall brand names, is expected to increase the size of the consideration set.

However, by directly affecting the distribution of perceived utilities for the various brands, differentiating advertising is also likely to have an indirect negative effect on the motivation to retrieve brands for consideration. The higher the utility from the best brand in the evoked set, the less likely is the consumer to consider a new brand (Hauser 1989). Thus, by increasing the utilities and the variation in utilities of brands in the consideration








38


set, differentiating advertising is likely to reduce the consumer's motivation to retrieve brands for consideration at the time of choice.

The Decision Environment

The environment in which the choice is made has a

potential role in moderating the effects of advertising on the consideration set and the dispersion of brand-utilities. Decision environments differ in terms of the degree to which

the consideration set is driven by external factors such as salesperson's recommendations or point -of -purchase display, or by the information that the consumer has to access from memory.

Consider the case of the consumer who is deciding on the store at which to shop. Decisions such as this are

necessarily memory-based. Consumers do not have all the alternatives available to them at the time of choice, and therefore must retrieve the information from memory. This is the pure 'memory-based' choice situation, in which the

environment does not provide any of the relevant information (on brand names or attributes) at the time of choice, and the consumer has to retrieve the information from memory.

There are other situations in which the consumer could rely on external cues (in whole or in part) for the generation of alternatives. For example, consider the

consumer walking down a supermarket aisle. In this

situation, the consumer has brand and attribute information








39


on all the alternatives readily available at the time of choice. In such a case, the environment is providing all the information relevant to making the decision. This is what we term 'stimulus-based' choice environment. In such a

situation, the consideration set is likely to be determined by external cues provided by the environment, e.g., price rebates or end-aisle display.

Even in the case of stimulus-based choices, as in our supermarket example earlier, it may be argued that the

consumers do not spend their time exhaustively considering all-possible alternatives. Even in such situations which are

in principle, purely stimulus-based, it is contended that memory factors play a crucial role (Alba et al. 1990) Research in consumer behavior (Hoyer 1984; Park et al 1989) suggests that consumers do not engage in elaborate processing of package information at the time of choice. Thus it is likely that consumers retrieve relevant information from memory in order to concentrate on a subset of alternatives and thus gain efficiency in shopping.

In short, for certain decisions, consumers might have to

retrieve information from memory in order to evaluate and choose from a candidate set of brands. In other situations, they could rely on external cues to some extent. The more the consumer relies on external cues to guide choice, the more the decision is said to be stimulus-based. But, as








40


noted earlier, the pure stimulus-based choice decision is a rare phenomenon.

In this context, it would be useful to distinguish between memory-based versus stimulus-based specification of attributes and brands. The few studies (Alba & Marmorstein 1987; Biehal & Chakravarti 1983,1986; Lynch et al. 1988) which have considered memory-based decision making have assumed that brand names are given and that relevant information on attributes Must be accessed from memory. This is representative of situations in which consumers are

shopping from store to store, where not all the attribute information is available in front of them, and they have to retrieve relevant information about the brands from memory in

order to make a judgment or choice. But there are other situations in which even the brand name has to be generated from memory, irrespective of whether the attribute information is readily available or not. As noted above, the consumer might be faced with a variety of choice environments

which offer different types of information at the time of decision making.

Im-plications

Whether the choice is stimulus-based or memory-based has implications for the alternatives considered and the informational inputs that are used in decision making (Nedungadi 1987). When the choice is memory-based, the size of the consideration set will depend on the consumers'








41


ability and motivation to retrieve brands from memory. if there is no advertising for the various brands, then the consideration set in a memory-based choice situation depends purely on the consumer's capacity to retrieve brand alternatives. Hence the size of the consideration set is likely to be smaller in the memory-based environment than in the stimulus-based environment.

When the decision is such that brand names have to be remembered to be considered, the consumer has to rely on memory to retrieve brands for consideration. Therefore

marketers try to organize their efforts in such a way that their particular brand is considered at the time of choice (Narayana & Markin 1975). Thus, under memory-ba3ed situations, reminder advertising will lead to an increase in the ability to recall brands and thereby increase the number of brands considered for choice. If all firms pursue this strategy, there should not be any inhibition effects resulting from the salience of a few brands in memory as has

been observed by some researchers (Alba & Chattyopadhyay 1986).

Differentiating advertising has a positive effect on the ability to recall brands and can therefore increase the size

of the consideration set. But this type of advertising is also likely to negatively affect the motivation to recall brands for consideration. In other words, if this type of advertising results in some brands being perceived as clearly








42


superior to others, it is unlikely that consumers will

attempt to include clearly dominated alternatives in their consideration sets. Research in consumer behavior has shown

that more preferred brands are likely to be more easily retrieved, simply because preference leads to brand usage and the rehearsal that this produces increases the brand's accessibility in memory (Nedungadi & Hutchinson 1985). Thus consumers are more likely to retrieve brands that they perceive will provide the maximum utility (Hauser & Wernerfelt 1990). Therefore, the size of the consideration set is likely to be negatively related to the perceived superiority of the brands retrieved initially. Hence, in memory-based choice situations, differentiating advertising, if it leads to changes in brand perceptions and preferences,

might lead to a reduction in the size of the consideration set.

When choice is stimulus-based, the environment provides the relevant information, and reminder advertising is not as important a determinant of the size of the consideration set.

This is because the reminder function of advertising is not expected to be crucial in helping the consumer decide on the

brands to consider before making a choice. However, it

should be recognized that many real world choice environments

in which stimulus information is available, consumers ignore it and make decisions based on memory.








43


Differentiating advertising will lead to an increase in

the variance of interbrand preferences. This is likely to lead to a reduction in the size of the consideration set if consumers concentrate on the highly preferred alternatives in order to gain efficiency in shopping.

Advertisers use differentiating advertising to alter preferences for the various brands. Consumers might use the criteria provided in the ad for the purpose of evaluation and

choice (Bettman & Sujan 1987; Gardner 1983, Hoch & Deighton 1989). Such 'framing' effects are likely to limit the size of the consideration set. Thus, in stimulus-based

situations, a differentiating advertising strategy might lead

to greater attention being devoted to certain attributes, thereby changing the composition of the consideration set. For example, the consumer might use a particular attribute in order to eliminate alternatives, and the members of the final consideration set might be similar on that particular attribute.

The greater the number of brands in the consideration set, the greater is the price sensitivity, because the

existence of a greater number of substitutes decreases the utility gap between the most preferred brand and its

competitors thereby increasing the elasticity of demand to price cuts by the latter (Lynch & Bloom 1987). The positive effect of advertising on price sensitivity will be larger if

consideration set sizes in the absence of advertising were








44


smaller. That is, if advertising increases consideration set

sizes from 2 to 3, this will have a more dramatic effect on price elasticity than if it increases consideration set sizes

f rom 4 to 6. Thus, under memory-based choice situations, reminder advertising, which increases the size of the consideration set, tends to increase price sensitivity, and differentiating advertising, which reduces the size of the consideration set, tends to decrease price sensitivity.

Differentiating advertising for brands will also increase relative preference for some and thus have a negative effect on price sensitivity.

Even when advertising has no effect on the size of the consideration set, it can lead to an increase in the

dispersion of brand-utilities. Advertising that seeks to convey attribute information and thereby differentiate the sponsored brand from close substitutes often results in

changing the relative overall preference for the various brands. The larger the variance in utilities, the larger is

the price discount necessary to change purchase patterns. Therefore differentiating advertising would be expected to increase the dispersion of brand-utilities and thus lower the price elasticity in the stimulus-based choice environment. Assum-ptions

1 Holding constant the size of the consideration set,

price elasticity is inversely related to the dispersion

of brand-utilities.








45


2. Price elasticity is a positive function of consideration

set size.

3a. Differentiating advertising conveys more utilityrelevant information than reminder advertising. Thus, it can be expected to have greater effects on interbrand

variance in utilities than reminder advertising.

3b. Reminder advertising will have minimal effects on the

interbrand dispersion of utilities compared to a

situation of no advertising.

4. The size of the consideration set is a function of

certain voluntary and involuntary factors. It is

positively related to the ability and motivation of the

consumer to retrieve a certain number of brands from memory. Anything that increases (decreases) the ability

or the motivation to retrieve brands for consideration will increase (decrease) the size of the consideration

set.

5. Both reminder and differentiating advertising can

facilitate retrieval of brands.

6. When the environment provides the names of all relevant

brands (stimulus-based environment), the primary effect of advertising on the consideration set will be through

its effect on the dispersion of preferences. Specifically,

6a. Reminder advertising of all brands will not have a

significant effect on the size of the consideration set








46


to the extent that it will have minimal effects on the

dispersion of brand-utilities.

6b. Advertising that seeks to differentiate the brands

serves to change brand-utilities and the inter-brand variance of utilities, and thereby reduce the size of

the consideration set.

7. When the consumer must remember the names of all

relevant brands (memory-based environment), there will be a large simple effect of advertising on the size of

the consideration set.

Specifically,

7a. Consideration set sizes will be larger when advertising

is of a reminder nature than if no brands advertise.

7b. Consideration set sizes will be smaller when all brands

use differentiating advertising than if no brands

advertise.

8. Average size of the consideration set will be larger

when choice is stimulus-based than when choice is

memory-based.


Hy-ootheses

H1. When choice is stimulus-based, price sensitivity will be

greater than when choice is memory based.

H2. When choice is stimulus-based, the only effect of

advertising on price sensitivity is through a change in

perceived utilities of the various brands.








47


H2a. When choice i s stimulus-based, differentiating

advertising will result in decreased price sensitivity

compared to a situation of no advertising.

H2b. When choice is stimulus-based, there will be no

significant effect of reminder advertising on price

sensitivity compared to a situation of no advertising.

H3. When choice is memory-based, there will be a significant

effect of advertising on price sensitivity.

H3a. When choice is memory-based, advertising that seeks to

differentiate the brand from competing brands will

result in decreased price sensitivity compared to a

situation of no advertising.

H3b. When choice is memory-based, reminder advertising of all

brands will result in greater price sensitivity compared

to a situation of no advertising.


Overview of Research Methodoloav

Three experiments were designed to test the hypotheses concerning advertising and price elasticity, mediated by the two constructs of interest, namely, size of the consideration set and the dispersion in preferences for the various brands. The first two experiments served as pretests for Experiment 3 which examined the effect of advertising on price elasticities. In order to help the reader understand the issues in the design of Experiment 3 that Experiments 1 and 2









48


were intended to resolve, a brief overview of Experiment 3 is provided first.

Design

This section presents the overall methodology employed in the Experiment 3, which utilized a computer-based shopping simulation. Three factors were manipulated in the

experiment. A 2X3X12 design was used, with Decision

Environment (Stimulus-based Memory-based) and Advertising Condition (Differentiating Reminder / No Ads) as betweensubjects factors. Prices of twelve brands were manipulated (High / Low) within-subjects, independently of each other, allowing independent estimation of the price elasticities of the 12 brands. These price elasticities served as the primary dependent measures. Subjects participated in groups

of one to four, with each group being randomly assigned to one of the six cells of a 2X3 between-subjects design. Procedure

Subjects were initially exposed to attribute information

on twelve brands of Canadian candy bars that were previously unfamiliar to them. After demonstrating by a recognition task that they were 'aware' of the brands, they were dismissed. They came back to the laboratory at a later point

in time, when they were required to go on 16 shopping trips for candy bars.

The subjects' objective on each of the 16 shopping trips

was to maximize satisfaction given a budget of $3.00 per









49


trip. Their task was to allocate the amount among candy bars

of their choice. They were told that the prices of the various brands would change from one shopping trip to another. Subjects were also told that they would actually receive the candy bars purchased on one of these sixteen shopping trips. These aspects of the design and procedure were the same for all subjects.

Experimental Factors

Advertising condition. The type of advertising was manipulated at three levels. Subjects in the differentiating advertising condition saw ads for all twelve candy bars. These ads provided information on brand attributes and were predicted to change subjects' relative preference for the brands compared to a situation where none of the brands were advertised. Subjects in the reminder ad condition saw ads that provided information on the package and brand name, similar to some print or billboard advertising. These ads were predicted to increase the likelihood of inclusion of the advertised brand in the consideration set but to have minimal effect on preferences. Subjects in the no advertising

condition served as a control group, and were not exposed to any ads for the candy bars prior to going on the 16 shopping trips.

Decision environment. The decision environment was

manipulated at two levels. Subjects in the stimulus-based choice condition were provided with a list of all twelve









50


brands to use during shopping trips. They could therefore use this list to decide which brands to examine for price information and purchase. This was intended to reflect realworld situations in which the aisle display or a salesperson reminds the consumer of the set of brands that might actually be purchased.

Subjects in the memory-based choice condition did not have such a list available to them. These subjects could only search for price information on brands that they were able to recall on their own. Therefore they could only

purchase brands that they could retrieve from memory. This

manipulation was intended to reflect real-world decision situations in which the consideration set is typically generated from memory.

Chapter IV describes the pretests (Experiments 1 and 2) that tested some assumptions arising from the above discussion. Chapter V details the methodology employed in Experiment 3 to test the hypotheses on the impact of

advertising on price sensitivity. Chapter VI presents a discussion of the results of Experiment 3. Chapter VII

develops the implications of these findings for research in consumer behavior.












CHAPTER IV

PRETESTS

Overview

The hypotheses developed in the last chapter concerned how two basic theoretical constructs mediate the effects of advertising on price elasticity. These two mediating

variables are the size of the consideration set and the dispersion of brand-utilities. It was argued that

advertising could lead to an increase or decrease in the size

of the consideration set, with resultant effects on price elasticity. Also, advertising that seeks to differentiate brands will increase the variance in perceived utilities for the various brands and thereby lower price elasticity.

This chapter discusses two pretests which were designed

to examine the effect of advertising on the ability and motivation to consider brands for evaluation and choice. These experiments were expected to provide insights on the hypothesized mediating roles of the theoretical constructs discussed in the framework. The following specific issues were investigated:

1. the effects of advertising on the number of brands

recalled;

2. the effects of advertising on the number of attributes

recalled;



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52


3. the effects of advertising on interbrand differences in

preference;

4. the effects of advertising on price perceptions;

5. the effects of advertising on interbrand differences in

perceptions.


Expoeriment 1

This sections details the above mentioned issues and the predictions that were tested in the first experiment. The

subjects, the methodology and the stimuli are discussed. The results of the pretest are also presented. Key Issues Tnvestiarated

The issues that were investigated in these pretests are presented below.

Effects of advertising on the number of brands recalled.

It has been suggested in this paper that one of the major roles of advertising is to remind, i.e., to provide recall cues in order to ensure that the brand is retrieved for evaluation. The reminder function of advertising becomes especially important in situations in which the brand has to be remembered to be considered. Advertising is expected to have a significant effect on the number of brand names recalled in the memory-based decision environment. In the

absence of advertising, subjects have to rely on memory to recall brand names for consideration. Advertising (both

reminder and differentiating) can therefore be expected to









53


increase the ability of the consumer to recall brand names by making them more accessible. Both differentiating and

reminder advertising are likely to have similar effects on free recall of brand names. On the basis of the above

discussion the following prediction was made: Pl. There will be a significant effect of advertising on the

number of brand names recalled correctly.

Thus the proposition tests for significant differences in memory for brand names when subjects are exposed to

advertising compared to the situation in which none of the brands are advertised.

In the last chapter it was hypothesized that under memory-based decision environments, reminder advertising will increase the size of the consideration set. For such an effect to hold, it was important to ensure that even though subjects were aware of the brands, the names were not readily accessible in memory. If the above proposition is supported, it implies that advertising could be expected to enhance the

ability to recall and thereby influence the size of the consideration set.

Effects of advertising on the number of attributes recalled. It is often suggested that advertising is a source

of valuable information on brand attributes. If this is true, then differentiating advertising, besides providing cues for brand name recall, will also result in making attribute information more salient in memory. In the absence








54


of advertising, subjects will have to rely on the initial (product and package) information on the various brands in order to retrieve attribute information from memory.

Differentiating advertising, if it provides brand attribute information should increase the ability to recall brand

attribute information and thereby have a positive effect on the number of attributes recalled correctly. Therefore the following predictions were made:

P2a. Differentiating advertising will result in a greater

number of attributes recalled compared to a situation of

no advertising.

P2b.There will be no significant effect of reminder

advertising on the number of attributes recalled

correctly.

Thus this prediction tests for differences in the salience of brand attribute information across the three advertising conditions. It was expected that such information was likely to form the basis of perceived utility differences across the brands.

It was postulated in this paper that differentiating advertising will lead to an increase in the dispersion of brand-utilities. As stated earlier, perceived utilities for various brands are likely to be a function of the information that is available at the time of choice. Subjects in this experiment had access to two sources of brand-attribute information.








55


All subjects were exposed to some basic product and package information about the various brands before they saw any ads. This was intended to stimulate real-world

situations in which subjects typically have access to information sources other than advertising. Therefore the purpose of providing the initial information was to give subjects a preliminary basis for forming relative preferences among brands. This was considered to be especially important

for subjects who were not to be exposed to advertising. Otherwise, these subjects would have no basis for choice (from novel brands) other than price. Afterward, subjects in

the two advertising conditions were exposed to advertising, which was the second source of information about the brands.

However, if subjects in the no-advertising condition had perfect recall of the initial attribute information that they were exposed to, they were more likely to have a well-defined

preference ordering for the brands. In such a situation, advertising would be less likely to result -in significant increases in the dispersion of brand-utilities. In short, for

advertising to have the desired effects on the size of the consideration set and preferences, it was considered important that there should be differences among the three advertising conditions in terms of the information that is accessible.

Effects of advertising on interbrand differences in

-oreference. Advertising conveying information that produces








56


(real or image-based) differentiation among brands was postulated to have an effect on the relative overall preferences. Specifically, differentiating advertising is likely to make perceived utilities of the brands more

variable, resulting in some being perceived to be clearly preferred to others. For example, it is likely that

advertising will increase the utility difference between the most preferred brand and the next preferred brand. Reminder

advertising was not expected to have significant effects on interbrand differences in preference. On the basis of the above discussion, the following predictions were made:

P3a. Differentiating advertising will lead to a significant

increase in mean preference ratings and the dispersion in preference ratings compared to the no-advertising

condition.

P3b. Reminder advertising will not lead to a significant

increase in mean preference ratings and the dispersion in preference ratings compared to the no-advertising

condition.

Effects of advertising on price )erce-otions. Consumers' perceptions of prices of brand alternatives are a function of the information available. Thus, in the absence of

advertising, consumers are less likely to perceive significant differences across comparable brands. In

contrast, when differentiating advertising conveys

information on the attributes of the various brands, it is








57


likely that some will be perceived as being clearly superior to others. This is expected to affect price expectations for the various brands and also the variance in expected prices. Therefore the following prediction was made: P4. Differentiating advertising will result in higher mean

expected prices and higher dispersion in expected prices

compared to the no advertising condition.

Subjects' expectations of prices were likely to be different across various brands. The pretest was also

designed to help calibrate the price levels and price

variations to be used in Experiment 3 which would directly test for the effects of advertising on price elasticity. it

was desired to set normal price levels for each brand that would make all brands roughly equal in attractiveness, so that the preference orderings would be maximally sensitive to price discounts. This was especially crucial for a product category such as candy bars where consumers are not expected to be very price sensitive a priori.

Effects of advertising on interbrand variances in

-oerce-otions. Marketers often attempt to differentiate brands on certain advertised dimensions in order to alter the

consumers' preference-ordering for the various alternatives available. The increased salience of certain advertised attributes might result in consumers using criteria provided in the ad for the purpose of evaluation. If differentiating advertising 'frames out' a relevant subset of brands based on








58


the attributes used for differentiation, it is likely that brands within a particular subset will be perceived as being

more similar than brands in general. Brands in different subcategories are likely to be perceived as being more dissimilar when subjects are exposed to differentiating advertising compared to subjects in the control condition. This leads to the following prediction: P5. The variance in pairwise similarities among brands will

be higher in the differentiating advertising condition

than in the no advertising condition. Subjects

Twenty-four subjects enrolled in an introductory marketing course in the University of Florida participated in the experiment. Those who participated were given two extra credits in their class.

Procedure

The study was conducted at the behavioral laboratory provided by the Center for Consumer Research at the University of Florida. The experiment was conducted on four

IBM PC-XT computers with enhanced graphics (EGA) monitors. Subjects participated in groups of one to four, with groups randomly assigned to between-subjects conditions. All

subjects participated in two experimental sessions held on two consecutive days. The stimuli and tasks for the

experiment are detailed in Appendix I.









59


Session 1. All the task instructions for the first session were administered using the computer. Subjects were first given an overview and preliminary instructions for the experiment (detailed in Appendix IA-i) They were told that the study involved Canadian candy bars which were being considered for introduction into the local market. They were then exposed to product and package information (name, weight and contents) on twelve brands of Canadian candy bars one at a time. The information on each brand was flashed on the screen for 15 seconds. The brand description protocols are detailed in Appendix TA-2.

After being exposed to the brand information, subjects performed a recognition task, the instructions for which are detailed in Appendix IA-3. The purpose of this task was to test whether the brand names were accessible in memory. The task involved correctly identifying the twelve target brands

from a larger list of twenty four brands (which included 12 distractor brands) The distractor brands (listed in

Appendix IA-4) consisted of Canadian candy bars and were randomly intermixed with the target brands. Subjects were

judged to have performed satisfactorily on the recognition task if they were able to correctly identify all the target brands and had less than 75% failure rate with the distractors.

Subjects who failed to satisfy the criteria for the recognition task were exposed to the product and package








60


information again before they attempted to perform the recognition task again. This was repeated until all subjects had performed satisfactorily on the test, as measured by the criteria listed above. The computer recorded the number of exposures that were required for each subject to satisfy the

criteria for the recognition test. Subjects who finished earlier than the others were asked to wait quietly. When all

subjects completed the task, they were thanked for their participation and asked to return for the next session.

Session 2. During the second session, subjects in the two advertising conditions were exposed to ads for the

various brands. The experimenter showed the ads to the subjects in the differentiating and reminder advertising conditions. Subjects in the no-advertising condition did not see any ads.

Advertising stimuli. The stimuli for the differentiating

advertising condition were 30-second television commercials for the twelve brands of candy bars. These were provided by the manufacturers of the Canadian candy bars. The stimuli used for the reminder advertising condition were slides created from the television commercials, and showed the package and the brand name. A remote control slide projector was used to show the reminder ads to the subjects. The

duration of exposure to the reminder ads for each brand was 15 seconds. It was judged that a 30 second exposure to the








61


reminder ads would have produced irritation among subjects that would have confounded the interpretation of the results.

After this, all subjects completed two questionnaires.

The first questionnaire required subjects to perform the following tasks:

Brand name recall task. Subjects were asked to recall and list the target brands of candy bars. The instructions for this task are detailed in Appendix IB-l.

Attribute recall task. Subjects were provided with a list of candy bar names for which they had been exposed to information (product and package, and in some cases, advertising) on candy bars. They were asked to recall and list the attributes that describe the candy bars. The

instructions for this task are detailed in Appendix TB-2.

Preference rating task. The instructions for this task are detailed in Appendix IB-3. Subjects were required to

indicate their preferences for the target brands of candy bars on a seven point (Extremely high--Extremely low) scale.

Price perception task. The instructions for this task are detailed in Appendices TB-4 and IB-5. Subjects were

given the list of target brand names and were asked to estimate the most likely, lowest likely and highest likely price for each brand. They were told that 'Skor', a brand with which they were familiar was currently available on the market for $0.55.








62


Similarity rating task. Subjects were asked to give similarity ratings for the twelve brands on a seven-point (highly similar--highly dissimilar) scale. The instructions for this task are detailed in Appendix IB-6. Results and DisCussion

The results of Experiment 1 are presented below.

Effect of advertising on the number of brands recalled.

It was predicted that since advertising increases the ability to recall brand names, subjects who were exposed to ads would

perform better on the brand name recall task than those who did not see any ads. An analysis of variance on the total number of brand names correctly recalled across the three ad conditions approached significance, 1(2,21) = 2.49, p < .10,
2 =
(CO Moreover, there were significant differences

between the control condition Qj = 4 .87) and the two

advertising conditions (M = 7.31), L(2,22) = 4.90, p < .05. There were no significant differences between the reminder (M = 7.12) and differentiating (M = 7.50) advertising

conditions, F (1,21) <1. Thus the results were in the predicted direction, indicating that there was a positive effect of advertising on the ability to recall brand names.

Effects of advertising on the number of attributes recalled. It was predicted that if differentiating

advertising did indeed convey attribute information about the brands, then subjects in this condition should perform better on an attribute recall task compared to subjects who were not








63


exposed to such ads. The attributes considered were those that were initially presented to all subjects. An analysis of variance conducted on the total number of brand-attributes correctly recalled in the differentiating advertising

condition (M = 6.50) and the no advertising condition (M = 4.75) approached significance, Z(1,21) = 2.95, p < .10, (CO = .04). As expected, subjects in the reminder advertising condition (M = 5.00) did not differ significantly from those in the control condition (M = 4.75) on the number of attributes correctly recalled, F(1,21) < 1. Thus the results were in the predicted direction, indicating that there was a

simple effect of differentiating advertising on attribute recall scores.

Effects of advertising -on interbrand differences in

-oreference. It was predicted that advertising that results in real or image-based differentiation will change the utilities and the variance in utilities for the various brand alternatives. Thus we would expect the mean preference ratings and the variance in ratings to be higher when

subjects are exposed to differentiating advertising compared to the no advertising condition. An analysis of variance conducted on the mean preference ratings across the

advertising conditions was significant, F(2,21) = 3.38, T) < .05, (62 = .17). There were no significant differences in mean ratings between the differentiating advertising

condition (M =4.8) and the no advertising condition (M =








64


4.56), Z(1,21) < 1. Although reminder ads were not expected

to have a significant effect on preferences for the various brands, mean ratings were lower in this condition 4.17)

than in the control condition.

It was predicted that differentiating advertising will lead to a greater variance in preference ratings in comparison to the no advertising condition. An analysis of variance performed on the standard deviation of preference ratings approached significance, F(2,21) = 2.16, p < .14, (6 2
CO

.09). As expected, the dispersion in brand-utilities was marginally greater in the differentiating advertising condition (M = 1.72), as compared to the control condition (-U = 1.37), F(1,21) = 3.24, p < .08. There were no significant

differences between the control condition and the reminder advertising condition in the variance in brand-utilities, F (1,21) < 1. Thus the results were in the predicted direction and showed that differentiating advertising did result in a greater spread in brand-utilities.

Results show that the differences across advertising conditions were not large. It is possible that subjects anchored high and low ends of the preference scale with whatever stimuli seemed most and least preferred. Such

response language differences across conditions could have thus defeated this prediction (Lynch, Chakravarti & Mitra 1990; Upshaw 1962; Wyer 1974).








65


This result provided insight on the preference measure that was to be used in Experiment 3. Measures of revealed preference, which are not likely to be susceptible to

response language effects were used rather than rating scale measures of preference.

Effects of advertising on -orice perce-ptions. It was expected that differentiating advertising would lead to higher expected prices on the average compared to the control condition. Mean price estimates for the various brands were examined as a function of advertising condition.

An analysis of variance on mean price estimates showed that there were no significant differences between the

differentiating advertising condition (M = 57.34) and the no advertising condition (M = 53.58), 1(1,21) < 1, (C^0 2 < 0) The dispersion of estimated prices were also predicted to be higher in the differentiating advertising condition in comparison to the no advertising condition. An analysis of the standard deviation of price estimates showed that the price dispersion was higher in the differentiating advertising condition (M = 8.66) than in the control condition (M = 5.50) But although the means were in the predicted direction, the differences were not significant,
A2 03).
(1, 2 1) = 1. 6 6 p < .2 5, CO

Although the mean price estimates and the variance in price estimates showed trend in the predicted direction, the

differences were not significant. Since there were only








66


eight subjects for each mean being compared, this could have been due to the lack of power to detect hypothesized effects.

Estimates of high and low 'prices. Besides providing expected most likely price estimates, subjects also reported highest and lowest likely prices for each brand. These

estimates were used to calibrate high and low prices that were to be used in Experiment 3. The procedure that was used to set the discounted price for each brand is detailed in the next chapter.

Effects of advertising on interbrand differences in poerceptions. It was predicted that differentiating

advertising which highlighted attributes of brands would result in some brands being perceived as similar to some and

more dissimilar to others. Thus the variance in pairwise similarities was expected to be higher under differentiating advertising condition compared to the no advertising condition. An analysis of the variance of pairwise similarities showed that there were no significant differences across advertising conditions, Z(2,21) < 1, (CO 2< 0) Thus there is not enough evidence to conclude that differentiating advertising did result in brands being perceived as more dissimilar.

A possible explanation for this could be that in the absence of advertising information, subjects used the brand name and attribute information (presented in the first session) to make judgments about the similarity of brands.








67


Since these were real candy bar names, many of these provided some insight about the different attributes possessed by the

brands (e.g., Crispy Crunch, Caramilk) Therefore it is likely that even in the no advertising condition, subjects perceived brands to be quite dissimilar apriori, simply on the basis of their names. In comparison, brands were not perceived to be more different when they were advertised, thus resulting in no significant differences across

advertising conditions. Also, response language effects, (whereby subjects anchored high and low ends of the

similarity scale with stimuli that seemed to be most and least similar) could have been the reason for the inability to detect significant effects empirically. Conclusions

The results of the first pretest were encouraging. On the basis of the findings it was clear that the ads that were being used were leading to results in the predicted direction. It is likely that the small sample size in the pretest resulted in the lack of sufficient power to detect hypothesized effects. In spite of this, it was clear that the advertising manipulation was quite effective in terms of

bringing about expected changes in the number of brands recalled and the distribution of preferences. This was

further explored in the next pretest.








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Ex] eriment 2

In the first pretest, the analysis of variance on the number of brands recalled across advertising conditions was
2
marginally significant (p < .10, 11). As predicted,

there was a significantly positive effect on recall scores when subjects were exposed to advertising (M = 7.31) and compared to the no advertising condition (M = 4. 87) .

However, it was desired to have a stronger memory manipulation which would result in sufficient power to detect significant effects on price sensitivity. Moreover, it was desired to reduce the average size of the consideration set in the no advertising condition because a proportionate

change in consideration set size should have a larger effect on price elasticity if set sizes are small rather than large. In other words, it was important to ensure that the

differences in recall between the advertising and control conditions were even greater. Therefore this pretest was designed to incorporate modifications in the experimental procedure in order for advertising to have a stronger effect

on the size of the consideration set. In order to achieve this objective, three specific changes were made in the procedure to be used for Experiment 3. The rationale for these changes are detailed below.

In the first pretest, subjects had been exposed to the brand information repeatedly until they met the criteria for

satisfactory performance on the recognition task. It was








69


felt that an overexposure to this information was probably responsible for reducing the marginal effect of advertising in making brand names accessible in memory. Therefore it was necessary to limit the maximum number of times that subjects were exposed to this information. Accordingly, the procedure for this experiment was modified such that subjects could see the information no more than two times.

In the first pretest, subjects in the advertising conditions were exposed to ads for the candy bars only during the second session. In order for advertising to have

significant effects on recall it was decided that subjects in

the advertising conditions would be exposed to the ads two times--once during the first session and once during the second session.

It was evident from the first pretest that subjects had fairly high brand name recall scores in general, which made it difficult to detect significant improvements in recall due to advertising. Besides the modification in the recognition

task to control for overexposure to brand information, a change was made in the procedure for this experiment. It was felt necessary to interfere with subjects' memory for target candy bar names, so that advertising might result in a stronger effect on recall scores. Accordingly, at the end of

the first session, subjects were given a list of candy bar names to memorize. It was hoped that names from the same product category would interfere with their memory for the








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target brand names so that advertising might have a significant effect on recall scores. Subjects

Twenty-four subjects enrolled in an introductory marketing course in the University of Florida participated in the experiment. Participants were given two extra credits in their class.

Procedure

All subjects participated in two experimental sessions. In the first session they were exposed to product and package

information (via the computer) on the brands and were given the modified recognition task to ensure that the brand names

were available in memory. This implied that if even after two exposures to the brand information subjects did not perform satisfactorily on the recognition task, they went on to the next stage of the experiment.

After this, subjects in the differentiating advertising condition saw twelve ads, while subjects in the reminder advertising condition saw twelve reminder ads for the candy bars. The modified instructions to the subjects at this stage of the experiment are detailed in Appendix IC-1. Subjects in the no advertising condition did not see any ads

and therefore went on to the next task. The advertising

stimuli that were used for this experiment were the same as those used in the first pretest.









71


After this, subjects were given three minutes to memorize a list of twenty-four candy bar names which included

twelve American and twelve European brands available in the Gainesville market. The instructions and stimuli for this task are listed in Appendix IC-2 and IC-3 respectively. When they had completed this task they were thanked and asked to come back for the next session.

In the second session, all subjects completed the brand name recall task where their objective was to recall and list

as many brand names as they could. Before they performed this task, subjects in the advertising conditions were exposed to ads for the candy bars. These ads were the same as those that they had seen in the first session. Subjects in the no advertising condition did not see any ads and completed the questionnaire directly. Results and Discussion

It was predicted that advertising will have a

significant effect on the total number of brands recalled. An analysis of variance across the three advertising

conditions was significant, 1(2,21) = 18.59, p < .0001, (CO 2 = .59). Subjects in the two advertising conditions recalled a significantly greater number of brands than subjects in the

control condition (M = 8.43 and M = 3.00 respectively), F(2,21) = 38.57, jo < .0001. As in Experiment 1, there were no significant differences in recall scores between the








72


reminder (M = 8.25) and differentiating advertising (M

8.62) conditions, F(1,21) <1.

On the basis of these findings it was possible to demonstrate with this independent sample of subjects that advertising could indeed have significant effects on the memory for brand names. Therefore in choice environments in which memory for brand names is important such effects can be expected to prevail. If the ability to recall brand names is

the only determinant of the number of brands considered, we can expect consideration set sizes across different

advertising conditions to follow the same pattern as brand name recall scores. Thus this pretest provided a benchmark against which to compare and interpret the results on consideration set size. The next chapter details the

experiment that tests for advertising effects on price sensitivity, mediated by the preferences and the size of the consideration set.












CHAPTER V

AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: RESEARCH METHODOLOGY


Chapter Overview

The propositions developed in Chapter III concerned how advertising could influence consumer price sensitivity. The

relationship between these two variables was conceptualized as being mediated by two key constructs--the size of the consideration set and the dispersion of brand-utilities. it was argued that advertising could have either a positive or a

negative effect on the number of brands considered at the time of choice. Hence, by increasing or decreasing the size

of the consideration set, advertising could have a positive or negative effect on price sensitivity. Besides affecting the size of the consideration set, advertising could also increase the spread of utilities of brands and result in some

brands being perceived as being clearly superior to others. This would lead to a decrease in price sensitivity.

In this study on the economic effects of advertising, the content of advertising (whether reminder or differentiating) and the decision environment (whether

stimulus-based or memory-based) were hypothesized to moderate

the relationship between advertising and price sensitivity. It was predicted that in memory-based decision environments,



73








74


advertising is likely to influence the ability to recall brands and also the spread of brand-utilities. This was

postulated to have implications for the number of brands considered for choice, the direction being determined by the

relative strength of these two factors. In stimulus-based choice environments, where the ability to recall a brand is

not an important factor for it to be a candidate in the consideration set, the effect of advertising is primarily mediated by the dispersion of brand-utilities.

This chapter details the methodology employed in Experiment 3 to test these hypotheses. The remainder of this

chapter is divided into three main sections which describe

(1) the subjects and stimuli used for the study, (2) the rationale for the factors employed, (3) the dependent

variables, (4) the stimulus design, and (5) the experimental procedure that was employed.


Subjects

One hundred and ninety-eight students enrolled in the Introductory Marketing course at the University of Florida participated in the experiment. Subjects received two extra credits in their class and $3.00 in candy of their choice for

participating in the study. Subjects had to participate in both sessions in order to successfully complete the experiment. Seven subjects failed to complete the study and their data were not Used for the analysis.








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Stimuli

The product category used for this study was candy bars.

Since the experiment used real products and real ads for these products it was necessary that the existing advertising for the products had certain desirable properties. First, for the purpose of this experiment it was necessary to have a product category with which subjects were relatively familiar

so that they could make trade-offs between prices and other attributes relatively easily. Second, it was necessary that

it be a category in which there exists attribute-based differentiation among brands so that it is likely that the advertising could highlight such differences. In both these

respects the product class of candy bars was considered appropriate for the study.

The study attempted to examine the effect of advertising on price sensitivity mediated by preferences and the size of

the consumers' consideration set. In order to be able to draw unambiguous conclusions about the effect of advertising on these mediating variables it was also crucial that the subject population not have prior familiarity with the brands

and the ads that were to be used in the experiment. Therefore the stimuli for the study were twelve Canadian candy bars.








76


ExDerimental Factors

This section details the experimental factors that were manipulated in the study. As noted earlier, the study

employed a design in which advertising condition and decision environment were between subjects factors and price of twelve brands was manipulated within subjects. Advertising Condition

Advertising Condition was manipulated at three levels in

order to gauge the effects of advertising content on price elasticity. Subjects in the differentiating advertising

condition saw ads for all twelve candy bars. These ads

provided information on brand attributes and were predicted to change subjects' relative preference for the brands compared to a situation where none of the brands were advertised. Subjects in the reminder ad condition saw ads which provided information on the package and brand name, similar to some print or billboard advertising. These ads were predicted to increase the likelihood of inclusion of the advertised brands in the consideration set. Subjects in the

no advertising condition served as a control group and were not exposed to any ads for the candy bars.

An alternative manipulation would have been to advertise a subset of brands instead of all of them. This would have

been closer to real-world situations where advertised and unadvertised brands exist simultaneously. Also, this

manipulation could probably have provided better insights on








77


the signalling properties of advertising and how advertising

affects preferences. But this might have led to demand artifacts, especially in a rating/choice situation. Also

advertising for a few brands was likely to lead to inhibition effects (Alba & Chattyopadhyay 1986). It was felt that the power of detecting any of the hypothesized effects was also likely to be greater if all the brands were advertised. Decision Environment

Subjects went on shopping trips in which they made choices among the candy bars. In order to gauge the effects of consideration set size on price elasticity and the effects of advertising on consideration set size, the decision environment was manipulated at two levels. Subjects in the stimulus-based choice condition were provided with a list of all twelve brands and could therefore use this list to decide

which brands to examine for price information and purchase. This was intended to reflect real-world situations in which the aisle display or a salesperson reminds the consumer of the set of brands that might actually be purchased.

Subjects in the memory-based choice condition did not have such a list available to them. These subjects could only search for price information on brands that they were able to recall on their own. Therefore they could only

purchase brands that they could retrieve from memory. This

manipulation was intended to reflect real-world decision situations in which the consideration set is typically








78


generated from memory. Once they could recall a brand name

correctly, subjects had access to the same information that was available to subjects in the stimulus-based decision environment, because attribute information was memory-based for both groups.

Thus the only difference between these two groups was whether they had to recall the brand names or had to access them from memory. In the absence of any advertising for the

brands, the differences between groups in the two decision environments could be attributed purely to memory factors. This provides better insights on the cuing properties of advertising and how advertising influences the size of the consideration set.


De-oendent Variables

For each subject, the following dependent measures were collected:

1. measures of average consideration set size;

2. measures of dispersion--the proportion of budget

allocated to the top brand, the number of brands ever

considered, the standard deviation of the proportion of

budget allocated to the various brands, the standard

deviation of the frequency of choosing the various

brands;

3. price elasticity of each brand.








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S imulus Desicrn for Price Manipulation

The prices of the twelve brands were manipulated withinsubjects at two levels (high or low) independent of each other. It was determined that sixteen shopping trips were required in order for prices to vary orthogonally for the twelve brands. Whether a particular brand was at its high or low price was varied within subjects in a 1/256th fraction of a 212th within-subjects design. Sixteen brand-price profiles

were constructed such that across these profiles each brand was at its high price in eight brand price profiles, and at its low price for the other eight with the prices of the brands uncorrelated with each other across trials. The

brand-price profiles used for the experiment are detailed in Appendix IIA-1. The order in which subjects saw these brand price profiles for the sixteen shopping trips was

counterbalanced across subjects in a 16X16 diagram-ba lanced Latin Square design. Thus each subject saw the brand-price profiles in a particular sequence. There were sixteen such between-subjects sequences to which subjects were assigned.

The sixteen level sequence factor described above

simultaneously counterbalanced order of presentation of the sixteen price profiles and the order of presentation of brand-triples in advertising. The latter will be explained later.

Subjects were told that the prices of the twelve brands were to vary from one shopping trip to another. At a








80


particular point in time, a given brand was at its high price

for half the subjects and at its low price for the other half. The price manipulation was used to compute independent measures of self price elasticities at the brand level.

The high prices were calibrated from the average highest likely price estimates (which are detailed in Appendix IIA-2)

that were obtained from the control group of subjects in Experiment 1. In order to detect effects on price sensitivity it was necessary that the price differential was sufficient to cause a change in purchase patterns. The mean lowest likely price estimates obtained from the control group in Experiment I were used to calibrate the low prices for the brands. The figures were rounded off to the nearest 5 cents to arrive at the high prices for the various brands. The low price used in the experiment was 25 cents lower than the high price, which worked out to an average 34% discount. The

actual high and low prices that were used for the twelve brands are detailed in Appendix IIA-3.


Procedure

To test the hypotheses, a computer-based shopping simulation was developed and employed. The study was

conducted at the behavioral laboratory provided by the Center for Consumer Research at the University of Florida. The experiment was conducted on four IBM PC-XT computers with enhanced graphics (EGA) monitors. All subjects participated








81


in two experimental sessions held on two consecutive days. All experimental instructions were administered using the computer, thus limiting the experimenter's role during the experiment to exposing the subjects to advertising, answering questions and handling minor administrative details. This reduced experimenter- induced biases and ensured that all subjects received the same task instructions. All data were collected by the computer eliminating the chances of transcription or keypunching errors.

Subjects participated in batches of one to four each, Upon entering the room, each subject was randomly assigned to one of the four sequences nested in an Order. Eight subjects

completed the experiment for each of the 24 between-subjects cells (described in Appendix IIB-2). Session 1

Subjects were first given an overview and preliminary instructions for the experiment. They were told that the study involved Canadian candy bars which were being considered for introduction into the local market. They were

then exposed to product and package information on twelve brands of Canadian candy bars one at a time. The information on each brand was flashed on the screen for 15 seconds.

The sequence in which this information was presented to subjects was counterbalanced. The twelve brands were divided into four triples of three brands each. These are detailed in Appendix IIB-1. Thus the order of presentation of








82


information on these twelve brands can be conceptualized as the order of presentation of information on four triples. The sixteen sequences corresponding to presentation order for

price profiles were divided into four groups (Orders) with four sequences nested in each (detailed in IIB-2) The

position of these brand-triples in the string of twelve was varied across the four groups in a 4X4 Latin square design (detailed in Appendix IIB-3). Therefore the position of each particular triple was counterbalanced across subjects.

Recognition task. After being exposed to the brand information, subjects performed a recognition task, the purpose of which was to test whether the brand names were in memory. The task involved correctly identifying the twelve target brands from a larger list of twenty-four Canadian candy bar names randomly intermixed with the target brands. Subjects who failed to satisfy the criteria for the

recognition task were exposed to the product and package information once more before they attempted to perform the recognition task again. If after the second exposure to the brand information they did not perform satisfactorily on the

recognition test, they went on to the next stage of the experiment. The computer recorded the number of exposures required for each subject to satisfy the criteria for the recognition test. Subjects who finished earlier than the others were asked to wait quietly.








83


Advertising exposure manipulation. Subjects were now exposed to ads for the candy bars. Subjects in the

differentiating advertising condition saw twelve differentiating ads, while subjects in the reminder

advertising condition saw twelve reminder ads for the candy bars. Subjects in the no advertising condition did not see any ads and therefore went on to the next task.

The sequence in which these ads were presented to subjects was counterbalanced. The ads for the four brandtriples (described in Appendix IIB-1) were divided into four triples of three ads each. The position of ads corresponding to these brand-triples was varied across the four Orders in a 4X4 Latin square design. This is detailed in Appendix IIB-4.

The stimuli used in this study were those that were used in the pretests. The stimuli for the differentiating

advertising condition were 30-second television commercials for the twelve brands of candy bars. The stimuli used for the reminder advertising condition were slides taken from the television commercials, and showed the package and the brand

name. A remote control slide projector was used to show the reminder ads to the subjects. The duration of exposure to the reminder ads for each brand was 15 seconds.

Interference task. After this, subjects were given three

minutes to memorize a list of twenty-four candy bar names which included twelve American and twelve European brands available in the Gainesville market. This was the same list








84


that was used for Experiment 2. When they had completed this

task they were thanked and told to come back for the next session.

Session 2

The introduction and preliminary instructions for the second session are detailed in Appendix IIC-l and IIC-2.

Sho-piping trips. Subjects were first told that they would

be going on 16 different shopping trips for the Canadian candy bars which they had seen the day before. They were

told that they had $3.00 to spend on each shopping trip. They were also told that they would actually receive the candy bars that they purchased on one of these shopping trips. They did not know in advance which of these shopping trips would be involved in their actual purchase--this was to be randomly determined.

Subjects were informed that prices of the candy bars would be varying from one shopping trip to another, so that a

brand that was at a low price on one of the shopping trips would not necessarily be at that price on the next trip. They were told that on any particular shopping trip they could ask for price information on as many or as few brands as they wanted.

Practice triD3. Before shopping for candy bars, subjects went on four practice shopping trips. The purpose of these practice trips was to familiarize subjects with shopping on the computer and to ensure that they knew how to search for








85


price information on the brands that they liked. It was

hoped that these practice trips would demonstrate to them that prices were indeed varying from trip to trip. The

introduction to the practice trips are detailed in Appendix IIC-3.

The product category of soaps was used for the practice

trips. It was desirable that the product category used for the practice trips was one in which there are not many perceived differences between brands so that price would be an important factor in decision making. Since candy bars were to be used for the main study, and consumers are

believed not to be very price sensitive in that category, it was important to devise ways that would increase the weight given to price, and thus increase the power of the experiment to detect effects. In choosing a product category it was also

necessary to ensure that it was not one that would make the price differences for candy bars seem insignificant.

Therefore six familiar brands of soaps were used for the practice trips.

The prices of soaps were varied independently of each other. Four brand-price profiles were constructed with each brand being at its high price for two profiles and at its low price for two profiles.

Subjects went on four practice trips. On each trip, the computer made available the list of six brand names for which

they could search for price information. When subjects








86


requested information by typing in the brand name, the computer responded with the price for that particular brand.

Subjects could search for information on as few or as many brands as they liked. When they specified that they did not require further information they were instructed to allocate their budget of $3.00 among soaps of their choice. After

each purchase, the computer tallied the remainder of the budget that was still available. After completing one

particular practice shopping trip, subjects went on to the next trip. The instructions for the practice trips are detailed in Appendix IIC-4.

Advertisincr Exposure #1. After the practice shopping trips, subjects in the advertising conditions were exposed to

ads for the candy bars. Subjects in the no advertising

condition did not see any ads and therefore went on to the next task.

A similar procedure was used for the advertising exposure manipulation for the second session as in the first session. The instructions before the exposure to advertising

is detailed in Appendix IID-1. The same 4X4 Latin Square design (detailed in IIB-4) was used for this purpose, thus resulting in subjects seeing the ads in the same sequence in this session compared to the first session.

Shopping tril2s. After this, subjects went on 16 shopping trips for candy bars. Subjects in the stimulus-based choice condition were given a list of the twelve candy bars and they








87


typed brand names for which they wanted price information. The instructions for this condition are detailed in Appendix IID-2. Subjects in the memory-based choice condition did not have such a list available to them, and had to retrieve brand names from memory. The introduction and instructions for the memory-based condition are detailed in Appendix IID-3.

Subjects could search for price information on as few or as many brands as they wished. When subjects requested

information by typing in the brand name, the computer responded with the price for that particular brand. The

prices at which a subject saw a particular brand on a particular trip depended on the sequence number that s/he was assigned at the beginning of the experimental session. As noted earlier, across the sixteen shopping trips a subject saw brand-price profiles in one of sixteen possible sequences.

After they had finished searching for information on prices, they were instructed to allocate their budget of $3.00 among candy bars of their choice. After each purchase,

the computer computed the remainder of the budget that was still available. After completing one particular trip, subjects went on to the next trip.

Advertisincr Ex-oosure #2. Since the shopping trips were

very similar to each other, it was felt that the positive effects of advertising on consideration set size would not be as strong with only one exposure to advertising. Thus there









88


would be a tendency for only a few brands to be included in the consideration set. In order to increase the power to detect significant effects, subjects in the two advertising conditions were exposed to ads for the candy bars once more after completing eight shopping trips. The sequence in which

they saw the ads for the brands during the second exposure was the same as in the first exposure.

After this, subjects went on the remaining shopping trips for candy bars, with prices varying from one trip to another. In all these trips, subjects allocated $3.00 among

candy of their choice. Subjects who had finished earlier than the others were instructed to wait quietly for the other participants to complete the experiment.

After they had completed the sixteen shopping trips, subjects were asked what strategies they had used in making their choices. They were also told that the computer would randomly select one of the 16 shopping trips for each of them and that they would get the candy bars that they had purchased on that shopping occasion. They were thanked for their participation and informed that they could collect their candy bars at the end of the semester.

The results of this study are presented in the next chapter.












CHAPTER VI

AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: RESULTS


Chaip-ter overview


This chapter presents the results of Experiment 3 in two parts. The results pertaining to the average size of the consideration set and the dispersion of brand-utilities are first presented. Subsequently the findings corresponding to price sensitivity are discussed.

The purpose of this study was to provide a better understanding of the effects of advertising on price

elasticity by isolating the causal mechanisms underlying these effects. It was proposed that the relationship between

advertising and price sensitivity is mediated by two basic theoretical constructs--consideration set size and the

dispersion of brand-utilities. Therefore, before specific hypotheses linking advertising with price sensitivity were tested, it was necessary to verify that advertising did have the predicted effects on these two mediating variables.


Results

Consideration Set Size

Consideration set was measured at the individual subject

level by the number of brands about which the subject asked for price information on a given shopping trip averaged 89









90


across the 16 shopping trips. The data were analyzed to test for the effects of Decision Environment, Advertising

Condition and Sequence of Presentation on the number of brands considered per shopping trip. The results from an

analysis of variance are presented in Tables VT-i and VI-2.




TABLE VT-i

ANALYSIS OF VARIANCE


SOURCE TYPE III SS DF F VALUE P > F

ENVIRONMENT 61.45314514 1 15.82 0.0001
ADVERTISING 52.50655754 2 6.76 0.0018
ENVIRON*AD 98.99685669 2 12.74 0.0001
SEQ 42.59451248 15 0.73 0.7476
ENV*SEQ 57.52642877 15 0.99 0.4748
AD*SEQ 50.40397701 30 0.43 0.9947
ENV*AD*SEQ 113.16476440 30 0.97 0.5197
SS /ENV, AD, SEQ 369.49648233 95




TABLE VI-2

MEAN CONSIDERATION SET SIZE



ENVIRONMENT

STIMULUS MEMORY
BASED BASED

ADVERTISING
NONE 5.24 2.26
REMINDER AD 4.72 5.25
DIFFERENTIATING 4.56 3.59








91


The results indicate that there were significant main effects of Advertising Condition and Decision Environment and

a significant Advertising Condition X Decision Environment interaction. To examine more closely the nature of

advertising effects under the two decision environments, analyses of planned comparisons were carried out.

Recall from Chapter III that it had been predicted that

in the absence of advertising, consideration sets will be smaller in the memory-based choice condition than in the stimulus-based choice condition. This is because in the stimulus-based condition, brand names are readily available, and therefore it is not necessary to retrieve them from memory. This prediction was supported by a significant main effect of decision environment. The size of the

consideration set was significantly smaller in the memorybased condition Qj = 2. 2 6) compared to stimulus-based
2
condition (M = 5.24), _E(1,95) = 36.44, p < .001, (CO 06).

Consideration sets in stimulus-based decision environments. It was predicted that under stimulus-based choice environments, the primary effect of advertising on the

size of the consideration set will be through its effect on the dispersion of preferences. Specifically, it was proposed that reminder advertising will not have a significant effect

on the size of the consideration set, while differentiating advertising will increase the interbrand variance of utilities and thereby reduce the size of the set. The




Full Text
CHAPTER II
TOWARD A CONCEPTUAL FRAMEWORK FOR EXAMINING THE IMPACT OF
ADVERTISING ON CONSUMER PRICE SENSITIVITY
Chapter Overview
Historically, the effect of advertising on price
sensitivity has been researched by economists. This chapter
reviews the relevant background literature on this topic.
Two major economic theories of advertising's effects on price
elasticity are presented along with empirical evidence. The
next section details the conceptual framework that is
proposed to examine the economic effect of advertising on
consumer behavior.
Economic Theoretic Views of the Role of Advertising
The dominant paradigm in economics assumes that each
economic unit (the firm or the consumer) acts as if it is
solving a constrained maximization problem. The simultaneous
solution of these problems for every economic unit is called
a 'market equilibrium.' The most important example of this
paradigm is the general equilibrium model of perfect
competition in which there are two types of economic units
consumers and firms. Certain characteristics of the
consumers' preferences or 'tastes' are taken as axioms of the
model and consumer tastes may be mathematically represented
by a utility function. It is assumed that the consumer is
8


CHAPTER VII
GENERAL DISCUSSION AND IMPLICATIONS
This dissertation investigated the relationship between
advertising and consumer price sensitivity. This topic has
been central to the controversy about the economic effect of
advertising in the economics literature (Comanor and Wilson
1979, Ornstein 1977). Two competing theories in economics
have made conflicting predictions about the potential effect
of advertising, based on assumptions about consumer responses
to this marketing mix variable. The fragmentary empirical
evidence in economics and marketing literature has not
provided conclusive support for either theory. Previous
researchers have tested deductions from these theories and
have not been able to offer any test of the underlying
theoretical assumptions. Thus there remain controversies
over whether advertising increases or decreases price
elasticity based on assumptions about its informative or
persuasive nature, with conclusions drawn from studies that
were not designed to provide answers about causality.
This dissertation proposed that prior conceptualizations
about the effect of advertising on consumer price sensitivity
are simplistic. It has been suggested in the literature that
the diverging empirical studies on this topic have not taken
account of the content of advertising (Lambin 1976, Farris
119


THE IMPACT OF ADVERTISING ON CONSUMER PRICE SENSITIVITY
A BEHAVIORAL ANALYSIS
By
ANUSREE MITRA
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA ON PARTIAL FULFILLMENT
OF THE THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1990

In loving memory of my mothermy strongest supporter,
best friend and constant source of wisdom and strength, who
always inspired me to scale greater heights.

ACKNOWLEDGMENTS
It is truethere really is light at the end of the
tunnel! I'm not sure that I fully realize the implication of
the statement as yet. But what I do feel is appreciation for
all those who have helped make this dissertation a reality.
I wish to offer my deepest thanks and heartfelt
gratitude to the person without whom this dissertation would
have always remained a dream--my advisor and chairman,
Professor John Lynch. At times when everything else seemed
to be going wrong, when life posed problems that made
academic targets seem quite meaningless, his constant support
was all I had. He has been beside me on this project from
start to finish and has provided insightful comments and
careful critiques, all of which significantly influenced the
conceptual analysis and research methodology. Like a true
friend he has has been jubilant at my successes and has urged
me on when my spirits were flagging. John has taught me, by
his own example, that striving for excellence can exist side
by side with compassion and empathy for people.
I am grateful to Professors Joe Alba and Wes Hutchinson
for their encouragement and guidance. Their suggestions
provided direction for making refinements in the study
design. Thanks are also offered to Professor Bart Weitz for
helping position this work and to Professor Rich Romano for
sharing insights about the economics literature.
iii

I would like to thank Nielsen-Cadbury Canada, Rowntree
Macintosh Canada and Hershey Canada for making available the
television commercials and also for generously providing
samples of the candy bars that were used for the experiment.
Very special thanks go out to Eric Olson, for writing
the computer program that was used for the study. In spite
of his busy schedule, he has made himself available and
forgave all the impositions that I made on his time. I
shudder to think of how much longer the data collection and
analysis would have taken, had it not been for him. Eric
entertained all my request s small and big, and as a poor
graduate student I could not offer any monetary incentive
suitable for the amount and quality of effort that he put in.
Although in such instances words are quite inadequate to
express the depth of feeling, for the lack of a better
option, it is with words that I must offer my sincerest
thanks to him for making this dissertation possible within a
reasonable length of time.
The past few years have been hard, but I was also lucky
to have a few good friends whose faith in me has been a
reservoir of strength that I could draw on when everything
else seemed hopeless. I wish to express heartfelt thanks and
gratitude to Malay and Dola Ghosh, Sudip and Sarmila, and all
my friends in the Marketing Department, who in their
respective ways, have helped me through the rough times.
Finally, I would like to express my sincere thanks to my
family for their constant support and unquestioning faith in
iv

me .
At times when the future seemed uncertain and bleak,
what kept me going was the vision of their happy faces on
seeing me realize a target that I had ventured out to
achieve, a long time ago.
v

TABLE OF CONTENTS
Pag_e
ACKNOWLEDGMENTS iii
ABSTRACT viii
CHAPTERS
1 INTRODUCTION 1
Effects of Advertising on Price Elasticity... 3
A Behavioral Approach 4
Objective 5
2 TOWARD A CONCEPTUAL FRAMEWORK FOR EXAMINING
THE IMPACT OF ADVERTISING ON CONSUMER PRICE
SENSITIVITY 8
Chapter Overview 8
Economic Theoretic Views on the Impact of
Advertising 8
Impact of Advertising on Consumer Price
Sensitivity 12
Conceptual Framework 18
3 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: CONCEPTUAL
HYPOTHESES AND STUDY DESIGN 32
Objective 32
Background 32
Hypotheses 4 6
Overview of Research Methodology 47
4 PRETESTS 51
Overview 51
Experiment 1 52
Experiment 2 68
vi

5 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: RESEARCH
METHODOLOGY 73
Chapter Overview 73
Subjects 74
Stimuli 75
Experimental Factors 7 6
Dependent Variables 7 8
Stimulus Design 7 9
Procedure 80
6 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: RESULTS 89
Overview 8 9
Results 89
7 GENERAL DISCUSSION AND IMPLICATIONS 119
APPENDIX 139
Introduction and Preliminary Instructions... 140
Price Profiles for the Twelve Brands
Across First Eight Shopping Trips 158
REFERENCES 177
BIOGRAPHICAL SKETCH 183
vii

Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
THE IMPACT OF ADVERTISING ON CONSUMER PRICE SENSITIVITY:
A BEHAVIORAL ANALYSIS
By
Anusree Mitra
August 1990
Chairman: John G. Lynch, Jr.
Major Department: Marketing
The dissertation investigates the impact of advertising
on consumer price sensitivity. Two opposing schools of
economic thought, the information school and the market power
school, have postulated divergent theoretical accounts about
the way advertising influences consumer behavior and have
made conflicting predictions about the direction of change in
price sensitivity. The fragmentary empirical evidence does
not provide clear support for either theory.
This dissertation postulates that two basic theoretical
constructs 'mediate the effect of advertising on price
sensitivity: size of the consideration set and the dispersion
of brand utilities. It is suggested that advertising content
and the decision environment have a potentially different
effects on these two constructs.
viii

Three experiments are conducted to examine the role of
such factors in determining the relationship between
\y advertising and price elasticity. The first two studies
examine the effects of advertising on the mediating
constructs, and provide evidence that advertising could have
an effect on the memory for brand names and on the relative
preference for the brand alternatives.
The third experiment uses a computer based shopping
simulation to test 'the relationship between advertising and
price elasticity, mediated by the two key constructs.
Subjects went on shopping trips under two types of decision
environments and three advertising conditions. The effects
on the size of the consideration set, the dispersion of brand
preferences and price elasticity were examined.
The results indicate a very strong interaction effect of
advertising and decision environment on the size of the
consideration set. The content of advertising also had a
significant impact on revealed preference for the various
brands. The direction of change in price elasticity was as
predicted on the basis of the hypothesized mediating roles of
the basic theoretical constructs.
The experiments provide an improved understanding of the
relationship between advertising and price elasticity, by
isolating the underlying causal mechanisms The results
highlight the important mediating influence of consideration
set size and dispersion of brand-utilities in predicting when
advertising will have a particular effect.
ix

CHAPTER I
INTRODUCTION
In today's competitive environment, consumers are
exposed to a significant amount of mass media advertising on
a regular basis Each day brings with it new exposures to
this powerful method of marketer-controlled communication.
Because advertising is such an inescapable part of a
consumer's life, consumer researchers have paid considerable
attention to the study of consumer responses to this element
of the marketing mix. The marketing practitioner, too, is
interested in consumer responses to advertising, which
represents a strategic management tool that the firm can
employ to achieve its goals of maximizing profits or market
share. Advertising expenditures comprise a substantial
portion of the firm's promotion budget; hence the marketer is
interested in the long-term consequences of advertising
versus other methods of building customer loyalty (Moran
1978) .
Aside from the firms and the consumers who are directly
involved with its consequences, economists and regulators
also study the effects of advertising. The economist,
primarily interested in the interactions between the behavior
of the firm and the behavior of the consumer, mainly focuses
on the determination of the equilibrium level of advertising,
its effect on total consumption, industry profits, industrial
1

2
concentration and price levels (Albion & Farris 1981; Norris
1984). Economists are not concerned with consumer responses
to advertising per se, but mainly with its implications from
a social welfare perspective. The regulatory agencies are
charged with the responsibility of providing a fair and
competitive environment in which firms may operate, and of
ensuring that marketers' activities do not prove to be
detrimental to consumer welfare. Thus, the economic effect
of advertising is also of interest to the public policy maker
in charge of advertising regulation and consumer protection
(Bloom 197 6) .
Even though they are studying the same phenomena,
specialists in one field often have little awareness for the
activities of researchers in closely related fields. But
there remain a number of valid reasons why the interaction
between disciplines is important. In many cases, the output
of one field of study serves as the input of another. Also,
the tools and techniques of one discipline can be effective
in answering questions previously studied only by a different
discipline. Finally, good policy decisions can benefit from
the knowledge and insights that different disciplines have to
offer. Thus, our understanding of the economic effects of
advertising may be greatly enhanced by the adoption of an
interdisciplinary approach.
The focus of this dissertation is on the economic effect
of advertising on consumer behavior. This is a topic that

3
has received considerable attention in industrial
organization and social welfare economics. Although the
research on the economic effects of advertising originated in
the field of economics, its conclusions have been the subject
of a long-standing controversy. Economic theory does not
make any reliable predictions regarding the effects of
advertising. The pragmatic implication of this lack of
theoretical foundation is that none of these controversial
issues can be settled by a priori reasoning. This has
resulted in unresolved disputes about whether advertising
raises or lowers profits, leads to increases or decreases in
prices paid, increases or decreases industry competition, and
the like, with sweeping generalizations made on particular
samples of data (Albion & Farris 1981) .
Effects of Advertising on Price Elasticity
Although much of the prior research in this area has
discussed this issue in the context of industry competition,
this dissertation will examine the effect of advertising on
consumer price sensitivity. Economists have provided
divergent theoretical accounts and have made conflicting
predictions about the economic effects of advertising based
on implicit assumptions about consumer responses to the
information provided by advertising. The empirical research
that has appeared in the economics and marketing literature
has only tested deductions from these theories and has not

4
been able to offer any conclusive evidence on this
controversial issue.
In this past research, advertising is conceptualized in
terms of the total expenditure on this element of the
marketing mix. None of these studies has explicitly taken
into account variations in advertising content. It is
suggested in this dissertation that the results could vary
with advertising content, because consumer responses to
different types of advertising messages are likely to differ.
It is the central thesis of this paper that assertions about
the potential effects of advertising on the consumer require
a more detailed analysis of the consumer's decision process.
A Behavioral Approach
This dissertation adopts a behavioral approach in an
attempt to arrive at an improved understanding of the impact
of advertising on consumer price sensitivity. It draws on
insights from behavioral literature and focuses on the
consumer's choice decision with the objective of identifying
the various possible mechanisms by which advertising might
affect price sensitivity. In the conceptual framework that
is adopted, it is suggested that the effect of advertising on
price elasticity could be better understood by examining how
advertising influences two mediating variables: the size of
the consideration set and the dispersion of brand-utilities.

5
Advertising-induced changes in the size of the
consideration set. The consumer's 'consideration' set
consists of those brands that the consumer actively considers
at the time of choice. It is proposed that advertising might
have a role in placing a brand in the consumer's
consideration set and/or keeping other brands out of the set.
In other words, advertising might influence consumer choice
by ensuring that the sponsored brand is considered at the
time of decision making and by simultaneously determining the
other alternatives that will be considered along with the
advertised brand.
Advertising-induced changes on interbrand dispersion in
utilities. Another way in which advertising for a particular
brand might affect choice is by changing the dispersion of
utilities for the various alternatives. Thus if advertising
results in some brands being perceived to be clearly superior
to competitive offerings, these brands are likely to be
relatively insulated from price competition. These factors
are likely to have implications for price sensitivity.
Objective
This dissertation attempts to demonstrate that prior
conceptualizations that have addressed only one possible
relationship between advertising and price sensitivity are
too simplistic. In other words, there are different causal
mechanisms by which advertising influences consumer price

6
sensitivity. The objective of this paper is to provide
insights on the mechanisms by which advertising might affect
consumer behavior and to identify conditions under which
these are likely to hold. Using price elasticity as the
dependent measure, several propositions that follow from
behavioral assumptions about consumer responses to
advertising are tested in a laboratory setting.
Chapter II begins with a survey of the literature on the
economic effects of advertising. Relevant theoretical and
empirical research on the effect of advertising on price
elasticity is reviewed. The limitations of previous research
in making any theoretical statements about the effects of
advertising on consumer behavior are discussed. A conceptual
framework is proposed that attempts to better understand and
predict the effects of advertising on consumer price
sensitivity.
In Chapter III the specific focus of the dissertation is
articulated. An experiment designed to test several research
hypotheses on advertising's economic effects is presented.
Chapter IV presents some propositions, methods and results of
two experiments that were designed to serve as pretests for
the Experiment 3, which examined the effects of advertising
on price elasticity. Chapter V presents the research
methodology employed to test the hypotheses. Chapter VI
presents the results of the third experiment, which provide
strong support for the primary hypotheses.

7
Chapter VII provides a general discussion of the various
findings and the implications of these results for research
on the effects of advertising on consumer behavior.
Managerial and public policy implications of these findings
and directions for future research are also highlighted.

CHAPTER II
TOWARD A CONCEPTUAL FRAMEWORK FOR EXAMINING THE IMPACT OF
ADVERTISING ON CONSUMER PRICE SENSITIVITY
Chapter Overview
Historically, the effect of advertising on price
sensitivity has been researched by economists. This chapter
reviews the relevant background literature on this topic.
Two major economic theories of advertising's effects on price
elasticity are presented along with empirical evidence. The
next section details the conceptual framework that is
proposed to examine the economic effect of advertising on
consumer behavior.
Economic Theoretic Views of the Role of Advertising
The dominant paradigm in economics assumes that each
economic unit (the firm or the consumer) acts as if it is
solving a constrained maximization problem. The simultaneous
solution of these problems for every economic unit is called
a 'market equilibrium.' The most important example of this
paradigm is the general equilibrium model of perfect
competition in which there are two types of economic units
consumers and firms. Certain characteristics of the
consumers' preferences or 'tastes' are taken as axioms of the
model and consumer tastes may be mathematically represented
by a utility function. It is assumed that the consumer is
8

9
rational and chooses quantities of various goods to consume
in an attempt to maximize utility. In such a model, prices
are determined through the market equilibrium of demand for
goods by consumers and their supply by firms.
Economic price theory did not include advertising until
the seminal work of Chamberlain (1933). Since that time, it
has been theorized in normative models that there is an
optimal level of advertising, which is inversely related to
price elasticity (Dorfman & Steiner 1954; Nerlove & Arrow
1962) However, there does not exist a generally accepted
theoretical view about the economic consequences of
advertising. Given this lack of any generally accepted
theoretical formulation, divergent streams of research have
appeared in the literature. Thus, at the risk of
oversimplifying the subtleties of individual economist's
positions, we can broadly characterize these as falling into
one of two schools of thought,which have been labelled as the
'Advertising = Market Power' view and the 'Advertising =
Information' view (Albion & Farris 1981). These two research
traditions differ markedly with respect to their assumptions
about the way advertising affects consumer behavior.
The market power perspective considers advertising a
means of persuasion. In other words, advertising can change
consumer tastes and artificially differentiate the product
from close substitutes thereby insulating the firm from price
competition. Thus, advertising enables the individual firm

10
and the industry as a whole to charge higher prices and
obtain higher profits (Comanor & Wilson 1979). Central to
this thesis is the concept of product differentiation.
Proponents of the monopoly view (Steiner 1978) often cite the
example of national brands of aspirin which dominate the
market, in spite of the fact that private-label products are
physically identical and sell for less than half the price.
The market power view also postulates that advertising by
incumbents also creates barriers to entry for new firms in an
industry and leads to increased concentration (Bain 1956;
Kaldor 1950) This model, though founded on assumptions
about consumer reactions to advertising, mainly focuses on
the nature of competition within the industry. That is, the
focus is on supplier rather than consumer behavior.
An alternative to the change-of-tastes approach has
developed from the economics of information theories,
beginning with the work of Stigler (1961). According to this
view, advertising acts to change the information upon which
consumer decisions are based, but not the criteria for
judgment. For example, advertising might succeed in
convincing a consumer that a certain product has a lower
price, is more durable and is easier to use than another
product, but it does not alter the consumer's beliefs about
the relative importance of the attributes. In other words,
it is assumed that consumers have well-defined rankings of
desired attributes which are unaffected by advertising.

11
Thus, advertising simply serves to announce a product's
existence and/or attributes. This view holds that
advertising is a means of market competition; its function is
to provide information to consumers, thereby increasing the
number of known substitutes. This results in lower prices
and reduces monopoly power (Nelson 1970,1974b; Telser 1963).
Proponents of the information view of advertising
distinguish between 'search' goods, whose quality can be
evaluated prior to purchase, and 'experience' goods, whose
quality can only be evaluated through experience after
purchase (Nelson 1974a, 1974b, 1975). Advertising for search
goods provides direct information about product quality.
There is no incentive on the part of the advertiser to
provide inaccurate information about search goods, as
consumers are able to recognize the difference between
advertised and actual quality prior to purchase. Nelson has
argued that the only information contained in advertising for
experience goods is the fact that the brand is advertised and
is therefore likely to provide more utility per dollar. The
rationale for this is that producers of high quality brands
have a greater incentive to advertise, as there is a greater
likelihood of repeat purchases for such brands compared to
low quality brands. Thus consumers may rationally treat the
firms' advertising expenditures as a signal of product
quality (Kirmani & Wright 1989; Milgrom & Roberts 1986;
Nelson 1974) Thus for both search and experience goods,

12
advertising provides consumers with valuable information
about products and consequently reduces consumer search
costs.
Evidence of the price-reducing effects of advertising
has been drawn from the prescription drug and retail eyeglass
industries. Retail prescription drug prices were found to be
higher in states that restricted prescription drug price
advertising than they were in states that did not (Cady
1976) Price and non-price advertising restrictions were
found to increase retail eyeglass prices by 20 to 100 percent
(Benham 1972). Moreover, this excess consumer cost did not
appear to have brought about any offsetting public health or
safety benefits.
From the above discussion, it is clear that there are
two general viewpoints among economists about the role of
advertising. According to one, advertising is a means of
persuasion and according to the other, advertising is a means
of transmitting information. These philosophic differences
between the economists have influenced their
conceptualization of the relationship between advertising and
price elasticity, which is discussed in the next section.
The Impact of Advertising on Price Elasticity
Theoretical Foundations
The concept of elasticity of demand occupies a very
important position in economics because it is a measure of

13
market power. The price elasticity of demand refers to the
relative change in quantity demanded in response to a
relative change in price. Specifically it is defined as the
percentage change in the quantity of a product demanded in
response to a percentage change in price. The relationship
between advertising and price elasticity is therefore of
central concern to economists concerned with advertising's
effect on industry competition.
In the market power model, advertising is postulated to
lead to artificial product differentiation and to lower the
perceived substitutability among competing alternatives. The
arguments presented in these theories (Bain 1956; Comanor &
Wilson 1979) suggest that advertising reduces the price
elasticity of demand for firms, allowing them to charge
prices above marginal costs and earn higher profits. On the
other hand, the information view assumes that consumers do
not have perfect information about product qualities, prices
and other relevant product characteristics. In this model,
price elasticity is taken to be a function of consumer
awareness and qualitative knowledge about close brand
substitutes rather than their mere existence. Advertising
increases the number of known substitutes and also provides
information about them. In this way, it increases price
sensitivity and reduces monopoly power (Nelson 1970,1974a,
1974b,1975,1978).

14
From this discussion it is clear that the two schools of
economic thought postulate different roles for advertising on
the basis of certain implicit assumptions about consumer
responses to this marketing variable. However, these
assumptions about advertising's potential effect on consumer
behavior remain essentially untested. In addition, past
conceptualizations have not been able to isolate the various
mechanisms by which advertising influences consumer price
sensitivity. Thus it is likely that each of the two opposing
viewpoints on advertising's potential effect on consumer
behavior might hold under a certain set of conditions. It is
proposed that a more general framework that takes account of
these different relationships between advertising and
consumer price sensitivity will be able to offer more
insights on this issue. It is suggested in this paper that a
more detailed analysis of consumer responses to advertising
making use of insights from behavioral research will provide
an improved understanding of the effects of advertising on
the price elasticity of demand. The objective of the present
research is therefore to study individual consumer responses
to advertising and price changes It is hoped that this
integrated perspective might ultimately provide more secure
behavioral foundations for generalizations at the firm and
industry level, but it should be noted that this is not the
objective of this research. Hence this research does not

15
attempt to answer questions regarding the implications of
advertising for market competition versus monopoly power.
Empirical Evidence
There have been few empirical studies that directly test
the relationship between advertising and price elasticity
(Ornstein 1977). Some researchers in economics have found
support for the monopoly view of advertising, using data at
the brand-level (Lambin 1976) and at the industry-level
(Comanor & Wilson 1974). Thus, both aggregated and
disaggregated econometric studies have shown advertising to
reduce the price elasticity of demand. Some marketing
researchers who have specifically tested for the effect of
advertising on elasticities have also found support for the
view that advertising decreases price elasticity of demand
(Krishnamurthi & Raj 1985).
However, it becomes more difficult to make general
statements about the impact of advertising on price
elasticity when we examine the work done by other researchers
in marketing. Using cross-sectional and time-series data,
Wittink (1977) found a positive relationship between
advertising and price elasticity, consistent with the
information approach. Other researchers who have also drawn
similar conclusions, i.e., that advertising increases price
sensitivity, have not measured price elasticity in response
to advertising, but have examined price sensitivity through
price advertising interactions (Eskin 1975; Eskin & Baron

16
1977; Prasad & Ring 1976) Eskin & Baron, for example,
report a negative interaction between advertising and price,
i.e., the simple effect of price on quantity sold increased
with an increase in advertising. They interpret this to mean
greater responsiveness (higher price elasticity) to price
when advertising is increased. However, the elasticity of
demand depends not only on the slope but also on the original
position on the curve. Thus it is not possible, simply by
observing a negative interaction between price and
advertising, to make general statements about changes in
price elasticity in response to advertising. It is easy to
imagine situations in which price elasticity might decrease,
even though the analysis of variance tests show a negative
interaction, as was observed in the Eskin & Baron study. A
related problem stems from the disguised nature of the data
employed by these researchers. To preserve confidentiality,
Eskin and Baron applied a positive linear transformation to
their sales data. Such linear transformations on the data
will not affect the price-advertising interaction, but the
elasticities will be affected. Due to these factors, it is
difficult to make valid generalizations about the effect of
advertising on price elasticity from an examination of price
advertising interactions.
Limitations Past research into the effect of
advertising on price sensitivity suffers from certain
limitations. The evidence appears to be mixed, but the lack

17
of comparability across studies on the conceptualization and
design makes it impossible to generalize from such evidence.
Part of the problem arises from the lack of consistency among
authors in what they mean by 'advertising.' Variations in
advertising content, which might have a potential effect on
price sensitivity, have not been considered (Albion & Farris
1980,1981; Lambin 1976). As we shall see in the following
sections, advertising messages are not identical, and
different types of advertising can be expected to have
potentially different effects on price sensitivity. In light
of this, it is meaningless to view advertising as a
homogeneous activity and hypothesize its potential effect on
price sensitivity without regard for the variation in
content. The use of different types of dependent measures of
price sensitivity with respect to advertising (e.g. price
advertising interactions or price elasticities) might also
account for part of the conflicting evidence.
Second, the causal relation between advertising and a
measure of market power such as price elasticity is also a
controversial point (McAulife 1987). A correlation between
advertising and price elasticity does not prove that
advertising is the cause of an increase or decrease in price
elasticity, especially because such correlational studies
have not controlled for other possible causal factors. Even
if a causal relationship exists, it is not clear what the
direction of causality is, since it has also been shown that

18
the optimal level of advertising depends on the price
elasticity of demand (Dorfman & Steiner 1954). Studies done
in the econometric tradition, which seem to support the
monopoly view of advertising (e.g., Comanor & Wilson 1974;
Lambin 1976), did not explicitly control for extraneous
variables that might have had a potential effect on the
results. In the absence of a controlled experiment
specifically testing for the relationship, it is not possible
to make any statement about its causal nature. Other
researchers who have used controlled field experiments (Eskin
& Baron 1977; Krishnamurthi & Raj 1985) could possibly make
claims about causality. But in the absence of controls
factors such as advertising content and the stage in the
product life cycle, which could have a potential effect on
the results obtained, they too have not been able to provide
conclusive evidence about the causal relation between
advertising and price elasticity.
A Conceptual Framework
This section presents a generalized conceptual framework
for examining the relationship between advertising and price
sensitivity. In this dissertation, price sensitivity is to
be measured directly by examining price elasticities. An
attempt is made to establish a causal link between consumer
responses to advertising and the resulting price sensitivity;
this is to be experimentally tested under controlled

19
conditions. This approach will consider the possible ways in
which different kinds of advertising (primarily varying in
content) affect consumer responses to advertising and the
resulting price sensitivity.
It is suggested that if the objective is to better
understand the causal relationship between advertising and
price sensitivity, an appropriate focus of study could be
consumer choice as a function of price sensitivity. Hence
the question, properly framed, is: how does advertising
affect consumer choice? Various choice models and mechanisms
have been suggested in the literature (Corstjens & Gautschi
1983; Hutchinson 1986) One particular theoretical
formulation of the choice process (Nedungadi 1987) is very
insightful in this context, where the primary focus is on how
advertising influences price sensitivity through its effect
on consumer choice. In this model, brand choice is
conceptualized as a two-stage process. In order to be
selected, a brand must (a) first be included in the
consumer's consideration set and (b) be preferred to others
in the set. In other words, an alternative must first be
brought to mind and actively considered and must also be
perceived to offer the maximum utility among all members of
the set. It follows that the probability of a brand being
finally chosen can be changed by influencing its inclusion in
the consumer's consideration set or by altering the perceived
utility of that brand relative to others in the set.

20
Lynch and Bloom (1987) use this conceptualization of
choice in their proposed framework for examining the effects
of advertising on consumer price sensitivity. They suggest
that advertising could influence the probability of choice by
determining the size of the consumer's consideration set.
Advertising that increases the probability of inclusion of
the advertised brand in the consideration set increases the
size of the set, and advertising that inhibits the
probability of simultaneous inclusion of competing brands,
reduces the size of the consideration set. In short,
advertising could have either a positive or negative effect
on the size of the consideration set All else equal, the
elasticity of demand for any given brand to changes in its
price will be greater the larger the number of brands that
are simultaneously considered.
Advertising could also potentially influence the
dispersion of brand-utilities It could increase the
perceived utility for the sponsored brand and decrease the
perceived utilities for competing brands. Advertising could
change perceptions about market offerings or alter the
criteria consumers use to evaluate products. In this way, by
changing the consumer's preferences for the various
alternatives, advertising could have a positive or negative
effect on the probability of choosing the advertised brand.

21
Advertising-induced Changes in the Size of the Consideration
Set
The consideration set consists of the group of brands
that the buyer actively considers when making a choice
(Campbell 1969). These brands become the alternatives in the
buyer's choice decision. It has been suggested (Alba and
Chattyopadhay 1985; Hauser & Wernerfelt 1990; Nedungadi 1987)
that the consumers faced with an assortment of brands attempt
to concentrate on a subset of alternatives in order to gain
efficiency in shopping. Therefore, marketers need to
organize their efforts in such a way that their particular
brand is included in the consumer's consideration set. The
consideration set is a dynamic entity varying over different
types of choice situations (Nedungadi 1987) Thus, the
marketer's task involves more than simply ensuring consumer
awareness of the brand's existence; the brand has to be
retrieved and considered at the time of choice. Advertising
could ensure that the advertised brand is included and also
prevent simultaneous inclusion of other brands. Thus
advertising could have a positive or negative effect on the
size of the consumer's consideration set.
In the real world, there are many instances of an
advertiser attempting to place the sponsored brand in the
consumer's consideration set. For example, reminder
advertising often attempts to provide retrieval cues at the
time of choice (Keller 1987). Such efforts might ensure that
the advertised brand is included in the consumer's

22
consideration set. Empirical research has also shown that
advertising for a brand can substantially inhibit the recall
of competing brands (Alba & Chattyopadhyay 1986) This has
important implications for situations in which an alternative
has to be remembered to be considered. For example, when
consumers decide which stores they want to patronize, all the
alternatives are not arrayed in front of them. Thus, they
have to retrieve relevant information from memory. In this
case, if advertising for a few stores dominates the media,
these stores are likely to be salient in the consumer's mind
relative to unadvertised stores. In this way, advertising
might ensure inclusion of the advertised brand for
consideration and thus influence the choice decision by
altering the size of the consideration set (Silk & Urban
1978) .
The effects of advertising on consumer decisions allow
us to derive its implications for revealed price sensitivity.
If price is considered to be an argument in a multi-attribute
utility function (Huber et al. 1986), then all other things
being equal, the greater the number of brands in their final
consideration set, the more price sensitive consumers are
likely to be (Lynch & Bloom 1987) Thus, if advertising
increases the size of the consideration set by ensuring
inclusion of advertised brands, it leads to increased price
sensitivity. This implies that advertising for a particular
brand leads to increased price sensitivity for competing

23
brands that are already included in the consideration set.
Advertising for a brand might also inhibit the inclusion of
potential competitors in the consideration set and thereby
result in reduced sensitivity to changes in its own price.
These changes in consumer price sensitivity caused by
advertising are mediated by the size of the consideration
set. In this study, all brands are advertised and therefore
the institution of advertising results in an increase in the
size of the consideration set.
From the preceding discussion it is clear that the
consideration set is an important construct for examining the
effect of advertising on consumer choice. One possible way
in which advertising could influence consumer price
sensitivity for the advertised brand is simply by changing
the size of the consideration set in which this brand is
included. The effects just described are purely the result
of memory factors. The next section discusses changes in
price elasticity that result from advertising-induced changes
in preference.
Advertising-induced Changes in Preference given Inclusion in
the Consideration Set
Economic analysis generally treats advertising as a
homogeneous activity that is evaluated independently of why
it might increase demand (Leffler 1982). Yet, the effect of
advertising need not be the same in different markets or in
different situations within a market. For example, price

24
comparison ads of standardized products might increase price
sensitivity both by providing more information as suggested
by economic analysis and by the behavioral mechanism of
increasing salience of price and inhibiting the salience of
non-price attributes (Bettman & Sujan 1987; Feldman & Lynch
1988; Lynch & Bloom 1987) Image' advertising of
heterogeneous, differentiated products might reduce price
sensitivity by increasing the importance of non-price
attributes in the consumer's utility function. Hence, an
examination of this relationship should be prefaced by the
particulars of the products advertised and the message
delivered by the ad. If advertising is a multifaceted,
heterogeneous activity, general statements as to the economic
effects of advertising might not be possible or
interpretable. Rather, it would be more reasonable to
examine systematically conditions under which advertising can
be expected to have a positive or negative effect on price
sensitivity.
In the economic literature (and even in the marketing
literature which has attempted to examine price-advertising
interactions), the content of advertising has never been
considered. Rather, the amount of advertising has been
emphasized. However, perhaps the content of advertising is
what is important in terms of its potential effect on price
sensitivity, and this is an important factor to be considered
in the examination of this relationship (Albion & Farris

25
1981; Lambin 197 6) It may be meaningless to judge the
information potential of advertising on consumer behavior
without regard to its content. In this regard, it would be
too simplistic to postulate, as some economists (Nelson 1970,
1974, 1978) have done, that all advertising is informative
rather than manipulative or persuasive, because this assumes
that consumers have fixed preferences and the only objective
of the ad is to provide functional information. Based on
evidence from the behavioral literature, some authors suggest
that an ad for a brand can change perceptions of the product
and hence can affect the probability of choice (Alba &
Hutchinson 1990; Bettman & Sujan 1987; Hoch & Ha 1986; Lynch
& Bloom 1987).
As noted above, the probability that a consumer chooses
a particular brand depends upon his/her preference or utility
for the brand relative to competing alternatives (Cortsjens &
Gautschi 1983; Nedungadi 1987) Research on consumer
preferences and attitudes has relied heavily on the use of
multi-attribute models. Within the general paradigm of
multi-attribute models, one can envision several possible
ways in which an attitude toward a particular brand can be
changed (Lutz 1975; Wilkie & Pessemier 1973). Basically,
these models postulate that individuals' attitudes toward a
brand is some function of their beliefs about the extent to
which the brand possesses certain attributes, and their
evaluation of the importance of these attributes. Thus,

26
attitudes are construed as a linear combination of brand
beliefs and importance-weights on certain attributes.
Marketers often attempt to use advertising to increase
the perceived utility for the sponsored brand. One of the
key benefits of the multi-attribute approach is that it
offers useful guidance in this regard. Consumer researchers
suggest several advertising strategies which can improve
consumer attitudes toward the advertised brand relative to
competitors (Boyd et al. 1972; Lutz 1975). In line with the
theoretical formulation stated above, all these strategies
attempt to improve consumer preferences for the advertised
brand in one of the following ways: (a) by changing existing
beliefs about the brand or competing brands, (b) by
increasing the importance of an attribute on which the brand
is strong, (c) by decreasing the importance of a weak
attribute, and (d) by adding an entirely new attribute (Boyd
et al. 1972) .
In the preceding paragraphs, the various possible ways
in which advertising might change consumer preferences for
the sponsored brand have been outlined. This leads to an
increased likelihood of it being chosen, if it is already
included in the consideration set. This is likely to have
implications for price sensitivity. The mechanisms by which
they could occur are discussed below.
First, advertising for the sponsored brand could change
the distribution of preferences and create a situation in

27
which the ordering of preferences is not sensitive to changes
in price. The greater the dispersion in the consumers' mind
among the utilities of the alternative brands, the less price
elastic should be their demand for any individual brand.
Advertising might lead to some brands being perceived to be
clearly superior relative to others. In other words,
advertising, by increasing the perceived utility for the
advertised brand relative to that of competing brands, might
lead to a lower price elasticity for the sponsored brand.
A second way in which advertising might potentially
reduce price sensitivity is by increasing the salience of
non-price attributes and thereby decreasing the importance of
price. Thus, advertising can cause consumers to 'frame'
their choices in terms of the evaluative criteria suggested
by advertisers (Alba & Hutchinson 1990; Bettman & Sujan 1987;
Hoch & Deighton 1989). It has been reported that increasing
the salience of product attributes suppresses the ability to
recall unmentioned attributes (Alba & Chattyopadhyay 1985).
Also, by increasing the salience of a particular attribute,
advertising might ensure that this attribute is used in
subsequent evaluations, and thereby increase the effective
weight given to that attribute (Feldman & Lynch 1988) Taken
together, this suggests that advertising, by increasing the
salience of non-price attributes, could lead to decreased
price sensitivity.

28
The preceding paragraphs have discussed the role of
advertising on consumer price sensitivity mediated by altered
preferences as a result of advertising. It has been pointed
out that advertising could lead to decreased price
sensitivity for the advertised brand either by enhancing the
importance of non-price attributes in consumer choice or by
changing the perceived overall utility for that brand and the
difference in utility between that brand and the consumer's
most preferred brand. Some authors suggest that this would
be less true for consumers with higher levels of expertise
(Alba & Hutchinson 1990; Lynch & Bloom 1987)
Interplay between Advertising-induced Preference and the
Consideration Set
The framework so far has conceptualized the impact of
advertising on price sensitivity as being mediated by changes
in either the size of the consumer's consideration set or the
perceived utilities of various brands. From this perspective
of the choice process and the role advertising plays in it,
it might seem as if the size of the consideration set is
independent of consumer preferences for the competing
alternatives. However, the perceived utilities of the
different product offerings, aside from having a direct
effect on price sensitivity, might also limit the size of the
consumer's consideration set.
Through the direct effect on preferences, advertising
might also have an indirect effect on the size of the

29
consideration set. Ad-induced changes in utility may cause
some alternatives to become dominated and, therefore, removed
from the consideration set. In other words, advertising, by
changing brand preferences, might determine the number and
type of brands that the consumer considers at the time of
choice. Advertisers often attempt to differentiate the
product on certain advertised dimensions. The increased
salience of this differentiating attribute might lead to a
greater attention being given to that attribute at the time
of choice (Gardner 1983) The prominence given to the
attribute might have an effect on the choice heuristic
employed by consumers. If noncompensatory choice processes
are modelled as though it were compensatory, this would
affect the revealed importance of the attribute (Johnson &
Meyer 1984) .
The market power view of advertising asserts that
advertising differentiates products and creates a situation
in which the advertised brand is perceived to have few close
substitutes This might be taken to imply that when the
advertised brand is included in a consumer's consideration
set, few other brands are simultaneously included. This is
because the perceived benefit from including additional
brands in the consideration set will be less when some
clearly preferred brand is already included (Hauser &
Wernerfelt 1990). Since price sensitivity is a function of
the perceived substitutability among brands, differentiating

30
advertising, by changing preference structure, reduces the
size of the consideration set. This leads to decreased price
elasticity. In this case, it might also affect the
composition of the set, such that the variance in utilities
for brands in the consideration set is less than the variance
for all brands in general. This might imply higher cross
price sensitivity for brands included in the consideration
set.
In this section, the interdependence between preference
and the size of the consideration set was discussed.
Advertising, by changing the relative utilities for the
various product offerings, is likely to alter the size and
composition of the consideration set, which in turn has
implications for price sensitivity.
Summary
Prior conceptualizations regarding the relationship
between advertising and consumer price sensitivity have been
too simplistic in that they have looked for main effects of
advertising. Thus the literature remains confusing and the
disputes unresolved. It is proposed that we can arrive at a
better understanding of the phenomenon by looking at higher-
order interactions involving many other factors and a more
sophisticated treatment of consumer choice behavior.
The proposed framework discussed above attempts to
isolate various possible causal mechanisms by which
advertising affects consumer price sensitivity by affecting

31
the awareness of substitutes and the ability to remember
substitutes of which one is aware. First, it might change
the size of the consideration set by affecting the awareness
of substitutes and the ability to remember substitutes of
which one is aware. Second, it might alter preferences for
the advertised brand given inclusion in the consideration
set. Third, it might also reduce the size of the
consideration set through preferential mechanisms. The
greater the variance in utilities, the less the incentive to
consider brands other than one's most preferred ones, in the
hope that a price discount for a less-liked brand would cause
it to be preferred to the normally favored brands.
The next chapter details an experiment that is designed
to empirically test the concepts discussed in the framework.

CHAPTER III
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: CONCEPTUAL HYPOTHESES AND STUDY DESIGN
Objective
This study attempted to examine the relationship between
advertising and price sensitivity mediated by two key
constructs: the size of the consideration set and the
dispersion of brand-utilities.
Background
The Consideration Set
Consumers are faced with a multiplicity of alternatives
in course of making their regular purchase decisions. In
each product category, consumers are aware of a large number
of brands and have to make their choice from among these
brands. To simplify their decision making, they must make
their selection from a smaller group of brands (Alba &
Chattyopadhyay 1985; Hauser & Wernerfelt 1990; Nedugadi 1987;
). In other words, the consumer's final choice is made from
the consideration seta certain subset of alternatives from
the total number of options available in the market. This
definition is similar to the 'evoked set' notion used by
marketing researchers (Campbell 1969; Howard & Sheth 1969;
Narayana & Markin 1975; Parkinson & Reilly 1979).
32

33
The concept of a consideration set is important for the
understanding of consumer choice. First, it emphasizes that
mere awareness of a brand is not sufficient for it to be a
candidate in the consumer's final choice set. The brand has
to be actively considered at the time of decision making.
The brands that consumers consider at the time of choice form
a small subset of the total number of alternatives of which
they are aware (Silk & Urban 1978) Second, the
consideration set is not a static entity. Of course,
research in consumer behavior has often implicitly assumed
that the consumer chooses from a fixed set of brands.
Typically, consumers are presented with a set of brands and
information about them, and are asked to make a choice or to
indicate their preferences (Lynch & Srull 1982) But in
practice, the size and composition of the consumer's
consideration set is determined by certain voluntary and
involuntary factors. The size of the consideration set is a
positive function of the consumer's ability and motivation to
retrieve and consider a certain number of brands for
evaluation at the time of choice. Thus anything that
positively affects the ability of the consumer to retrieve
brands from memory will increase the size of the
consideration set, and factors that negatively affect this
ability will tend to reduce the size of the consideration
set. Similarly, factors that alter the motivation of the
consumer to retrieve information from memory will have an

34
effect on the size of the consideration set. For example,
the inclusion of highly preferred brands in the consideration
set is likely to reduce the motivation to consider additional
brands for evaluation and choice. This will reduce the size
of the consideration set and also affect its composition.
Hence the consideration set is likely to vary over time,
depending on whether factors that are present when the choice
is made result in an increase or decrease in the ability and
motivation to retrieve brands for consideration.
Presence or Absence of Advertising
Advertising for the brand is an important factor that
can influence brand choice by affecting the ability and the
motivation to place the sponsored brand in the consideration
set. In today's competitive environment, the consumer is
faced with an assortment of brands and has to focus on a
subset of brands in order to gain efficiency in shopping.
Under such a scenario, marketer-controlled advertising can
serve important purposes that help consumers make the choice
decision from among the numerous alternatives that they
encounter.
This study will consider the effects of the institution
of advertising on price elasticity. In other words, this
research will compare the case when none of the brands
advertise to that when all brands engage in advertising.
Reminder advertising. First, advertising can result in
keeping the sponsored brand salient in the consumer's mind.

35
The ability to recall a brand depends on the accessibility of
the brand in memory. It has been noted earlier that mere
awareness of the brand is not enough for it to be considered
at the time of choice. In order to be chosen, the brand must
be retrieved from long-term memory and included among the
subset of alternatives that comprise the consumer's
consideration set. Advertising for even well-known brands
keeps the brand salient in the consumers mind and increases
the probability that it would be retrieved at the time of
choice (Hauser and Wernerfelt 1990; Silk & Urban 1978;).
Consider a situation in which the marketers use
advertising for their brands, but the advertising is of a
reminder nature. That is, its major objective is to keep the
brand name accessible in memory, and thereby increase the
probability that the sponsored brand is included in the
consumer's consideration set. In fact, some authors note
that in many instances, the aim of advertising is to place
the brand in the consumer's evoked set (Wilkie & Farris 1976,
Wittink 1977) Though the evoked set they are referring to
is more akin to an 'awareness set', it is possibly true that
keeping the brand salient in the consumer's mind through
reminder advertising also enables it to be considered at the
time of choice. In other words, reminder advertising
provides retrieval cues at the time of choice, and thereby
increases the size of the consideration set.

36
As stated in the earlier section, this study will
consider the effects of advertising when all brands are
advertised. If all firms pursue this strategy, there should
not be any inhibition effects resulting from the salience of
a few brands in memory as has been observed by some
researchers (Alba & Chattyopadhyay 1986) In such a case,
reminder advertising of all brands will increase the salience
of brands in memory and thereby increase the size of the
consideration set.
Differentiating advertising. Marketers might also try
to use advertising to differentiate their brands from
competitive offerings and thereby reduce the number of
perceived substitutes. In the real-world, advertising is
often used to position a parity product away from substitutes
with the objective of insulating the brand from competition.
This type of advertising leads to an increase in the
dispersion of brand-utilities among the alternatives in the
consideration set. In other words, differentiating
advertising will result in some brands being perceived to be
clearly superior to others and thereby increase the
probability of these brands being chosen (Hauser & Wernerfelt
1990).
If the focus was on the variations in a single brand's
advertising, this could either increase or decrease
interbrand variance of interbrand utilities. For example, if
the top brand advertises, then this increases variance of

37
utilities. If a less attractive brand advertises, this will
decrease the variance. In this study, all brands advertise.
Under such a scenario, information contained in
differentiating advertising will result in an increase in the
dispersion of utilities compared to the situation when none
of the brands advertise.
Besides affecting preferences for the brands in the
consideration set, differentiating advertising can affect the
size of the consideration set itself. As noted earlier,
consideration set size is a function of not only the ability,
but also the motivation of the consumer to retrieve brands
from memory. Differentiating advertising might be expected
to positively affect the ability to retrieve brands by
keeping brand names salient in memory. Thus, compared to the
situation in which none of the brands are advertised,
differentiating advertising, by increasing the ability to
recall brand names, is expected to increase the size of the
consideration set.
However, by directly affecting the distribution of
perceived utilities for the various brands, differentiating
advertising is also likely to have an indirect negative
effect on the motivation to retrieve brands for
consideration. The higher the utility from the best brand in
the evoked set, the less likely is the consumer to consider a
new brand (Hauser 1989). Thus, by increasing the utilities
and the variation in utilities of brands in the consideration

38
set, differentiating advertising is likely to reduce the
consumer's motivation to retrieve brands for consideration at
the time of choice.
The Decision Environment
The environment in which the choice is made has a
potential role in moderating the effects of advertising on
the consideration set and the dispersion of brand-utilities.
Decision environments differ in terms of the degree to which
the consideration set is driven by external factors such as
salesperson's recommendations or point-of-purchase display,
or by the information that the consumer has to access from
memory.
Consider the case of the consumer who is deciding on the
store at which to shop. Decisions such as this are
necessarily memory-based. Consumers do not have all the
alternatives available to them at the time of choice, and
therefore must retrieve the information from memory. This is
the pure 'memory-based' choice situation, in which the
environment does not provide any of the relevant information
(on brand names or attributes) at the time of choice, and the
consumer has to retrieve the information from memory.
There are other situations in which the consumer could
rely on external cues (in whole or in part) for the
generation of alternatives. For example, consider the
consumer walking down a supermarket aisle. In this
situation, the consumer has brand and attribute information

39
on all the alternatives readily available at the time of
choice. In such a case, the environment is providing all the
information relevant to making the decision. This is what we
term 'stimulus-based' choice environment. In such a
situation, the consideration set is likely to be determined
by external cues provided by the environment, e.g., price
rebates or end-aisle display.
Even in the case of stimulus-based choices, as in our
supermarket example earlier, it may be argued that the
consumers do not spend their time exhaustively considering
all* possible alternatives. Even in such situations which are
in principle, purely stimulus-based, it is contended that
memory factors play a crucial role (Alba et al. 1990) .
Research in consumer behavior (Hoyer 1984; Park et al 1989)
suggests that consumers do not engage in elaborate processing
of package information at the time of choice. Thus it is
likely that consumers retrieve relevant information from
memory in order to concentrate on a subset of alternatives
and thus gain efficiency in shopping.
In short, for certain decisions, consumers might have to
retrieve information from memory in order to evaluate and
choose from a candidate set of brands. In other situations,
they could rely on external cues to some extent. The more
the consumer relies on external cues to guide choice, the
more the decision is said to be stimulus-based. But, as

40
noted earlier, the pure stimulus-based choice decision is a
rare phenomenon.
In this context, it would be useful to distinguish
between memory-based versus stimulus-based specification of
attributes and brands. The few studies (Alba & Marmorstein
1987; Biehal & Chakravarti 1983,1986; Lynch et al. 1988)
which have considered memory-based decision making have
assumed that brand names are given and that relevant
information on attributes must be accessed from memory. This
is representative of situations in which consumers are
shopping from store to store, where not all the attribute
information is available in front of them, and they have to
retrieve relevant information about the brands from memory in
order to make a judgment or choice. But there are other
situations in which even the brand name has to be generated
from memory, irrespective of whether the attribute
information is readily available or not. As noted above, the
consumer might be faced with a variety of choice environments
which offer different types of information at the time of
decision making.
Implications
Whether the choice is stimulus-based or memory-based has
implications for the alternatives considered and the
informational inputs that are used in decision making
(Nedungadi 1987) When the choice is memory-based, the size
of the consideration set will depend on the consumers'

41
ability and motivation to retrieve brands from memory. If
there is no advertising for the various brands, then the
consideration set in a memory-based choice situation depends
purely on the consumer's capacity to retrieve brand
alternatives. Hence the size of the consideration set is
likely to be smaller in the memory-based environment than in
the stimulus-based environment.
When the decision is such that brand names have to be
remembered to be considered, the consumer has to rely on
memory to retrieve brands for consideration. Therefore
marketers try to organize their efforts in such a way that
their particular brand is considered at the time of choice
(Narayana & Markin 1975) Thus, under memory-based
situations, reminder advertising will lead to an increase in
the ability to recall brands and thereby increase the number
of brands considered for choice. If all firms pursue this
strategy, there should not be any inhibition effects
resulting from the salience of a few brands in memory as has
been observed by some researchers (Alba & Chattyopadhyay
1986) .
Differentiating advertising has a positive effect on the
ability to recall brands and can therefore increase the size
of the consideration set. But this type of advertising is
also likely to negatively affect the motivation to recall
brands for consideration. In other words, if this type of
advertising results in some brands being perceived as clearly

42
superior to others, it is unlikely that consumers will
attempt to include clearly dominated alternatives in their
consideration sets. Research in consumer behavior has shown
that more preferred brands are likely to be more easily
retrieved, simply because preference leads to brand usage and
the rehearsal that this produces increases the brand's
accessibility in memory (Nedungadi & Hutchinson 1985). Thus
consumers are more likely to retrieve brands that they
perceive will provide the maximum utility (Hauser &
Wernerfelt 1990). Therefore, the size of the consideration
set is likely to be negatively related to the perceived
superiority of the brands retrieved initially. Hence, in
memory-based choice situations, differentiating advertising,
if it leads to changes in brand perceptions and preferences,
might lead to a reduction in the size of the consideration
set.
When choice is stimulus-based, the environment provides
the relevant information, and reminder advertising is not as
important a determinant of the size of the consideration set.
This is because the reminder function of advertising is not
expected to be crucial in helping the consumer decide on the
brands to consider before making a choice. However, it
should be recognized that many real world choice environments
in which stimulus information is available, consumers ignore
it and make decisions based on memory.

43
Differentiating advertising will lead to an increase in
the variance of interbrand preferences. This is likely to
lead to a reduction in the size of the consideration set if
consumers concentrate on the highly preferred alternatives in
order to gain efficiency in shopping.
Advertisers use differentiating advertising to alter
preferences for the various brands. Consumers might use the
criteria provided in the ad for the purpose of evaluation and
choice (Bettman & Sujan 1987; Gardner 1983, Hoch & Deighton
1989) Such 'framing' effects are likely to limit the size
of the consideration set. Thus, in stimulus-based
situations, a differentiating advertising strategy might lead
to greater attention being devoted to certain attributes,
thereby changing the composition of the consideration set.
For example, the consumer might use a particular attribute in
order to eliminate alternatives, and the members of the final
consideration set might be similar on that particular
attribute.
The greater the number of brands in the consideration
set, the greater is the price sensitivity, because the
existence of a greater number of substitutes decreases the
utility gap between the most preferred brand and its
competitors thereby increasing the elasticity of demand to
price cuts by the latter (Lynch & Bloom 1987) The positive
effect of advertising on price sensitivity will be larger if
consideration set sizes in the absence of advertising were

44
smaller. That is, if advertising increases consideration set
sizes from 2 to 3, this will have a more dramatic effect on
price elasticity than if it increases consideration set sizes
from 4 to 6. Thus, under memory-based choice situations,
reminder advertising, which increases the size of the
consideration set, tends to increase price sensitivity, and
differentiating advertising, which reduces the size of the
consideration set, tends to decrease price sensitivity.
Differentiating advertising for brands will also increase
relative preference for some and thus have a negative effect
on price sensitivity.
Even when advertising has no effect on the size of the
consideration set, it can lead to an increase in the
dispersion of brand-utilities. Advertising that seeks to
convey attribute information and thereby differentiate the
sponsored brand from close substitutes often results in
changing the relative overall preference for the various
brands. The larger the variance in utilities, the larger is
the price discount necessary to change purchase patterns.
Therefore differentiating advertising would be expected to
increase the dispersion of brand-utilities and thus lower the
price elasticity in the stimulus-based choice environment.
Assumptions
1 Holding constant the size of the consideration set,
price elasticity is inversely related to the dispersion
of brand-utilities.

45
2. Price elasticity is a positive function of consideration
set size.
3a. Differentiating advertising conveys more utility
relevant information than reminder advertising. Thus,
it can be expected to have greater effects on interbrand
variance in utilities than reminder advertising.
3b. Reminder advertising will have minimal effects on the
interbrand dispersion of utilities compared to a
situation of no advertising.
4. The size of the consideration set is a function of
certain voluntary and involuntary factors It is
positively related to the ability and motivation of the
consumer to retrieve a certain number of brands from
memory. Anything that increases (decreases) the ability
or the motivation to retrieve brands for consideration
will increase (decrease) the size of the consideration
set.
5. Both reminder and differentiating advertising can
facilitate retrieval of brands.
6. When the environment provides the names of all relevant
brands (stimulus-based environment), the primary effect
of advertising on the consideration set will be through
its effect on the dispersion of preferences.
Specifically,
6a. Reminder advertising of all brands will not have a
significant effect on the size of the consideration set

46
to the extent that it will have minimal effects on the
dispersion of brand-utilities.
6b. Advertising that seeks to differentiate the brands
serves to change brand-utilities and the inter-brand
variance of utilities, and thereby reduce the size of
the consideration set.
7. When the consumer must remember the names of all
relevant brands (memory-based environment), there will
be a large simple effect of advertising on the size of
the consideration set.
Specifically,
7a. Consideration set sizes will be larger when advertising
is of a reminder nature than if no brands advertise.
7b. Consideration set sizes will be smaller when all brands
use differentiating advertising than if no brands
advertise.
8. Average size of the consideration set will be larger
when choice is stimulus-based than when choice is
memory-based.
Hypotheses
HI. When choice is stimulus-based, price sensitivity will be
greater than when choice is memory based.
H2. When choice is stimulus-based, the only effect of
advertising on price sensitivity is through a change in
perceived utilities of the various brands.

47
H2a. When choice is stimulus-based, differentiating
advertising will result in decreased price sensitivity
compared to a situation of no advertising.
H2b. When choice is stimulus-based, there will be no
significant effect of reminder advertising on price
sensitivity compared to a situation of no advertising.
H3. When choice is memory-based, there will be a significant
effect of advertising on price sensitivity.
H3a. When choice is memory-based, advertising that seeks to
differentiate the brand from competing brands will
result in decreased price sensitivity compared to a
situation of no advertising.
H3b. When choice is memory-based, reminder advertising of all
brands will result in greater price sensitivity compared
to a situation of no advertising.
Overview of Research Methodology
Three experiments were designed to test the hypotheses
concerning advertising and price elasticity, mediated by the
two constructs of interest, namely, size of the consideration
set and the dispersion in preferences for the various brands.
The first two experiments served as pretests for Experiment 3
which examined the effect of advertising on price
elasticities. In order to help the reader understand the
issues in the design of Experiment 3 that Experiments 1 and 2

48
were intended to resolve, a brief overview of Experiment 3 is
provided first.
Pesian
This section presents the overall methodology employed
in the Experiment 3, which utilized a computer-based shopping
simulation. Three factors were manipulated in the
experiment. A 2X3X12 design was used, with Decision
Environment (Stimulus-based / Memory-based) and Advertising
Condition (Differentiating / Reminder / No Ads) as between-
subjects factors. Prices of twelve brands were manipulated
(High / Low) within-subjects, independently of each other,
allowing independent estimation of the price elasticities of
the 12 brands. These price elasticities served as the
primary dependent measures. Subjects participated in groups
of one to four, with each group being randomly assigned to
one of the six cells of a 2X3 between-subjects design.
Procedure
Subjects were initially exposed to attribute information
on twelve brands of Canadian candy bars that were previously
unfamiliar to them. After demonstrating by a recognition
task that they were 'aware' of the brands, they were
dismissed. They came back to the laboratory at a later point
in time, when they were required to go on 16 shopping trips
for candy bars.
The subjects' objective on each of the 16 shopping trips
was to maximize satisfaction given a budget of $3.00 per

49
trip. Their task was to allocate the amount among candy bars
of their choice. They were told that the prices of the
various brands would change from one shopping trip to
another. Subjects were also told that they would actually
receive the candy bars purchased on one of these sixteen
shopping trips. These aspects of the design and procedure
were the same for all subjects.
Experimental Factors
Advertising condition. The type of advertising was
manipulated at three levels. Subjects in the differentiating
advertising condition saw ads for all twelve candy bars.
These ads provided information on brand attributes and were
predicted to change subjects' relative preference for the
brands compared to a situation where none of the brands were
advertised. Subjects in the reminder ad condition saw ads
that provided information on the package and brand name,
similar to some print or billboard advertising. These ads
were predicted to increase the likelihood of inclusion of the
advertised brand in the consideration set but to have minimal
effect on preferences. Subjects in the no advertising
condition served as a control group, and were not exposed to
any ads for the candy bars prior to going on the 16 shopping
trips.
Decision environment. The decision environment was
manipulated at two levels. Subjects in the stimulus-based
choice condition were provided with a list of all twelve

50
brands to use during shopping trips. They could therefore
use this list to decide which brands to examine for price
information and purchase. This was intended to reflect real-
world situations in which the aisle display or a salesperson
reminds the consumer of the set of brands that might actually
be purchased.
Subjects in the memory-based choice condition did not
have such a list available to them. These subjects could
only search for price information on brands that they were
able to recall on their own. Therefore they could only
purchase brands that they could retrieve from memory. This
manipulation was intended to reflect real-world decision
situations in which the consideration set is typically
generated from memory.
Chapter IV describes the pretests (Experiments 1 and 2)
that tested some assumptions arising from the above
discussion. Chapter V details the methodology employed in
Experiment 3 to test the hypotheses on the impact of
advertising on price sensitivity. Chapter VI presents a
discussion of the results of Experiment 3. Chapter VII
develops the implications of these findings for research in
consumer behavior.

CHAPTER IV
PRETESTS
Overview
The hypotheses developed in the last chapter concerned
how two basic theoretical constructs mediate the effects of
advertising on price elasticity. These two mediating
variables are the size of the consideration set and the
dispersion of brand-utilities. It was argued that
advertising could lead to an increase or decrease in the size
of the consideration set, with resultant effects on price
elasticity. Also, advertising that seeks to differentiate
brands will increase the variance in perceived utilities for
the various brands and thereby lower price elasticity.
This chapter discusses two pretests which were designed
to examine the effect of advertising on the ability and
motivation to consider brands for evaluation and choice.
These experiments were expected to provide insights on the
hypothesized mediating roles of the theoretical constructs
discussed in the framework. The following specific issues
were investigated:
1. the effects of advertising on the number of brands
recalled;
2. the effects of advertising on the number of attributes
recalled;
51

52
3. the effects of advertising on interbrand differences in
preference;
4. the effects of advertising on price perceptions;
5. the effects of advertising on interbrand differences in
perceptions.
Experiment 1
This sections details the above mentioned issues and the
predictions that were tested in the first experiment. The
subjects, the methodology and the stimuli are discussed. The
results of the pretest are also presented.
Key Issues Investigated
The issues that were investigated in these pretests are
presented below.
Effects of advertising on the number of brands recalled.
It has been suggested in this paper that one of the major
roles of advertising is to remind, i.e., to provide recall
cues in order to ensure that the brand is retrieved for
evaluation. The reminder function of advertising becomes
especially important in situations in which the brand has to
be remembered to be considered. Advertising is expected to
have a significant effect on the number of brand names
recalled in the memory-based decision environment. In the
absence of advertising, subjects have to rely on memory to
recall brand names for consideration. Advertising (both
reminder and differentiating) can therefore be expected to

53
increase the ability of the consumer to recall brand names by
making them more accessible. Both differentiating and
reminder advertising are likely to have similar effects on
free recall of brand names. On the basis of the above
discussion the following prediction was made:
PI. There will be a significant effect of advertising on the
number of brand names recalled correctly.
Thus the proposition tests for significant differences in
memory for brand names when subjects are exposed to
advertising compared to the situation in which none of the
brands are advertised.
In the last chapter it was hypothesized that under
memory-based decision environments, reminder advertising will
increase the size of the consideration set. For such an
effect to hold, it was important to ensure that even though
subjects were aware of the brands, the names were not readily
accessible in memory. If the above proposition is supported,
it implies that advertising could be expected to enhance the
ability to recall and thereby influence the size of the
consideration set.
Effects of advertising on the number of attributes
recalled. It is often suggested that advertising is a source
of valuable information on brand attributes. If this is
true, then differentiating advertising, besides providing
cues for brand name recall, will also result in making
attribute information more salient in memory. In the absence

54
of advertising, subjects will have to rely on the initial
(product and package) information on the various brands in
order to retrieve attribute information from memory.
Differentiating advertising, if it provides brand attribute
information should increase the ability to recall brand
attribute information and thereby have a positive effect on
the number of attributes recalled correctly. Therefore the
following predictions were made:
P2a. Differentiating advertising will result in a greater
number of attributes recalled compared to a situation of
no advertising.
P2b.There will be no significant effect of reminder
advertising on the number of attributes recalled
correctly.
Thus this prediction tests for differences in the salience of
brand attribute information across the three advertising
conditions. It was expected that such information was likely
to form the basis of perceived utility differences across the
brands.
It was postulated in this paper that differentiating
advertising will lead to an increase in the dispersion of
brand-utilities. As stated earlier, perceived utilities for
various brands are likely to be a function of the information
that is available at the time of choice. Subjects in this
experiment had access to two sources of brand-attribute
information.

55
All subjects were exposed to some basic product and
package information about the various brands before they saw
any ads. This was intended to stimulate real-world
situations in which subjects typically have access to
information sources other than advertising. Therefore the
purpose of providing the initial information was to give
subjects a preliminary basis for forming relative preferences
among brands. This was considered to be especially important
for subjects who were not to be exposed to advertising.
Otherwise, these subjects would have no basis for choice
(from novel brands) other than price. Afterward, subjects in
the two advertising conditions were exposed to advertising,
which was the second source of information about the brands.
However, if subjects in the no-advertising condition had
perfect recall of the initial attribute information that they
were exposed to, they were more likely to have a well-defined
preference ordering for the brands. In such a situation,
advertising would be less likely to result in significant
increases in the dispersion of brand-utilities. In short, for
advertising to have the desired effects on the size of the
consideration set and preferences, it was considered
important that there should be differences among the three
advertising conditions in terms of the information that is
accessible.
Effects of advertising on interbrand differences in
preference. Advertising conveying information that produces

56
(real or image-based) differentiation among brands was
postulated to have an effect on the relative overall
preferences. Specifically, differentiating advertising is
likely to make perceived utilities of the brands more
variable, resulting in some being perceived to be clearly
preferred to others. For example, it is likely that
advertising will increase the utility difference between the
most preferred brand and the next preferred brand. Reminder
advertising was not expected to have significant effects on
interbrand differences in preference. On the basis of the
above discussion, the following predictions were made:
P3a. Differentiating advertising will lead to a significant
increase in mean preference ratings and the dispersion
in preference ratings compared to the no-advertising
condition.
P3b. Reminder advertising will not lead to a significant
increase in mean preference ratings and the dispersion
in preference ratings compared to the no-advertising
condition.
Effects of advertising on price perceptions. Consumers'
perceptions of prices of brand alternatives are a function of
the information available. Thus, in the absence of
advertising, consumers are less likely to perceive
significant differences across comparable brands. In
contrast, when differentiating advertising conveys
information on the attributes of the various brands, it is

57
likely that some will be perceived as being clearly superior
to others. This is expected to affect price expectations for
the various brands and also the variance in expected prices.
Therefore the following prediction was made:
P4. Differentiating advertising will result in higher mean
expected prices and higher dispersion in expected prices
compared to the no advertising condition.
Subjects' expectations of prices were likely to be
different across various brands. The pretest was also
designed to help calibrate the price levels and price
variations to be used in Experiment 3 which would directly
test for the effects of advertising on price elasticity. It
was desired to set normal price levels for each brand that
would make all brands roughly equal in attractiveness, so
that the preference orderings would be maximally sensitive to
price discounts. This was especially crucial for a product
category such as candy bars where consumers are not expected
to be very price sensitive a priori.
Effects of advertising on interbrand variances in
perceptions. Marketers often attempt to differentiate brands
on certain advertised dimensions in order to alter the
consumers' preference-ordering for the various alternatives
available. The increased salience of certain advertised
attributes might result in consumers using criteria provided
in the ad for the purpose of evaluation. If differentiating
advertising 'frames out' a relevant subset of brands based on

58
the attributes used for differentiation, it is likely that
brands within a particular subset will be perceived as being
more similar than brands in general. Brands in different
subcategories are likely to be perceived as being more
dissimilar when subjects are exposed to differentiating
advertising compared to subjects in the control condition.
This leads to the following prediction:
P5. The variance in pairwise similarities among brands will
be higher in the differentiating advertising condition
than in the no advertising condition.
Subjects
Twenty-four subjects enrolled in an introductory
marketing course in the University of Florida participated in
the experiment. Those who participated were given two extra
credits in their class.
Procedure
The study was conducted at the behavioral laboratory
provided by the Center for Consumer Research at the
University of Florida. The experiment was conducted on four
IBM PC-XT computers with enhanced graphics (EGA) monitors.
Subjects participated in groups of one to four, with groups
randomly assigned to between-subjects conditions. All
subjects participated in two experimental sessions held on
two consecutive days. The stimuli and tasks for the
experiment are detailed in Appendix I.

59
Session 1. All the task instructions for the first
session were administered using the computer. Subjects were
first given an overview and preliminary instructions for the
experiment (detailed in Appendix IA-1). They were told that
the study involved Canadian candy bars which were being
considered for introduction into the local market. They were
then exposed to product and package information (name, weight
and contents) on twelve brands of Canadian candy bars one at
a time. The information on each brand was flashed on the
screen for 15 seconds. The brand description protocols are
detailed in Appendix IA-2.
After being exposed to the brand information, subjects
performed a recognition task, the instructions for which are
detailed in Appendix IA-3. The purpose of this task was to
test whether the brand names were accessible in memory. The
task involved correctly identifying the twelve target brands
from a larger list of twenty four brands (which included 12
distractor brands). The distractor brands (listed in
Appendix IA-4) consisted of Canadian candy bars and were
randomly intermixed with the target brands. Subjects were
judged to have performed satisfactorily on the recognition
task if they were able to correctly identify all the target
brands and had less than 75% failure rate with the
distractors.
Subjects who failed to satisfy the criteria for the
recognition task were exposed to the product and package

60
information again before they attempted to perform the
recognition task again. This was repeated until all subjects
had performed satisfactorily on the test, as measured by the
criteria listed above. The computer recorded the number of
exposures that were required for each subject to satisfy the
criteria for the recognition test. Subjects who finished
earlier than the others were asked to wait quietly. When all
subjects completed the task, they were thanked for their
participation and asked to return for the next session.
Session 2. During the second session, subjects in the
two advertising conditions were exposed to ads for the
various brands. The experimenter showed the ads to the
subjects in the differentiating and reminder advertising
conditions. Subjects in the no-advertising condition did not
see any ads.
Advertising stimuli. The stimuli for the differentiating
advertising condition were 30-second television commercials
for the twelve brands of candy bars. These were provided by
the manufacturers of the Canadian candy bars. The stimuli
used for the reminder advertising condition were slides
created from the television commercials, and showed the
package and the brand name. A remote control slide projector
was used to show the reminder ads to the subjects. The
duration of exposure to the reminder ads for each brand was
15 seconds. It was judged that a 30 second exposure to the

61
reminder ads would have produced irritation among subjects
that would have confounded the interpretation of the results.
After this, all subjects completed two questionnaires.
The first questionnaire required subjects to perform the
following tasks:
Brand name recall task. Subjects were asked to recall
and list the target brands of candy bars. The instructions
for this task are detailed in Appendix IB-1.
Attribute recall task. Subjects were provided with a
list of candy bar names for which they had been exposed to
information (product and package, and in some cases,
advertising) on candy bars. They were asked to recall and
list the attributes that describe the candy bars. The
instructions for this task are detailed in Appendix IB-2.
Preference rating task. The instructions for this task
are detailed in Appendix IB-3. Subjects were required to
indicate their preferences for the target brands of candy
bars on a seven point (Extremely highExtremely low) scale.
Price perception task. The instructions for this task
are detailed in Appendices IB-4 and IB-5. Subjects were
given the list of target brand names and were asked to
estimate the most likely, lowest likely and highest likely
price for each brand. They were told that Skor' a brand
with which they were familiar was currently available on the
market for $0.55.

62
Similarity rating task. Subjects were asked to give
similarity ratings for the twelve brands on a seven-point
(highly similar--highly dissimilar) scale. The instructions
for this task are detailed in Appendix IB-6.
Results and Discussion
The results of Experiment 1 are presented below.
Effects of advertising on the number of brands recalled.
It was predicted that since advertising increases the ability
to recall brand names, subjects who were exposed to ads would
perform better on the brand name recall task than those who
did not see any ads. An analysis of variance on the total
number of brand names correctly recalled across the three ad
conditions approached significance, £(2,21) = 2.49, p < .10,
* 2
(00 = .11) Moreover, there were significant differences
between the control condition (M = 4.87) and the two
advertising conditions (M = 7.31), £(2,22) = 4.90, p < .05.
There were no significant differences between the reminder (M
= 7.12) and differentiating (M. = 7.50) advertising
conditions, £(1,21) <1. Thus the results were in the
predicted direction, indicating that there was a positive
effect of advertising on the ability to recall brand names.
Effects of advertising on the number of attributes
recalled It was predicted that if differentiating
advertising did indeed convey attribute information about the
brands, then subjects in this condition should perform better
on an attribute recall task compared to subjects who were not

63
exposed to such ads. The attributes considered were those
that were initially presented to all subjects. An analysis
of variance conducted on the total number of brand-attributes
correctly recalled in the differentiating advertising
condition (M = 6.50) and the no advertising condition (M =
4.75) approached significance, £(1,21) = 2.95, p. < .10, (CO2 =
.04) As expected, subjects in the reminder advertising
condition (M = 5.00) did not differ significantly from those
in the control condition (M = 4.75) on the number of
attributes correctly recalled, £(1,21) < 1. Thus the results
were in the predicted direction, indicating that there was a
simple effect of differentiating advertising on attribute
recall scores.
Effects of advertising on interbrand differences in
preference. It was predicted that advertising that results
in real or image-based differentiation will change the
utilities and the variance in utilities for the various brand
alternatives. Thus we would expect the mean preference
ratings and the variance in ratings to be higher when
subjects are exposed to differentiating advertising compared
to the no advertising condition. An analysis of variance
conducted on the mean preference ratings across the
advertising conditions was significant, £(2,21) = 3.38, p. <
/v 2
.05, (CO = .17) There were no significant differences in
mean ratings between the differentiating advertising
condition (M =4.8) and the no advertising condition (M =

64
4.56), F(l,21) < 1. Although reminder ads were not expected
to have a significant effect on preferences for the various
brands, mean ratings were lower in this condition (M = 4.17)
than in the control condition.
It was predicted that differentiating advertising will
lead to a greater variance in preference ratings in
comparison to the no advertising condition. An analysis of
variance performed on the standard deviation of preference
ratings approached significance, £(2,21) = 2.16, p < .14, (G)2
= .09) As expected, the dispersion in brand-utilities was
marginally greater in the differentiating advertising
condition (M = 1.72), as compared to the control condition (M
= 1.37), F(l,21) = 3.24, p < .08. There were no significant
differences between the control condition and the reminder
advertising condition in the variance in brand-utilities,
F_(l,21) < 1. Thus the results were in the predicted
direction and showed that differentiating advertising did
result in a greater spread in brand-utilities.
Results show that the differences across advertising
conditions were not large. It is possible that subjects
anchored high and low ends of the preference scale with
whatever stimuli seemed most and least preferred. Such
response language differences across conditions could have
thus defeated this prediction (Lynch, Chakravarti & Mitra
1990; Upshaw 1962; Wyer 1974).

65
This result provided insight on the preference measure
that was to be used in Experiment 3. Measures of revealed
preference, which are not likely to be susceptible to
response language effects were used rather than rating scale
measures of preference.
Effects of advertising on price perceptions. It was
expected that differentiating advertising would lead to
higher expected prices on the average compared to the control
condition. Mean price estimates for the various brands were
examined as a function of advertising condition.
An analysis of variance on mean price estimates showed
that there were no significant differences between the
differentiating advertising condition (M = 57.34) and the no
advertising condition (M = 53.58), F(l,21) < 1, (co2 < 0).
The dispersion of estimated prices were also predicted to be
higher in the differentiating advertising condition in
comparison to the no advertising condition. An analysis of
the standard deviation of price estimates showed that the
price dispersion was higher in the differentiating
advertising condition (M = 8.66) than in the control
condition (M = 5.50) But although the means were in the
predicted direction, the differences were not significant,
£(1,21) = 1.66 p < .25, (cb2 = .03) .
Although the mean price estimates and the variance in
price estimates showed trend in the predicted direction, the
differences were not significant. Since there were only

66
eight subjects for each mean being compared, this could have
been due to the lack of power to detect hypothesized effects.
Estimates of high and low prices. Besides providing
expected most likely price estimates, subjects also reported
highest and lowest likely prices for each brand. These
estimates were used to calibrate high and low prices that
were to be used in Experiment 3. The procedure that was used
to set the discounted price for each brand is detailed in the
next chapter.
Effects of advertising on interbrand differences in
perceptions It was predicted that differentiating
advertising which highlighted attributes of brands would
result in some brands being perceived as similar to some and
more dissimilar to others. Thus the variance in pairwise
similarities was expected to be higher under differentiating
advertising condition compared to the no advertising
condition. An analysis of the variance of pairwise
similarities showed that there were no significant
differences across advertising conditions, F(2,21) < 1, (CO2 <
0) Thus there is not enough evidence to conclude that
differentiating advertising did result in brands being
perceived as more dissimilar.
A possible explanation for this could be that in the
absence of advertising information, subjects used the brand
name and attribute information (presented in the first
session) to make judgments about the similarity of brands.

67
Since these were real candy bar names, many of these provided
some insight about the different attributes possessed by the
brands (e.g., Crispy Crunch, Caramilk). Therefore it is
likely that even in the no advertising condition, subjects
perceived brands to be quite dissimilar apriori, simply on
the basis of their names. In comparison, brands were not
perceived to be more different when they were advertised,
thus resulting in no significant differences across
advertising conditions. Also, response language effects,
(whereby subjects anchored high and low ends of the
similarity scale with stimuli that seemed to be most and
least similar) could have been the reason for the inability
to detect significant effects empirically.
Conclusions
The results of the first pretest were encouraging. On
the basis of the findings it was clear that the ads that were
being used were leading to results in the predicted
direction. It is likely that the small sample size in the
pretest resulted in the lack of sufficient power to detect
hypothesized effects. In spite of this, it was clear that
the advertising manipulation was quite effective in terms of
bringing about expected changes in the number of brands
recalled and the distribution of preferences. This was
further explored in the next pretest.

68
Experiment 2
In the first pretest, the analysis of variance on the
number of brands recalled across advertising conditions was
. a 2
marginally significant (p. < .10, CD = .11) As predicted,
there was a significantly positive effect on recall scores
when subjects were exposed to advertising (M = 7.31) and
compared to the no advertising condition (M = 4.87) .
However, it was desired to have a stronger memory
manipulation which would result in sufficient power to detect
significant effects on price sensitivity. Moreover, it was
desired to reduce the average size of the consideration set
in the no advertising condition because a proportionate
change in consideration set size should have a larger effect
on price elasticity if set sizes are small rather than large.
In other words, it was important to ensure that the
differences in recall between the advertising and control
conditions were even greater. Therefore this pretest was
designed to incorporate modifications in the experimental
procedure in order for advertising to have a stronger effect
on the size of the consideration set. In order to achieve
this objective, three specific changes were made in the
procedure to be used for Experiment 3. The rationale for
these changes are detailed below.
In the first pretest, subjects had been exposed to the
brand information repeatedly until they met the criteria for
satisfactory performance on the recognition task. It was

69
felt that an overexposure to this information was probably
responsible for reducing the marginal effect of advertising
in making brand names accessible in memory. Therefore it was
necessary to limit the maximum number of times that subjects
were exposed to this information. Accordingly, the procedure
for this experiment was modified such that subjects could see
the information no more than two times.
In the first pretest, subjects in the advertising
conditions were exposed to ads for the candy bars only during
the second session. In order for advertising to have
significant effects on recall it was decided that subjects in
the advertising conditions would be exposed to the ads two
timesonce during the first session and once during the
second session.
It was evident from the first pretest that subjects had
fairly high brand name recall scores in general, which made
it difficult to detect significant improvements in recall due
to advertising. Besides the modification in the recognition
task to control for overexposure to brand information, a
change was made in the procedure for this experiment. It was
felt necessary to interfere with subjects memory for target
candy bar names, so that advertising might result in a
stronger effect on recall scores. Accordingly, at the end of
the first session, subjects were given a list of candy bar
names to memorize. It was hoped that names from the same
product category would interfere with their memory for the

70
target brand names so that advertising might have a
significant effect on recall scores.
Subjects
Twenty-four subjects enrolled in an introductory
marketing course in the University of Florida participated in
the experiment. Participants were given two extra credits in
their class.
Procedure
All subjects participated in two experimental sessions.
In the first session they were exposed to product and package
information (via the computer) on the brands and were given
the modified recognition task to ensure that the brand names
were available in memory. This implied that if even after
two exposures to the brand information subjects did not
perform satisfactorily on the recognition task, they went on
to the next stage of the experiment.
After this, subjects in the differentiating advertising
condition saw twelve ads, while subjects in the reminder
advertising condition saw twelve reminder ads for the candy
bars. The modified instructions to the subjects at this
stage of the experiment are detailed in Appendix IC-1 .
Subjects in the no advertising condition did not see any ads
and therefore went on to the next task. The advertising
stimuli that were used for this experiment were the same as
those used in the first pretest.

71
After this, subjects were given three minutes to
memorize a list of twenty-four candy bar names which included
twelve American and twelve European brands available in the
Gainesville market. The instructions and stimuli for this
task are listed in Appendix IC-2 and IC-3 respectively. When
they had completed this task they were thanked and asked to
come back for the next session.
In the second session, all subjects completed the brand
name recall task where their objective was to recall and list
as many brand names as they could. Before they performed
this task, subjects in the advertising conditions were
exposed to ads for the candy bars. These ads were the same
as those that they had seen in the first session. Subjects
in the no advertising condition did not see any ads and
completed the questionnaire directly.
Results and Discussion
It was predicted that advertising will have a
significant effect on the total number of brands recalled.
An analysis of variance across the three advertising
conditions was significant, F(2,21) = 18.59, p. < .0001, (CO2
= .59). Subjects in the two advertising conditions recalled
a significantly greater number of brands than subjects in the
control condition (M = 8.43 and M = 3.00 respectively),
F.(2,21) = 38.57, p < .0001. As in Experiment 1, there were
no significant differences in recall scores between the

72
reminder (M = 8.25) and differentiating advertising (M =
8.62) conditions, F(l,21) <1.
On the basis of these findings it was possible to
demonstrate with this independent sample of subjects that
advertising could indeed have significant effects on the
memory for brand names. Therefore in choice environments in
which memory for brand names is important such effects can be
expected to prevail. If the ability to recall brand names is
the only determinant of the number of brands considered, we
can expect consideration set sizes across different
advertising conditions to follow the same pattern as brand
name recall scores. Thus this pretest provided a benchmark
against which to compare and interpret the results on
consideration set size. The next chapter details the
experiment that tests for advertising effects on price
sensitivity, mediated by the preferences and the size of the
consideration set.

CHAPTER V
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: RESEARCH METHODOLOGY
Chapter Overview
The propositions developed in Chapter III concerned how
advertising could influence consumer price sensitivity. The
relationship between these two variables was conceptualized
as being mediated by two key constructs--the size of the
consideration set and the dispersion of brand-utilities. It
was argued that advertising could have either a positive or a
negative effect on the number of brands considered at the
time of choice. Hence, by increasing or decreasing the size
of the consideration set, advertising could have a positive
or negative effect on price sensitivity. Besides affecting
the size of the consideration set, advertising could also
increase the spread of utilities of brands and result in some
brands being perceived as being clearly superior to others.
This would lead to a decrease in price sensitivity.
In this study on the economic effects of advertising,
the content of advertising (whether reminder or
differentiating) and the decision environment (whether
stimulus-based or memory-based) were hypothesized to moderate
the relationship between advertising and price sensitivity.
It was predicted that in memory-based decision environments,
73

74
advertising is likely to influence the ability to recall
brands and also the spread of brand-utilities. This was
postulated to have implications for the number of brands
considered for choice, the direction being determined by the
relative strength of these two factors. In stimulus-based
choice environments, where the ability to recall a brand is
not an important factor for it to be a candidate in the
consideration set, the effect of advertising is primarily
mediated by the dispersion of brand-utilities.
This chapter details the methodology employed in
Experiment 3 to test these hypotheses. The remainder of this
chapter is divided into three main sections which describe
(1) the subjects and stimuli used for the study, (2) the
rationale for the factors employed, (3) the dependent
variables, (4) the stimulus design, and (5) the experimental
procedure that was employed.
Subjects
One hundred and ninety-eight students enrolled in the
Introductory Marketing course at the University of Florida
participated in the experiment. Subjects received two extra
credits in their class and $3.00 in candy of their choice for
participating in the study. Subjects had to participate in
both sessions in order to successfully complete the
experiment. Seven subjects failed to complete the study and
their data were not used for the analysis.

75
Stimuli
The product category used for this study was candy bars.
Since the experiment used real products and real ads for
these products it was necessary that the existing advertising
for the products had certain desirable properties. First,
for the purpose of this experiment it was necessary to have a
product category with which subjects were relatively familiar
so that they could make trade-offs between prices and other
attributes relatively easily. Second, it was necessary that
it be a category in which there exists attribute-based
differentiation among brands so that it is likely that the
advertising could highlight such differences. In both these
respects the product class of candy bars was considered
appropriate for the study.
The study attempted to examine the effect of advertising
on price sensitivity mediated by preferences and the size of
the consumers' consideration set. In order to be able to
draw unambiguous conclusions about the effect of advertising
on these mediating variables it was also crucial that the
subject population not have prior familiarity with the brands
and the ads that were to be used in the experiment .
Therefore the stimuli for the study were twelve Canadian
candy bars.

76
Experimental Factors
This section details the experimental factors that were
manipulated in the study. As noted earlier, the study
employed a design in which advertising condition and decision
environment were between subjects factors and price of twelve
brands was manipulated within subjects.
Advertising Condition
Advertising Condition was manipulated at three levels in
order to gauge the effects of advertising content on price
elasticity. Subjects in the differentiating advertising
condition saw ads for all twelve candy bars. These ads
provided information on brand attributes and were predicted
to change subjects' relative preference for the brands
compared to a situation where none of the brands were
advertised. Subjects in the reminder ad condition saw ads
which provided information on the package and brand name,
similar to some print or billboard advertising. These ads
were predicted to increase the likelihood of inclusion of the
advertised brands in the consideration set. Subjects in the
no advertising condition served as a control group and were
not exposed to any ads for the candy bars.
An alternative manipulation would have been to advertise
a subset of brands instead of all of them. This would have
been closer to real-world situations where advertised and
unadvertised brands exist simultaneously. Also, this
manipulation could probably have provided better insights on

77
the signalling properties of advertising and how advertising
affects preferences. But this might have led to demand
artifacts, especially in a rating/choice situation. Also
advertising for a few brands was likely to lead to inhibition
effects (Alba & Chattyopadhyay 1986) It was felt that the
power of detecting any of the hypothesized effects was also
likely to be greater if all the brands were advertised.
Decision Environment
Subjects went on shopping trips in which they made
choices among the candy bars. In order to gauge the effects
of consideration set size on price elasticity and the effects
of advertising on consideration set size, the decision
environment was manipulated at two levels. Subjects in the
stimulus-based choice condition were provided with a list of
all twelve brands and could therefore use this list to decide
which brands to examine for price information and purchase.
This was intended to reflect real-world situations in which
the aisle display or a salesperson reminds the consumer of
the set of brands that might actually be purchased.
Subjects in the memory-based choice condition did not
have such a list available to them. These subjects could
only search for price information on brands that they were
able to recall on their own. Therefore they could only
purchase brands that they could retrieve from memory. This
manipulation was intended to reflect real-world decision
situations in which the consideration set is typically

78
generated from memory. Once they could recall a brand name
correctly, subjects had access to the same information that
was available to subjects in the stimulus-based decision
environment, because attribute information was memory-based
for both groups.
Thus the only difference between these two groups was
whether they had to recall the brand names or had to access
them from memory. In the absence of any advertising for the
brands, the differences between groups in the two decision
environments could be attributed purely to memory factors.
This provides better insights on the cuing properties of
advertising and how advertising influences the size of the
consideration set.
Dependent Variables
For each subject, the following dependent measures were
collected:
1. measures of average consideration set size;
2. measures of dispersionthe proportion of budget
allocated to the top brand, the number of brands ever
considered, the standard deviation of the proportion of
budget allocated to the various brands, the standard
deviation of the frequency of choosing the various
brands;
3. price elasticity of each brand.

79
Stimulus Design for Price Manipulation
The prices of the twelve brands were manipulated within-
subjects at two levels (high or low) independent of each
other. It was determined that sixteen shopping trips were
required in order for prices to vary orthogonally for the
twelve brands. Whether a particular brand was at its high or
low price was varied within subjects in a l/256th fraction of
a 212th within-subjects design. Sixteen brand-price profiles
were constructed such that across these profiles each brand
was at its high price in eight brand price profiles, and at
its low price for the other eight with the prices of the
brands uncorrelated with each other across trials. The
brand-price profiles used for the experiment are detailed in
Appendix IIA-1. The order in which subjects saw these brand
price profiles for the sixteen shopping trips was
counterbalanced across subjects in a 16X16 diagram-balanced
Latin Square design. Thus each subject saw the brand-price
profiles in a particular sequence. There were sixteen such
between-subjects sequences to which subjects were assigned.
The sixteen level sequence factor described above
simultaneously counterbalanced order of presentation of the
sixteen price profiles and the order of presentation of
brand-triples in advertising. The latter will be explained
later.
Subjects were told that the prices of the twelve brands
were to vary from one shopping trip to another. At a

80
particular point in time, a given brand was at its high price
for half the subjects and at its low price for the other
half. The price manipulation was used to compute independent
measures of self price elasticities at the brand level.
The high prices were calibrated from the average highest
likely price estimates (which are detailed in Appendix IIA-2)
that were obtained from the control group of subjects in
Experiment 1. In order to detect effects on price
sensitivity it was necessary that the price differential was
sufficient to cause a change in purchase patterns. The mean
lowest likely price estimates obtained from the control group
in Experiment 1 were used to calibrate the low prices for the
brands. The figures were rounded off to the nearest 5 cents
to arrive at the high prices for the various brands. The low
price used in the experiment was 25 cents lower than the high
price, which worked out to an average 34% discount. The
actual high and low prices that were used for the twelve
brands are detailed in Appendix IIA-3.
Procedure
To test the hypotheses, a computer-based shopping
simulation was developed and employed. The study was
conducted at the behavioral laboratory provided by the
Center for Consumer Research at the University of Florida.
The experiment was conducted on four IBM PC-XT computers with
enhanced graphics (EGA) monitors. All subjects participated

81
in two experimental sessions held on two consecutive days.
All experimental instructions were administered using the
computer, thus limiting the experimenter's role during the
experiment to exposing the subjects to advertising, answering
questions and handling minor administrative details. This
reduced experimenter-induced biases and ensured that all
subjects received the same task instructions. All data were
collected by the computer eliminating the chances of
transcription or keypunching errors.
Subjects participated in batches of one to four each,
Upon entering the room, each subject was randomly assigned to
one of the four sequences nested in an Order. Eight subjects
completed the experiment for each of the 24 between-subjects
cells (described in Appendix IIB-2).
Session 1
Subjects were first given an overview and preliminary
instructions for the experiment. They were told that the
study involved Canadian candy bars which were being
considered for introduction into the local market. They were
then exposed to product and package information on twelve
brands of Canadian candy bars one at a time. The information
on each brand was flashed on the screen for 15 seconds.
The sequence in which this information was presented to
subjects was counterbalanced. The twelve brands were divided
into four triples of three brands each. These are detailed
in Appendix IIB-1. Thus the order of presentation of

82
information on these twelve brands can be conceptualized as
the order of presentation of information on four triples.
The sixteen sequences corresponding to presentation order for
price profiles were divided into four groups (Orders) with
four sequences nested in each (detailed in IIB-2) The
position of these brand-tripies in the string of twelve was
varied across the four groups in a 4X4 Latin square design
(detailed in Appendix IIB-3). Therefore the position of each
particular triple was counterbalanced across subjects.
Recognition task. After being exposed to the brand
information, subjects performed a recognition task, the
purpose of which was to test whether the brand names were in
memory. The task involved correctly identifying the twelve
target brands from a larger list of twenty-four Canadian
candy bar names randomly intermixed with the target brands.
Subjects who failed to satisfy the criteria for the
recognition task were exposed to the product and package
information once more before they attempted to perform the
recognition task again. If after the second exposure to the
brand information they did not perform satisfactorily on the
recognition test, they went on to the next stage of the
experiment. The computer recorded the number of exposures
required for each subject to satisfy the criteria for the
recognition test. Subjects who finished earlier than the
others were asked to wait quietly.

83
Advertising exposure manipulation. Subjects were now
exposed to ads for the candy bars. Subjects in the
differentiating advertising condition saw twelve
differentiating ads, while subjects in the reminder
advertising condition saw twelve reminder ads for the candy
bars. Subjects in the no advertising condition did not see
any ads and therefore went on to the next task.
The sequence in which these ads were presented to
subjects was counterbalanced. The ads for the four brand-
triples (described in Appendix IIB-1) were divided into four
triples of three ads each. The position of ads corresponding
to these brand-triples was varied across the four Orders in a
4X4 Latin square design. This is detailed in Appendix IIB-4.
The stimuli used in this study were those that were used
in the pretests. The stimuli for the differentiating
advertising condition were 30-second television commercials
for the twelve brands of candy bars. The stimuli used for
the reminder advertising condition were slides taken from the
television commercials, and showed the package and the brand
name. A remote control slide projector was used to show the
reminder ads to the subjects. The duration of exposure to
the reminder ads for each brand was 15 seconds.
Interference task. After this, subjects were given three
minutes to memorize a list of twenty-four candy bar names
which included twelve American and twelve European brands
available in the Gainesville market.
This was the same list

84
that was used for Experiment 2. When they had completed this
task they were thanked and told to come back for the next
session.
Session 2
The introduction and preliminary instructions for the
second session are detailed in Appendix IIC-1 and IIC-2.
Shopping trips. Subjects were first told that they would
be going on 16 different shopping trips for the Canadian
candy bars which they had seen the day before. They were
told that they had $3.00 to spend on each shopping trip.
They were also told that they would actually receive the
candy bars that they purchased on one of these shopping
trips. They did not know in advance which of these shopping
trips would be involved in their actual purchasethis was to
be randomly determined.
Subjects were informed that prices of the candy bars
would be varying from one shopping trip to another, so that a
brand that was at a low price on one of the shopping trips
would not necessarily be at that price on the next trip.
They were told that on any particular shopping trip they
could ask for price information on as many or as few brands
as they wanted.
Practice trips. Before shopping for candy bars, subjects
went on four practice shopping trips. The purpose of these
practice trips was to familiarize subjects with shopping on
the computer and to ensure that they knew how to search for

85
price information on the brands that they liked. It was
hoped that these practice trips would demonstrate to them
that prices were indeed varying from trip to trip. The
introduction to the practice trips are detailed in Appendix
IIC-3.
The product category of soaps was used for the practice
trips. It was desirable that the product category used for
the practice trips was one in which there are not many
perceived differences between brands so that price would be
an important factor in decision making. Since candy bars
were to be used for the main study, and consumers are
believed not to be very price sensitive in that category, it
was important to devise ways that would increase the weight
given to price, and thus increase the power of the experiment
to detect effects. In choosing a product category it was also
necessary to ensure that it was not one that would make the
price differences for candy bars seem insignificant.
Therefore six familiar brands of soaps were used for the
practice trips.
The prices of soaps were varied independently of each
other. Four brand-price profiles were constructed with each
brand being at its high price for two profiles and at its low
price for two profiles.
Subjects went on four practice trips. On each trip, the
computer made available the list of six brand names for which
they could search for price information. When subjects

86
requested information by typing in the brand name, the
computer responded with the price for that particular brand.
Subjects could search for information on as few or as many
brands as they liked. When they specified that they did not
require further information they were instructed to allocate
their budget of $3.00 among soaps of their choice. After
each purchase, the computer tallied the remainder of the
budget that was still available. After completing one
particular practice shopping trip, subjects went on to the
next trip. The instructions for the practice trips are
detailed in Appendix IIC-4.
Advertising Exposure #1. After the practice shopping
trips, subjects in the advertising conditions were exposed to
ads for the candy bars. Subjects in the no advertising
condition did not see any ads and therefore went on to the
next task.
A similar procedure was used for the advertising
exposure manipulation for the second session as in the first
session. The instructions before the exposure to advertising
is detailed in Appendix IID-1. The same 4X4 Latin Square
design (detailed in IIB-4) was used for this purpose, thus
resulting in subjects seeing the ads in the same sequence in
this session compared to the first session.
Shopping trios. After this, subjects went on 16 shopping
trips for candy bars. Subjects in the stimulus-based choice
condition were given a list of the twelve candy bars and they

87
typed brand names for which they wanted price information.
The instructions for this condition are detailed in Appendix
IID-2. Subjects in the memory-based choice condition did not
have such a list available to them, and had to retrieve brand
names from memory. The introduction and instructions for the
memory-based condition are detailed in Appendix IID-3.
Subjects could search for price information on as few or
as many brands as they wished. When subjects requested
information by typing in the brand name, the computer
responded with the price for that particular brand. The
prices at which a subject saw a particular brand on a
particular trip depended on the sequence number that s/he was
assigned at the beginning of the experimental session. As
noted earlier, across the sixteen shopping trips a subject
saw brand-price profiles in one of sixteen possible
sequences.
After they had finished searching for information on
prices, they were instructed to allocate their budget of
$3.00 among candy bars of their choice. After each purchase,
the computer computed the remainder of the budget that was
still available. After completing one particular trip,
subjects went on to the next trip.
Advertising Exposure #2. Since the shopping trips were
very similar to each other, it was felt that the positive
effects of advertising on consideration set size would not be
as strong with only one exposure to advertising. Thus there

88
would be a tendency for only a few brands to be included in
the consideration set. In order to increase the power to
detect significant effects, subjects in the two advertising
conditions were exposed to ads for the candy bars once more
after completing eight shopping trips. The sequence in which
they saw the ads for the brands during the second exposure
was the same as in the first exposure.
After this, subjects went on the remaining shopping
trips for candy bars, with prices varying from one trip to
another. In all these trips, subjects allocated $3.00 among
candy of their choice. Subjects who had finished earlier
than the others were instructed to wait quietly for the other
participants to complete the experiment.
After they had completed the sixteen shopping trips,
subjects were asked what strategies they had used in making
their choices. They were also told that the computer would
randomly select one of the 16 shopping trips for each of
them and that they would get the candy bars that they had
purchased on that shopping occasion. They were thanked for
their participation and informed that they could collect
their candy bars at the end of the semester.
The results of this study are presented in the next
chapter.

CHAPTER VI
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: RESULTS
Chapter Overview
This chapter presents the results of Experiment 3 in two
parts. The results pertaining to the average size of the
consideration set and the dispersion of brand-utilities are
first presented. Subsequently the findings corresponding to
price sensitivity are discussed.
The purpose of this study was to provide a better
understanding of the effects of advertising on price
elasticity by isolating the causal mechanisms underlying
these effects. It was proposed that the relationship between
advertising and price sensitivity is mediated by two basic
theoretical constructs--consideration set size and the
dispersion of brand-utilities. Therefore, before specific
hypotheses linking advertising with price sensitivity were
tested, it was necessary to verify that advertising did have
the predicted effects on these two mediating variables.
Results
Consideration Get Si ze
Consideration set was measured at the individual subject
level by the number of brands about which the subject asked
for price information on a given shopping trip averaged
89

90
across the 16 shopping trips. The data were analyzed to test
for the effects of Decision Environment, Advertising
Condition and Sequence of Presentation on the number of
brands considered per shopping trip. The results from an
analysis of variance are presented in Tables VI-1 and VI-2.
TABLE VI-1
ANALYSIS OF VARIANCE
SOURCE TYPE III SS DF F VALUE P > F
ENVIRONMENT
61.
.45314514
1
15 ,
.82
0.
.0001
ADVERTISING
52 .
. 50655754
2
6.
.76
0.
.0018
ENVIRON*AD
98,
. 99685669
2
12 .
.74
0.
.0001
SEQ
42 ,
,59451248
15
0 .
, 73
0.
.7476
ENV*SEQ
57 ,
, 52642877
15
0 .
, 99
0 .
.4748
AD*SEQ
50 .
, 40397701
30
0.
.43
0 .
. 9947
ENV*AD*SEQ
113 ,
, 16476440
30
0.
, 97
0.
.5197
SS/ENV,AD,SEQ
369.
,49648233
95
TABLE VI-2
MEAN CONSIDERATION SET SIZE
ENVIRONMENT
STIMULUS
MEMORY
BASED
BASED
ADVERTISING
NONE
5.24
2.26
REMINDER AD
4.72
5.25
DIFFERENTIATING
4.56
3.59

91
The results indicate that there were significant main
effects of Advertising Condition and Decision Environment and
a significant Advertising Condition X Decision Environment
interaction. To examine more closely the nature of
advertising effects under the two decision environments,
analyses of planned comparisons were carried out.
Recall from Chapter III that it had been predicted that
in the absence of advertising, consideration sets will be
smaller in the memory-based choice condition than in the
stimulus-based choice condition. This is because in the
stimulus-based condition, brand names are readily available,
and therefore it is not necessary to retrieve them from
memory. This prediction was supported by a significant main
effect of decision environment. The size of the
consideration set was significantly smaller in the memory-
based condition (M = 2.26) compared to stimulus-based
condition (M = 5.24), F(l, 95) = 36.44, p< .001, (CO2 = .06).
Consideration sets in stimulus-based decision
environments It was predicted that under stimulus-based
choice environments, the primary effect of advertising on the
size of the consideration set will be through its effect on
the dispersion of preferences. Specifically, it was proposed
that reminder advertising will not have a significant effect
on the size of the consideration set, while differentiating
advertising will increase the interbrand variance of
utilities and thereby reduce the size of the set. The

92
findings are presented in Table VI-3 and VI-4. Results
showed that there were no significant differences in the size
of the consideration set between the reminder advertising
condition (M = 4.72) and the no advertising condition (M =
5.25), F.(l,95) < 1. This finding lends support for the
prediction that reminder advertising will not have an effect
on the number of brands considered when the environment
provides the brand names. This is because the recall cues
provided by such ads are not crucial for the retrieval of
brand names for consideration. However, even though the mean
number of brands considered was less in the differentiating
advertising condition (M = 4.56) than in the no advertising
condition (M = 5.24), this contrast was not significant,
F_(l,95) = 1.10. Therefore there is no support for the
prediction that differentiating advertising will lead to a
reduction in the size of the consideration set.
TABLE VI-3
CONSIDERATION SET IN STIMULUS-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
4.28619385
1
1.10
0.251
SEQ
56.14105225
15
0.96
0.687
AD*SEQ
39.95892334
15
0.68
0.885
SS/ENV,AD,SEQ 369.49648233
95

93
TABLE VI-4
CONSIDERATION SET IN STIMULUS-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
7.43414307
1
1.91
0.103
SEQ
50.42962646
15
0.86
0.750
AD*SEQ
55.20159912
15
0.94
0.909
SS/ENV,AD,SEQ 369.49648233
95
Consideration sets in memorv-based decision
environment s It was predicted that in memory-based
environments, there will be a significant simple effect of
advertising on the size of the consideration set. The
evidence provides strong support for this prediction of
significant differences across advertising conditions,
F(2,95) = 18.47, p < .001, (CO2 = .05) In order to examine
more closely the nature of effects, analyses of planned
contrasts were carried out. Results (presented in Table VI-
5) showed that there was a significant positive effect of
reminder advertising on consideration set size, F(l,95) =
36.78, p < .001. The mean size of the consideration set was
5.25 in the reminder advertising condition compared to 2.26
in the no advertising condition. This lent support to the
prediction that in an environment where brand names have to
be retrieved from memory, the average size of the

94
consideration set will be larger under reminder advertising
conditions compared to the control condition.
It was expected that under memory-based conditions, the
size of the consideration set will be larger in the no
advertising condition than in the differentiating advertising
condition. Contrary to this prediction, the number of brands
considered were significantly smaller in the control
condition (M = 2.26) than in the differentiating advertising
condition (M = 3.67), £(1,95) = 6.9, jg < .01. This result
(presented in Table VI-6) lends further support to the
assumption that the size of the consideration set is a
positive function of the ability and motivation to retrieve a
number of brands from memory. In the absence of advertising,
the consumer has to rely on memory to recall brands for
consideration. In comparison, advertising increases the
ability to recall brands and therefore increases the size of
the consideration set.
The results of Experiment 2 provided evidence that
advertising increases the ability to recall brand names and
that both reminder and differentiating advertising are
equivalent in this respect. If consideration set size is a
function of ability alone and is unaffected by the motivation
to recall brand names from memory, then we would expect no
differences in the effects of the two types of advertising on
the size of the consideration set. However, results
(presented in Table VI-7) showed that the average size of the

95
TABLE VI-5
CONSIDERATION SET IN MEMORY-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
142.87719727
1
36.78
0.001
SEQ
37.16577148
15
0.63
0.717
AD*SEQ
47.53295898
15
0.81
0.514
SS/ENV,AD,SEQ 369.49648233
95
TABLE VI-6
CONSIDERATION SET IN MEMORY-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
26.20667614
1
6.99
0.010
SEQ
49.62470911
15
0.84
0.750
AD*SEQ
29.13850565
15
0.49
0.909
SS/ENV,AD,SEQ 369.49648233
95
TABLE VT-7
CONSIDERATION SET IN MEMORY-BASED ENVIRONMENT
DIFFERENTIATING VERSUS REMINDER ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
42.96306818
1
11.06
0.010
SEQ
53.16983876
15
0.91
0.698
AD*SEQ
52.12819980
15
0.92
0.684
SS/ENV,AD,SEQ 369.49648233
95

96
consideration set was significantly smaller under the
differentiating advertising condition (M = 3.59) compared to
the reminder advertising condition (M = 5.25), £.(1,95)
= 11.06, p < .01. This suggests differentiating advertising,
which provided more information on the relative utilities of
the brands, resulted in reduced motivation to consider less
favored options. The significant differences in
consideration set size across these two advertising
conditions suggest that the motivation to recall brand names
did have a role in determining the size of the consideration
set. Thus, though both types of advertising increased the
ability to recall brand names from memory, they
differentially affected the motivation to retrieve brand
names in a prepurchase situation under which the objective
was to search for prices. In the latter case, only the
preferred brands were likely to be retrieved. An analysis of
the effects of the two types of advertising on the preference
lends further support for this prediction.
Measures of Interbrand Variance in Preference
Four behavioral measures of preference were used for the
purposes of examining the effect of differentiating
advertising on the dispersion of brand-utilities. These were
determined from subjects' purchases of various brands under
the different price conditions that they faced. For the
individual subject, the following measures of preference (as
revealed by their purchases) were computed.

97
Standard deviation of choice frequencies. For each
subject, the number of times each brand was bought was
computed across shopping trips. The standard deviation of
the twelve brands' choice frequencies was taken as a measure
of dispersion of brand-utilities. It was expected that in
the absence of any perceived utility differences across
brands, each brand has approximately equal probability of
being chosen. Thus the variance in the choice frequencies
for the various brands were expected to be small in the no
advertising condition. Compared to this, the variance in
choice frequency was expected to be greater in the
differentiating advertising condition, in as much as the
information from such advertising was likely to make some
brands preferable to others. Reminder advertising was not
expected to significantly affect the variance in choice
frequencies.
Standard deviation of share of the budget. This is
similar to the above measure but looks at the dispersion in
the percentage of actual dollar expenditures. For each
subject, the share of each brand in the total budget across
the shopping trips was computed. The standard deviation of
the percentage shares of the 12 brands was taken as a measure
of dispersion of brand-utilities. It was expected that if
there are no significant differences in perceived utility
across brands, then each brand has a constant probability of
being chosen. Since all the brands were in the same price

98
range, on an average there should not be any significant
differences in the percentage of budget allocated to the 12
brands. Therefore, the variance in the percentage of budget
allocated to the various brands was expected to be small in
the absence of advertising. When differentiating advertising
provides attribute information that leads to some brands
being perceived to be clearly superior to others, the
variance is expected to increase. Reminder advertising is
not expected to increase the dispersion in the proportion of
budget allocated to the various brands.
Share of budget allocated to top brand. For the
individual subject, the percentage of budget allocated to the
top brand was computed. It was expected that under the no
advertising condition where there were no clearly superior
alternatives, the share of the budget allocated to the top
brand would be lower compared to the differentiating
advertising condition. In the latter case, it was predicted
that the share of the top brand would be higher because there
would be a greater tendency on the part of subjects to buy a
favored brand irrespective of the price.
Number of brands ever chosen. For each subject, the
number of brands ever purchased across the 16 shopping trips
was computed. It was expected that in the absence of
differentiating information on attributes of the brands,
consumers would be relatively indifferent between options.
Therefore it could be expected that in the no advertising

99
condition, subjects would make purchases on the basis of
price. This would increase the number of brands that are
tried, because across different trials, different brands are
likely to be lowest in price. In contrast, if
differentiating advertising leads to some brands being
perceived to offer greater utility to subjects, it is less
likely that they would purchase clearly inferior brands only
on the basis of its price advantage. Thus differentiating
advertising would reduce the number of brands chosen.
Reminder advertising was not expected to have any significant
effects on preference and therefore on the total number of
brands chosen.
Results of effects of advertising on measures of
interbrand variance in preferences Before a discussion of
the results it is important to note that these behavioral
measures of preference were based on actual purchases made by
subjects. The experimental design was such that subjects
could only purchase what they could recall. Therefore, to
examine the effect of advertising on utilities for the
various brands it is necessary to have measures of revealed
preference that are not confounded with the ability to
recall. Hence, the results of the effect of advertising on
the variance of all four measures of interbrand variances in
preference will be analyzed for the stimulus-based
environment only.

100
In the memory-based decision environment where the size
of the consideration set itself is determined by recall
factors, conclusions about preferences are more difficult.
For example, a subject might be unable to recall brand names
in the no advertising condition and this would prevent
him/her from purchasing those brands. In such a case, the
variance in the share of the budget allocated to the 12
brands would be high, not because of preference for the
brands bought but rather because of the inability to recall
other brands for consideration and purchase.
The means for the four measures of interbrand dispersion
in preference are presented in Table VI-8 below.
TABLE VI-8
MEAN DISPERSION OF BRAND-UTILITIES
NONE
REM
DIFF
DISPERSION IN
FREQUENCY
CHOICE
4.2480
4.9334
4.9981
DISPERSION OF
OF BUDGET
SHARE
0.0809
0.0940
0.0986
SHARE OF BUDGET TO TOP
BRAND
0.2605
0.2953
0.2946
NUMBER OF BRANDS EVER
CHOSEN
9.7812
8.9375
8.4062

101
Effects of differentiating advertising. An MANOVA
analysis was conducted on the data for the four preference
measures to test for effects of differentiating advertising
on measures of interbrand variance in utilities. Results
showed that there were significant differences between the no
advertising condition and the differentiating advertising
condition, F.(4,29) = 2.95, p < .03. This supports the
prediction that differentiating advertising did have an
effect on variance of interbrand preferences.
Univariate tests also show that differentiating
advertising did have an effect on preferences. It is evident
that differentiating advertising did have a significant
effect on the dispersion in choice frequencies. Table VI-9
presents the results from the analysis of variance which
indicates that the difference in the dispersion of choice
frequencies between the no advertising condition (M = 4.25)
and the differentiating advertising condition (M = 4.99)
approached significance, F(l, 62) = 2.78, p < .10 (CO2 = .03) .
This finding supports the prediction that differentiating
advertising will increase the standard deviation of choice
frequencies.
The results presented in Table VI-10 also support the
prediction that differentiating advertising leads to a
significant increase in the dispersion of proportions,
Z(l,62) = 4.31, p < .04, (CO2 = .04) The standard deviation
in the percentage of budget allocated to the various brands

102
was significantly greater under differentiating advertising
(M = .10) than under the no advertising condition (M = .08).
Although differentiating advertising did have the
predicted effect on the proportions allocated to the various
brands, a similar pattern of results is not found for the
share of the budget allocated to the top brand. Analysis of
variance results presented in Table VI-11 show no significant
differences in the share of the budget allocated to the top
brand, F_(l, 62) = 1.34, p. < .25, (CO2 = .01) Thus the
findings do not support the prediction that the share
allocated to the top brand will increase under the
differentiating advertising condition in comparison to the no
advertising condition. A possible reason for this is that
advertising led to a subset of brands being considered as
acceptable, without any clear top choice. As a result, it is
likely that if the top brand is at its high price, it was
bought in lesser quantities as subjects switched to one of
the other well-liked brands.
Table VI-12 presents the results for the analysis of
variance on the number of brands ever chosen under the
differentiating advertising (M = 8.40) and the no advertising
(M = 9.78) conditions. It is evident from the findings that
differentiating advertising led to a significant decrease in
the number of brands ever purchased, F(l, 62) = 6.68, p. < .01,
A 2
(CO = .08) Thus the results support the prediction that
differentiating advertising will reduce the number of brands

103
TABLE VI-9
DISPERSION IN CHOICE FREQUENCIES
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
8.83382541
1
2.78
0.1053
SEQ
26.26884830
15
0.55
0.8899
AD*SEQ
40.24464510
15
0.84
0.62 63
SS/Ad,SEQ
101.76058461
32
TABLE VI-10
DISPERSION IN PROPORTION OF BUDGET
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.00499094
1
4.31
0.0460
SEQ
0.01234201
15
0.71
0.7555
AD*SEQ
0.02090818
15
1.20
0.3180
SS/AD,SEQ
0.03703894
32
TABLE VI-11
SHARE OF BUDGET ALLOCATED TO TOP BRAND
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.01854948
1
1.34
0.2552
SEQ
0.13948513
15
0.67
0.7907
AD*SEQ
0.24968350
15
1.20
0.3180
SS/AD,SEQ
0.44225911
32

104
TABLE VI-12
AVERAGE NUMBER OF BRANDS EVER CHOSEN
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
30.25000000
1
6.68
0.0145
SEQ
59.43750000
15
0.87
0.5962
AD*SEQ
50.75000000
15
0.75
0.7213
SS/AD,SEQ
145.00000000
32
ever chosen, because it will lead to some brands being
perceived to be clearly superior to others.
Taken together, the pattern of results discussed in this
section indicate that differentiating advertising did
significantly affect brand-utilities in the stimulus-based
decision environment. The increased dispersion in brand-
utilities can be expected to have implications for price
elasticities observed under this condition.
Effects of reminder advertising. A multivariate
contrast between the reminder advertising condition and the
no advertising condition in a MANOVA analysis of the four
preference measures showed no significant differences F(4,29)
< 1.
Univariate tests reveal that the effects of reminder
advertising on the measures of interbrand variance in
preferences approached significance in some cases. Reminder
advertising increased the standard deviation of choice

105
frequencies (M = 4.93) compared to the no advertising
condition (M_ = 4.25), and this effect approached
significance, F.(l,62) = 2.67, p. < .11, (CO2 = .02) The
results are presented in Table VI-13.
The dispersion in the proportion of budget allocated to
the various brands were lower in the reminder advertising
condition (M = .09) than in the no advertising condition (M =
.08), and this difference approached significance F.(l,62) =
3.16, p. < .08, (co2 = .02) These results are presented in
Table VI-14.
An analysis of variance on the share of budget allocated
to the top brand across these two advertising conditions was
not significant, F(1.62) = 2.12, p < .15, (CO2 = .01). These
results are presented in Table VI-15. Results (presented in
Table VI-16) show that the average number of brands ever
chosen did not significantly differ between the reminder
advertising condition and the no advertising condition,
F(1,62) = 2.22, p < .15.
TABLE VI-13
DISPERSION IN CHOICE FREQUENCIES
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
7.51580254
1
2.67
0.1118
SEQ
39.84124419
15
0.94
0.5259
AD*SEQ
29.03591569
15
0.69
0.7763
SS/AD,SEQ
89.95440461
32

106
TABLE VI-14
DISPERSION IN PROPORTION OF BUDGET
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.00274298
1
3.16
0.0848
SEQ
0.01727033
15
1.33
0.2429
AD*SEQ
0.01191580
15
0.92
0.5561
SS/AD,SEQ
0.01191580
32
TABLE VI-15
SHARE OF BUDGET ALLOCATED TO TOP BRAND
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.01930218
1
2.12
0.1547
SEQ
0.15181354
15
1.11
0.3835
AD*SEQ
0.17488103
15
1.28
0.2681
SS/AD,SEQ
0.29074490
32
TABLE VI-16
AVERAGE NUMBER OF BRANDS EVER CHOSEN
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
11.39062500
1
2.22
0.1464
SEQ
66.48437500
15
0.86
0.6081
AD*SEQ
38.35937500
15
0.50
0.9240
SS/AD,SEQ
164.50000000
32

107
It is interesting to note that although reminder
advertising was not postulated to significantly influence the
perceived utilities offered by the various brands, the
results indicate that it did have a minor effect. Ananalysis
of debriefing protocols suggest that the picture of the
package provided some information about the relative worth of
the various brands, which in the absence of other information
was used as a means of differentiation. Thus, it is likely
that the reminder ads used for the study served more than
just the reminder function.
Price Elasticity
Price elasticity was calculated for each of the 12
brands at the individual subject level by looking at
quantities purchased across 16 shopping trips. Prices were
varied over the trips, and the quantities purchased for each
brand at their respective high and low prices were aggregated
to compute price elasticity. The arc elasticity measure that
was used is defined as
AQ/Mean Q
Arc Elasticity =
AP/Mean P
For each subject, the twelve brand-level elasticities
were analyzed with brands as a within-subjects factor. It
was expected that the 12 brands should show similar patterns
of these manipulations, although main effects of brands might
be based upon differential popularity of the brands.

108
ANOVA effects treating brands as fixed. The data were
analyzed in a mixed ANOVA design with between-subjects
factors of Advertising Condition, Decision Environment and
Sequence, with Brands as a repeated factor (3 X 2 X 16 X 12).
Results are first presented treating all factors, (including
Brands) as fixed. This would imply that statistical
generalizations from this experiment are limited to effects
observed with the specific brands that were used in the
study. The results are presented in Table VI-17 to VI-19.
Results indicate that there was a significant effect of
decision environment, advertising condition and the
Advertising X Environment interaction. Analyses of planned
contrasts were conducted to better understand the locus of
these effects on price elasticity.
TABLE VI-17
TESTS OF HYPOTHESES FOR BETWEEN SUBJECTS EFFECTS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ENVIRONMENT
190.80058080
1
22.09
0.0001
ADVERTISING
85.14927157
2
4.93
0.0092
ENV*AD
252.53599766
2
14.62
0.0001
SEQ
92.52268851
15
0.71
0.7646
ENV*SEQ
136.42643032
15
1.05
0.4102
AD*SEQ
248.41869797
30
0.96
0.5357
ENV*AD*SEQ
310.57843835
30
1.20
0.2515
SS/ENV,AD,SEQ
820.53705672
95

109
TABLE VI-18
ANALYSIS OF VARIANCE
UNIVARIATE TESTS OF HYPOTHESES FOR WITHIN SUBJECTS EFFECTS
SOURCE
TYPE III SS
DF
F VALUE
P > F
BRAND
152.29064736
11
4.03
0.0001
BRAND*ENV
23.66011338
11
0.63
0.8075
BRAND*AD
56.13321359
22
0.74
0.7971
BRAND*ENV*AD
124.03344868
22
1.64
0.0316
BR*SEQ
504.17150129
165
0.89
0.8275
BR*ENV*SEQ
615.79173623
165
1.09
0.2309
BR*AD*SEQ
1274.17431349
330
1.12
0.0905
BR*ENV*AD*SEQ
950.01510608
330
0.84
0.9732
BR*SS/ENV,AD,SQ
3589.46828
1045
TABLE VT-19
MEAN PRICE ELASTICITY
ENVIRONMENT
STIMULUS
MEMORY
BASED
BASED
ADVERTISING
NONE
-2.02
-0.53
REMINDER AD
-1.54
-1.59
DIFFERENTIATING
-1.24
-0.94
In the absence of advertising, price elasticity was
greater in the stimulus-based environment (M = -2.02) than in
the memory-based environment (M = -0.53), F(l, 95) =36.44, jg <
2
.001, (0) = .08) This finding lends strong support to HI
that the price elasticity will be greater under stimulus-

110
based choice situations than under memory-based choice
situations.
Price elasticity in stimulus-based decision
environments. Analyses of planned contrasts were carried out
to test for the effects of advertising on price elasticity in
the stimulus-based choice environment. Results (presented
in Tables VI-20 and VI-21) show that there was a significant
simple effect of advertising on price elasticity, £(2,95) =
6.90, p. < .01, (CO2 = .04) lending support to H2 Because
there were no significant differences in the average size of
the consideration set across the three advertising
conditions, it is possible to conclude that these effects on
price elasticity in the stimulus-based environment are
mediated by changes in the variance in brand-utilities as a
result of advertising.
The difference in price elasticity differentiating
advertising condition (M = -1.24) and the control condition
(M = -2.02) was significant, £(1, 95) = 13.53, p. < .001. This
finding supports H2a that differentiating advertising will
result in lower price elasticity. This parallels the results
obtained for preferences, where it was found that advertising
that seeks to differentiate brands resulted in increased
variance in the perceived utilities of the brands.
H2a predicted that there will be no difference in price
elasticity between the reminder advertising condition and the
control condition. However, results showed that price

Ill
elasticity was significantly lower in the reminder
advertising condition (M = 1.54) compared to the control
condition (M = 2.02), F(l,95) = 5.28, p < .025. Thus there
was no support for H2b. These results are consistent with
the findings that reminder advertising did have some effect
on the variance in utilities in the stimulus-based
environment, discussed in the previous section. It is
possible that there was an element of differentiation even in
the reminder ads. An analysis of debriefing protocols
suggest that they did provide some information about the
brand, which, in the absence of any other information became
a basis for elimination and choice. Moreover, to the extent
package information cued the recall of information learned
during the first session, it is perhaps expected that
reminder ads would lead to some changes in preferences.
Results presented in Table VI-22 showed that price
elasticity was marginally less in the differentiating
advertising condition (M = 1.24) compared to the reminder
condition,(M = 1,54), F(l,95) = 1.90, p < .15.
In the stimulus-based condition, there were no
significant effects of advertising on the size of the
consideration set. Thus, when the brand names were readily
available, the presence or absence of advertising or the
information provided by advertising did not have an effect on
the number of brands searched. However, there were
significant effects of advertising on preferences. Since

112
the effects on price elasticity are very similar to the
pattern of results obtained for preferences, it is possible
to conclude that, in stimulus-based environments, the
differential preference for the various brands is a key
mediator of price elasticity. This result provides strong
support for H2, that the only effect of advertising in the
stimulus-based choice situation will be mediated by the
dispersion in brand-utilities.
TABLE VI-20
PRICE ELASTICITY IN STIMULUS-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
116.86385898
1
13.53
0.001
SEQ
79.59978460
15
0.61
0.904
AD*SEQ
238.97790555
15
1.84
0.133
SS/ENV,AD,SEQ 820.53705672
95
TABLE VI-21
PRICE ELASTICITY IN STIMULUS-BASED ENVIRONMENT
REMINDER VERSUS DIFFERENTIATING ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
45.62724071
1
5.28
0.025
SEQ
122.47040230
15
0.72
0.750
AD*SEQ
89.24442242
15
0.52
0.909
SS/ENV,AD,SEQ
820.53705672
95

113
TABLE VI-22
PRICE ELASTICITY IN STIMULUS-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
16.45361206
1
1.90
0.155
SEQ
103.76050235
15
0.80
0.788
AD*SEQ
100.72778704
15
0.77
0.769
SS/ENV,AD,SEQ
820.53705672
95
Price elasticity in memory-based decision environments.
Under the memory-based condition there were significant
differences in price elasticity across advertising
conditions, F(2,95) = 12.72, ^ < .001, (CO2 = .04). Thus the
evidence supports H3, that there will be a significant simple
effect of advertising on price elasticity in the memory-based
condition. Tables VI-23 to VI-25 present the results of the
analyses of planned comparisons to test for the effects of
reminder and differentiating advertising on price
sensitivity.
Compared to the no advertising condition, price
elasticity was greater in the differentiating advertising
condition (M = -0.94), but this difference was not
significant, £1(1, 95) = 3.70, p. < .10. Thus there was no
support for H3a that differentiating advertising would reduce
price elasticity.

114
TABLE VI-23
PRICE ELASTICITY IN MEMORY-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
31.96538463
1
3.70
0.102
SEQ
131.04664046
15
1.56
0.144
AD*SEQ
85.60967106
15
1.02
0.463
SS/ENV,AD,SEQ
820.53705672
95
TABLE VI-24
PRICE ELASTICITY IN MEMORY-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
216.49080913
1
25.07
0.001
SEQ
118.40784879
15
0.91
0.797
AD*SEQ
130.87140122
15
1.23
0.251
SS/ENV,AD,SEQ
820.53705672
95
TABLE VI-25
PRICE ELASTICITY IN MEMORY-BASED ENVIRONMENT
REMINDER VERSUS DIFFERENTIATING ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
78.06047822
1
9.03
0.015
SEQ
184.48337550
15
1.42
0.158
AD*SEQ
210.02896638
15
1.62
0.109
SS/ENV,AD,SEQ
820.53705672
95

115
The findings show that price elasticity was greater
under reminder advertising (M = -1.59) compared to the
control condition (M = -0.53), F(l,95) = 25.07, p. < .001.
Thus result supports H3b which predicted that reminder
advertising will increase price elasticity. This parallels
the the effects of reminder advertising on the size of the
consideration set.
Results presented in Table VI-25 show that price
elasticity was significantly greater in the reminder
advertising condition (M_ = 1.59) compared to the
differentiating advertising condition (M = 0.94), F(l,95) =
1.03, p < .01.
ANOVA effects treating brands as random. Thus far the
analysis has treated brands as a fixed factor. In such
cases, statistical generalizations are limited to the
treatment effects observed with the specific treatment
conditions used in the experiment. In order for statistical
conclusions to extend to brands in general, the twelve level
brands factor has to be treated as random. This implies that
the structural model appropriate for this design is different
from the one that was used for the case where brands were
treated as fixed.
When the brands factor is treated as random, the usual
error terms cannot be used to estimate the between-subjects
effects of interest to the study (Keppel 1982) Therefore
the denominator in the F-ratio is a combination of terms

116
which together provide an appropriate test of the treatment
effect. The terms which were combined to create the
appropriate errors terms for the hypothesized effects are
presented in Appendix HE. These quasi F ratios have degrees
of freedom that are adjusted according to Satterthwaite's
(1946) method.
The results are similar to those obtained when brands
were treated as fixed. There was a main effect of
advertising condition, a main effect of decision environment
and an environment X advertising condition interaction. The
results are presented in Table VI-26.
TABLE VI-26
ANALYSIS OF VARIANCE
TESTS OF HYPOTHESES FOR BETWEEN SUBJECTS EFFECTS
BRANDS AS RANDOM FACTOR
SOURCE
SS
DF
DFe
F
P
> F
ENVIRONMENT
190
.8005
1
45
25 .
. 92
0
.001
ADVERTISING
85
. 1492
2
55
5 ,
.48
0
.009
ENV*AD
252
. 5359
2
52
11,
. 64
0
.001
SEQ
92
. 5226
15
80
0 ,
.75
0
.764
ENV*SEQ
136
. 4264
15
91
1.
.02
0
.412
AD*SEQ
248
. 4186
30
98
0 ,
. 91
0
.536
ENV*AD*SEQ
310
.5784
30
79
1.
.28
0
.251
Note:
DFe implies the adjusted error degrees of freedom used
for the analysis.

117
An analysis of planned comparisons revealed that there
was a simple main effect of advertising in the stimulus-based
choice environment, F.(2,55) = 7.69, p. < .01. There were
significant differences in price elasticity when subjects
were exposed to differentiating advertising, compared to the
situation when they were not exposed to any ads, F(l,55) =
15.05, p < .001. This result supports H2a. There were also
significant differences in price elasticity between the
reminder ad and the control condition, £(1,55) = 5.88, p
<.025. The results were in support of HI that advertising
will have a significant effect on price sensitivity in the
stimulus-based environment. The difference in price
elasticity between the reminder advertising condition and the
differentiating advertising condition was marginally
significant, £.(1,55) = 2.20, p < .10.
In the memory-based choice environment, there was a
simple main effect of advertising on price elasticity,
£(2,55) = 14.16, p_ < .001. There were significant
differences between reminder advertising and differentiating
advertising in their respective effects on price elasticity.
There was a significant positive effect of reminder
advertising, £(1,55) = 27.9, p < .001. This result supports
H3a. Also, differentiating advertising had a positive effect
on price elasticity compared to the control condition,
£ (1,55) = 4.12, p < .05. Price elasticity was significantly
greater in the reminder advertising condition compared to the

118
differentiating advertising condition, F(l,55) = 10.06, p <
.001.
In the absence of advertising, there was greater price
sensitivity in the stimulus-based decision environment than
in the memory-based environment, F(l,45) = 55.16, p < .001.
To conclude, when brands are treated as a random factor
there is no major change observed in the pattern of results.
The major hypotheses of the experiment were supported and
therefore it was possible to demonstrate that advertising
does affect price sensitivity. The nature of the effect of
advertising depends on nature of the advertising and also the
information that is available at the time of choice. It is
possible to assert that interactions of the major results
with brands are sufficiently small that the results obtained
need not be limited to the brands used for the study, but are
likely to hold in a more general case.
Chapter VII presents a general discussion of the results
obtained in Experiment 3. Implications of the results for
research on the economic effects of advertising are also
discussed.

CHAPTER VII
GENERAL DISCUSSION AND IMPLICATIONS
This dissertation investigated the relationship between
advertising and consumer price sensitivity. This topic has
been central to the controversy about the economic effect of
advertising in the economics literature (Comanor and Wilson
1979, Ornstein 1977). Two competing theories in economics
have made conflicting predictions about the potential effect
of advertising, based on assumptions about consumer responses
to this marketing mix variable. The fragmentary empirical
evidence in economics and marketing literature has not
provided conclusive support for either theory. Previous
researchers have tested deductions from these theories and
have not been able to offer any test of the underlying
theoretical assumptions. Thus there remain controversies
over whether advertising increases or decreases price
elasticity based on assumptions about its informative or
persuasive nature, with conclusions drawn from studies that
were not designed to provide answers about causality.
This dissertation proposed that prior conceptualizations
about the effect of advertising on consumer price sensitivity
are simplistic. It has been suggested in the literature that
the diverging empirical studies on this topic have not taken
account of the content of advertising (Lambin 1976, Farris
119

120
and Albion 1980) Yet research in this area has not
explicitly examined the effects of variations in advertising
themes on consumer behavior. This study postulated that it
is the content and not simply the volume of advertising as
has been traditionally studied, that determines consumer
responses.
It has been suggested (Lynch & Bloom 1987) that the
effect of advertising on consumer price sensitivity can be
better understood by an examination of the role of
advertising in the choice decision. This dissertation has
empirically examined the framework offered by these authors
and investigated the basic causal mechanisms underlying the
effect of advertising on consumer price sensitivity in an
attempt to understand and predict the direction of change.
Two key theoretical constructs were postulated to mediate the
relationship. The first is the size of the consideration
set, which consists of brands that the consumer actively
considers at the time of choice. The second is the
distribution of preferences for brands in the consideration
set.
It was proposed that different types of advertising
affect both constructs, but have potentially different
effects on the relative importance of these two mediating
variables. For example, differentiating advertising has
stronger effects than reminder advertising on the
distribution of brand-utilities, but reminder advertising has

121
larger effects than differentiating advertising on the number
of alternatives considered at the time of choice. It was
suggested that the effect of advertising on the size of the
consideration set is moderated by whether the decision
environment is stimulus-based or memory-based. That is, the
more the consumer relies upon memory to generate a set of
candidate brands, the more important will be the tendency for
advertising to increase the size of the consideration set by
facilitating recall. This will lead to an increase in price
elasticity. Insofar as the consumer can and does rely on
external information in the decision environment to generate
a consideration set, the facilitating effects of advertising
will be mitigated. In such a case, advertising's primary
effect will be to make demand more inelastic by producing
larger perceived differences in utility among the various
brands. Thus the primary contribution of the dissertation is
to document the effects of advertising on these two mediating
constructs that were hypothesized to have direct implications
for the nature of the relationship between advertising and
price elasticity.
Effects of Advertising on Distribution of Brand-Utilities
The study examined the effect of advertising on the
variance of interbrand utilities. It was expected that
advertising that resulted in real or 'image'-based
differentiation would increase the dispersion in utilities,
leading to some brands being perceived to be superior to

122
others. Results from the analyses of the four measures of
interbrand variance of revealed preference suggest that
differentiating advertising did have a significant influence
on the dispersion of brand-utilities in the stimulus-based
decision environment. This increased dispersion in brand-
utilities can be expected to have implications for price
elasticities observed under this condition.
It is interesting to note that although reminder
advertising was not expected to significantly affect the
perceived utilities offered by the various brands, the
results indicate that it did have a minor effect. It is
possible that the picture of the package and the brand names
were used as a basis for preference formation. Also, such
ads could have cued the recall of information about
attributes learned in the first session. Keller (1987) shows
that such recall cues have an effect on the spread of memory-
based evaluations. This suggests that even 'reminder'
advertising has the potential for affecting the distribution
of perceived interbrand utilities.
In conclusion, all advertising has a reminder function,
that is, to provide recall cues in order to ensure that the
brand is retrieved at the time of choice. Advertising also
aims at differentiating the brand from competitive offerings
so as to ensure that the brand is preferred to others that
the consumer might consider. With respect to the first
objective, both reminder and differentiating advertising had

123
a positive effect on the recall of brand names. With respect
to the second objective, the results suggest that
advertising-induced differentiation is a matter of degree.
Hence, the more the utility connoting information in an ad,
the more is its differentiating function over and above its
reminder function. Therefore in this experiment,
differentiating advertising led to an increased variance of
utilities, compared to reminder ads. These findings are
likely to have implications for price elasticity.
Effects of Advertising on the Size of the Consideration Set
It was proposed that the effects of advertising on price
elasticity could be better understood by examining its
effects on the size of the consideration set. The pattern of
results provide interesting insights on how advertising might
affect the size of the consideration set by influencing the
ability and the motivation to retrieve brand names for
consideration. The findings suggest that the effects of
advertising on the consideration set could differ, depending
on the type of advertising and the decision environment.
Advertising effects on knowledge and remembrance of
substitutes versus perceived substitutability of brands.
Price elasticity is a function of perceived substitutability
(Nelson 1974a, 1978). Economists of the information school
have assumed that advertising provides information about
brands and increases the number of known substitutes. This
implies that if advertising has made consumers 'aware' of a

124
particular brand when it was first introduced, this should be
sufficient for it to be considered at the time of choice.
Consumer researchers (Alba and Chattyopadhyay 1985; Nedungadi
1987) have suggested that mere awareness of a brand does not
necessarily ensure that the brand is retrieved at the time of
choice the brand has to be retrieved from long-term memory.
It is unlikely that all brands in a product category are
effective substitutes in a particular choice decision.
Consumers faced with an assortment of brands attempt to focus
on a subset of alternatives in order to gain efficiency in
shopping. As this experiment has demonstrated, mere
awareness of a brand is not sufficient for it to be included
in the consideration set. Advertising was shown to increase
the number of effective substitutes by increasing the
knowledge and remembrance of brand alternatives.
Advertising that emphasizes real or image-based
differentiating attributes provides information about the
product on the basis of which overall evaluations are made.
In this experiment, it was shown that such advertising makes
some brands perceived to be superior to others and therefore
reduces perceived substitutability among brands. This
implies that the number of effective substitutes from which
consumers makes a choice is reduced, and therefore a larger
price discount will be required in order to get them to
switch from their most preferred brands.

125
Memory for brands and the size of the consideration set.
The results from Experiment 1 and 2 show that in memory-based
decision environments, both reminder and differentiating
advertising enhance the ability to recall brand names.
Experiment 3 shows that this has a positive effect on the
size of the consideration set. The significant differences
in consideration set size in the advertising conditions as
compared to the control condition lend strong support to the
hypothesis that advertising makes brand names more accessible
in memory, and thus increases the size of the consideration
set. This memory-enhancing capability of advertising holds
for differentiating advertising as well.
Dispersion of brand-utilities and the size of the
consideration set. Besides affecting the memory of brand
names, advertising also increased the variance in interbrand
preferences. It has been noted earlier that differentiating
ads contained more utility connoting information than
reminder ads and thus resulted in more significant increases
in the dispersion of perceived utilities. This is reflected
in the size of the consideration set in the memory-based
condition.
Recall that the results of Experiment 2 showed that
there are no significant differences between reminder and
differentiating advertising on the ability to recall brand
names. They were equivalent in that they both increased the
ability to recall brand names from memory by increasing the

126
accessibility of these names. If consideration set size is a
function of ability alone and is unaffected by the motivation
to recall brand names from memory, then there should be no
differences between the two advertising conditions in the
size of the consideration set. However, results from
Experiment 3 showed that consideration sets were
significantly smaller in size under the differentiating
advertising condition compared to the reminder advertising
condition. This suggests that the information contained in
the two types of advertising differentially affected the
motivation to retrieve brand names in a prepurchase situation
under which the objective was to search for prices. In
short, different cues or criteria are used for consideration.
When brand names have to be generated form memory, the
most preferred brands are likely to be recalled first
(Nedungadi and Hutchinson 1985). Under such a scenario the
expected marginal benefit of adding brands for consideration
are expected to be low, because is is unlikely that a price
discount on a less favored brand will be able to compensate
for the perceived superiority of the top brands. Results
showed that differentiating advertising resulted in higher
perceived variance of interbrand preferences compared to
reminder advertising. Consistent with this finding, when
brand names had to be generated from memory, consideration
set sizes were significantly smaller when advertising was of
the differentiating variety.

127
Costs of thinking. Even though differentiating and
reminder advertising differentially affected the interbrand
dispersion of utilities, this was not reflected in
significant differences in the size of the consideration set
in the stimulus-based situation. This is in contrast to the
memory-based case discussed in the preceding section. There
is no evidence to support the prediction that differentiating
advertising will reduce the size of the consideration set
more than reminder advertising in the stimulus-based decision
environment.
Because subjects had a list of brand names available to
them, it is possible that the perceived marginal cost of
thinking (Hauser & Wernerfelt 1990; Shugan 1980) associated
with adding another brand to the consideration set was
relatively low in stimulus-based decisions. Therefore it
would require more advertising induced dispersion of brand-
utilities to discourage subjects from at least considering
more brands, even though some brands were more preferred and
thus had a greater probability of being chosen. This would
explain why, under such conditions, differentiating
advertising did not result in shrinking the size of the
consideration set, even though it affected the variance of
brand-utilities.

128
Combined Effects of Consideration Set Size and Brand-Utility
Dispersion on Price Elasticity
The effects of advertising on price elasticity was
postulated to be mediated by two key constructs: the size of
the consideration set and the variance of interbrand
preference. The results on these theoretical constructs
discussed in the preceding sections enable a better
understanding and interpretation of advertising-induced
changes in price elasticity.
In the memory-based decision environment, both reminder
and differentiating advertising resulted in an increase in
price elasticity. This is consistent with the finding that
advertising
(both reminder
and
differentiating)
increases the
size
of the
consideration
set
in
memory-based
environments.
When
brand
names have
to
be
retrieved
from memory,
advertising (both reminder and differentiating) increases the
number of brands considered by making brand names more
accessible in memory. Given the assumption that price
elasticity is a positive function of consideration set size,
this implies that price elasticity might increase even with
differentiating advertising.
It was noted earlier that differentiating advertising
resulted in smaller consideration sets compared to reminder
advertising. This finding is consistent with the result that
differentiating advertising led to a greater variance in
interbrand preferences. The differences in price elasticity

129
between the two advertising conditions reflect the indirect
effects of the dispersion of utilities on the price
elasticity of demand. However, the recall-facilitating
effect of differentiating advertising was more powerful, so
that there was an overall increase in the size of the
consideration set even under differentiating advertising.
Thus, compared to the no advertising condition,
differentiating advertising led to greater price sensitivity.
In the stimulus-based condition, there were no
significant effects of advertising on the size of the
consideration set. The presence or absence of advertising or
the information provided by advertising did not have an
effect on the number of brands searched when the brand names
were readily available. On average, consumers searched for
information on about roughly one-third of the available
brands. As has been noted earlier, in this situation the
facilitating effects of advertising on recall are not as
important as in the memory-based case.
However, there were significant effects of advertising
on the dispersion of brand-utilities. Since the effects on
price elasticity are very similar to the pattern of results
obtained for the dispersion of preferences, it is possible to
conclude that in stimulus-based environments, the
differential preference for the various brands is a key
mediator of price elasticity.

130
The significant differences in price elasticity between
the differentiating advertising condition and the control
condition strongly support the prediction that
differentiating advertising increases the interbrand
variance in preferences and thereby decreases price
elasticity. As compared to the control condition, even
reminder advertising reduced price elasticity in the
stimulus-based environment. This is consistent with the
finding that reminder advertising influenced the dispersion
of utilities, although the effect was not as large as in the
case of differentiating advertising. The results as a whole
suggest that when brand names are readily available and
consumers rely on this information to generate the
consideration set, the effects of advertising on price
elasticity are primarily mediated by its effect on the
distribution of perceived utilities for the various brands.
From these results, it is possible to conclude that when
brand names have to be recalled from memory, price elasticity
is a function of both the size of the consideration set and
the dispersion of brand-utilities. Advertising has a
potential effect on both these constructs. The net impact of
advertising on price elasticity therefore depends on the
strength of its effects on these two variables. In the
stimulus-based environment, the effect of advertising on
price elasticity is a function of its effect on interbrand
variance in preference.

131
Implications
This research has demonstrated that it is possible to
make predictions about the potential effects of advertising
on price elasticity by examining its effects on the two key
constructs. They are the size of the consideration set and
the dispersion of brand-utilities. Price elasticity is
positively related to the size of the consideration set and
negatively related to the dispersion of utilities across the
various brands. These two variables mediate the relationship
between advertising and price elasticity, and the net effect
depends on the strength of the parameters. Different kinds
of advertising and the decision environment have different
effects on these parameters.
Environmental factors affecting the mediating role of
consideration set size. In cases in which brand name recall
is not important for the consumer to generate the
consideration set, the effects of advertising on the memory
for brand names is not likely to be the major determinant of
the size of the consideration set. For example, if a
customer relies on the salesperson's recommendations for
purchasing a durable good, then the reminder function of
advertising has a lesser role. Here, advertising's effects
on price sensitivity will be primarily based on ad-induced
dispersion of preferences. The greater the variance in
preference for the brands caused by advertising, the lesser
will be the price sensitivity.

132
The more that the consideration set has to be generated
from memory, the greater will be the reminder effects of
advertising on the size of the consideration set. The larger
the effects of advertising on the consideration set size, the
greater is the price elasticity for the other brands in the
consideration set. For example, consumer try to recall the
stores at which they could shop, and all such stores are not
arrayed in front of them, they have to rely on memory to
retrieve names of the stores. To the extent that some stores
advertise, they are likely to be recalled and as a result get
included in the consideration set In such a case,
advertising performs an important reminder function and its
effect on price elasticity is greatly influenced by its
effect on the size of the consideration set.
Environmental factors mediating the role of dispersion
of brand-utilities. In this research, the brands were
unfamiliar to the subjects. Therefore it was relatively easy
to change the distribution of preferences through
advertising. But in situations in which consumers have prior
familiarity with the product, the effects of advertising on
the dispersion of utilities is likely to be smaller.
Therefore advertising induced differentiation will have a
lesser effect on price elasticity. In such a case, if the
recall-facilitating aspect of advertising is important in
determining the size of the consideration set, then even

133
differentiating advertising might lead to an increase in
price elasticity.
This research suggests that the mechanism by which
advertising effects on price sensitivity when all brand names
are externally available might be quite different from that
when the names are retrieved from memory. Results showed
that advertising influences the ability to retrieve brands in
the memory-based situation, with much smaller effect on the
stimulus-based situation. It also differentially affects the
motivation to consider more brands. Because the cost of
thinking associated with adding another brand to the
consideration set may be less in stimulus-based decisions, it
requires more advertising-induced dispersion of brand-
utilities to discourage consumers from at least considering
brands.
Moreover, in the memory-based environments, more
preferred brands are likely to be recalled first. Thus if
advertising increases the dispersion of interbrand
preferences, it will reduce the size of the consideration
set. To the extent that in stimulus-based environments,
order of search is guided by the organization of the display
(Bettman & Kakkar 1977; Biehal & Chakravarti 1982; Alba et
al. 1990) such that the most preferred brands are not
considered first, increases in interbrand variance resulting
from advertising should increase the motivation to consider

134
more brands (Nelson 1970, 1974a, 1975; Hauser & Wernerfelt
1990) .
The stimulus-based choice situation was used as the
baseline to demonstrate that consideration sets are likely to
be situation-specific. Here, he same differentiating ads did
not lead to any significant reduction in the size of the
consideration set, even though they had significant effects
on the dispersion of brand-utilities. It is likely that in
the laboratory setting, subjects were more motivated than the
average consumer. In this situation in which perceived costs
were less than expected benefits, the consideration set size
was not significantly reduced. Therefore the effects of
advertising on price elasticity were mediated by the
dispersion of brand-utilities.
It can be argued that in real-world situations the
information processing costs of exhaustively considering and
evaluating all brands for choice are much higher than in the
laboratory setting. Therefore, even decisions which are in
principle, stimulus-based have a large memory component(Alba
et al. 1990). Consumers need to concentrate on a subset of
alternatives in order to gain efficiency in shopping. For
example, the consumer making purchases in the branded
packaged goods category does not have the time nor the
motivation to scan every item on the supermarket shelf before
making a decision (Park et al 1989) In such a situation,
the reminder function of advertising becomes crucial in

135
getting a brand considered for choice. This will have
implications for price elasticity.
The memory effects of advertising are even more dramatic
in the case of situations which are necessarily memory-based,
as in the case of the store choice decision discussed
earlier. In this case, advertising can ensure that a brand
is included in the consideration set and thus have a
significant effect on price elasticity.
Managerial Implications
The dissertation highlights certain important facts
about the effect of advertising on consumer behavior which
could be useful to managers. It provides insights on the two
major functions of advertising, which combine to produce its
effects on price sensitivity. Therefore, the difference
between reminder and differentiating advertising is more a
matter of degree. Depending on the environment in which the
decision is made, advertising effects memory for brand names
and/or preferences and the relative strength of these two
parameters determines its net effect on price elasticity.
This suggests that a differentiating strategy need not
necessarily result in reduced price sensitivity. As this
study showed, if the effects of advertising on memory are
substantial, then the increase in price elasticity as a
result of the larger consideration set size can offset the
reduction due to the advertising-induced variance in
preferences.

136
Implications for Public Policy
This study has considered the economic effect of
different types of advertising strategies which are likely to
be adopted by marketers. The results of the study have
implications for public policy. It suggests that it is
difficult to theorize about the economic effect of
advertising in terms of general statements about whether
advertising increases or decreases price elasticity of
demand.
The study supports the view of the information school
that advertising does have some economic value; it provides
information on the existence of substitutes. In addition, it
demonstrates that advertising provides recall cues and
thereby increases the number of effective substitutes that
are considered at the time of choice. Price elasticity is a
function of perceived substitutability, therefore advertising
by increasing the number of brands considered, can increase
price elasticity.
The market power view of advertising postulates
advertising to reduce price sensitivity by artificially
differentiating brands. This study demonstrated that even
when advertisers pursue a differentiating strategy, the
resulting effects on price sensitivity need not always be
negative. The net effects of advertising on price elasticity
depend on the strength its effect on the two mediator
variables postulated in this dissertation.

137
Future Research
Effects of urior experience. This study considered the
effects of advertising on price elasticity for brands which
are unfamiliar. It is likely that, in the case of familiar
brands, the effects of advertising-induced dispersion of
interbrand utilities on price elasticity will be smaller.
Future research can examine how prior knowledge moderates the
effects of advertising on the two key constructs.
Framing effects on the weights of price and non-price
attributes. This study has considered how advertising might
influence price elasticity by altering the distribution of
interbrand preference. Another way in which advertising
might potentially reduce price sensitivity is by increasing
the salience of non-price attributes and thereby decreasing
the importance of price. Thus, advertising can cause
consumers to 'frame' their choices in terms of the evaluative
criteria suggested by advertisers (Bettman & Sujan 1987; Alba
& Hutchinson 1990). It has been reported that increasing the
salience of product attributes suppresses the ability to
recall unmentioned attributes (Alba & Chattyopadhyay 1985).
Also, by increasing the salience of a particular attribute,
advertising might ensure that this attribute is used in
subsequent evaluations, and thereby increase the effective
weight given to that attribute (Feldman & Lynch 1988). Taken
together, this suggests that advertising, by increasing the
salience of non-price attributes, could lead to decreased

138
price sensitivity. Conversely, price advertising, typical of
supermarket advertising for packaged goods, can increase the
salience of price and suppress the salience of non-price
attributes. Bettman and Sujan's (1987) work suggests that
these effects will be stronger for consumers low in prior
knowledge. Future research could study the effect of
advertising price versus non-price attributes on price
elasticity.
Effects of interbrand variance in the amount of
advertising. In this experiment, all brands were advertised,
and therefore advertising had a significant positive effect
on recall and consideration set size. This led to an
increase in price elasticity. In the real world, some brands
are advertised, and marketers' tactics can increase recall
deficits of consumers (Alba & Hutchinson 1990). Research has
shown that presenting a subset of brands is likely to inhibit
the recall of competing brands (Alba & Chattyapadhyay 1985).
Thus if some big advertisers get a large share of exposures,
unadvertised brands have a lower chance of being considered
and therefore of being chosen. Future research can examine
the effect of unequal levels of advertising by competitors on
the resulting price elasticity. This would be of interest to
managers and public policy makers.

APPENDIX I
DETAILED LISTING OF STIMULI AND TASKS FOR PRETESTS

APPENDIX IA-1
INTRODUCTION AND PRELIMINARY INSTRUCTIONS
We appreciate your participation in this study which is
concerned with consumer responses to new brands of candy.
During this experiment, you will be required to use the
keyboard to type your responses when prompted by messages on
the screen. After you have finished typing in your response,
press the key (marked with the orange sticker) so
that your responses may be "received" by the computer. In
case of a typing error, you may use the key to
erase the typed letters and retype the correct letters. This
key is located to the right of the number keys at the top row
of the keyboard (just above the key).
Press to continue
140

141
APPENDIX IA-1 continued
This experiment is concerned with consumer responses to
several new brands of chocolate candy bars which are now
available in Canada and which are likely to be introduced
into the Gainesville market.
In the next few minutes you will be given some
information on these candy bars. Please pay attention to the
information. After this, you will be asked some questions on
them. If you do not answer the questions correctly, you will
be shown the information once more.
Press to continue

142
APPENDIX IA-1 continued
The Company is attempting to assess consumer responses
to the new brands of chocolate candy bars before the test
market. Some information on these candy bars, namely, the
brand name, the weight and what it contains, will now appear
on the screen. Please pay attention to the information.
Press to continue....

143
APPENDIX IA-2
DETAILED LISTING OF BRAND DESCRIPTIONS
1)
BRAND NAME:
WEIGHT:
CONTAINS:
Coffee Crisp
1.9 oz.
Crisp cream-filled
biscuit
2)
BRAND NAME:
Dairy Milk
WEIGHT:
1.45 oz.
CONTAINS:
Pure milk chocolate
3)
BRAND NAME:
Sweet Marie
WEIGHT:
2.1 oz.
CONTAINS:
Chewy fudge, caramel and
peanuts
4)
BRAND NAME:
Crispy Crunch
WEIGHT:
1.75 oz.
CONTAINS:
Lots of peanuts in milk
chocolate

144
APPENDIX IA-2
continued
5)
BRAND NAME:
Caramilk
WEIGHT:
2.0 oz.
CONTAINS:
Bigger bites of soft
caramel
6)
BRAND NAME:
Gold
WEIGHT:
1.6 oz.
CONTAINS:
Crisps and a kiss of
honey
7)
BRAND NAME:
Eat-more
WEIGHT:
1.4 oz.
CONTAINS:
Peanuts in chocolatey
coating
8)
BRAND NAME:
Mr. Big
WEIGHT: 2.2 oz.
CONTAINS:
Wafers, caramel and rice
crisps

145
APPENDIX IA-2 continued
9)
BRAND NAME:
WEIGHT:
CONTAINS:
Crunchie
1.9 oz.
Golden honeycomb center
10)
BRAND NAME:
Smarties
WEIGHT:
2.1 oz.
CONTAINS:
Candy-coated chocolate
centers
11)
BRAND NAME:
Breakaway
WEIGHT:
1.6 oz.
CONTAINS:
Crispy wafer and chewy
caramel
12)
BRAND NAME:
Mirage
WEIGHT:
1.5 oz.
CONTAINS:
Milk chocolate thick,
yet light

146
APPENDIX IA-3
INSTRUCTIONS FOR RECOGNITION TASK
You will
now be
seeing
the names of
several
brands of
candy bars.
Half of
these
are brands that you
have
just
received information
on.
Additionally,
half of
the
list
consists of brand names that you did not encounter before.
Your task is to identify which are the brand names for which
you have just seen some information. If you recognize a
particular brand as one on which you have just seen some
information, type "Y", if not, type "N" and press .
Press to continue....

147
APPENDIX IA-4
LIST OF BRANDS USED AS DISTRACTORS IN RECOGNITION TASK
Wunderbar
Aero
Coconut
Bounty
Glossettes
Five Star
Gems
Jersey Milk
Big Turk
Nutties
Snack
Grand Slam

148
APPENDIX IB-1
INSTRUCTIONS FOR BRAND NAME RECALL TASK
Earlier you saw information on several brands of candy
bars Your task is to recall as many brand names as
possible. Please list them in the space provided below.

149
APPENDIX IB-2
INSTRUCTIONS FOR ATTRIBUTE RECALL TASK
Earlier you saw information on several brands
Canadian candy bars. Your task is to recall as much of
information on what it contains. Write down what you
remember in as much detail as you can.
BRAND NAME CONTAINS
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
of
the
can
Sweet Marie

150
APPENDIX IB-3
INSTRUCTIONS FOR PREFERENCE RATING TASK
Listed below are twelve different brands of candy bars.
Your task is to rate them on a scale of 1 (Extremely low in
preference) to 7 (Extremely high in preference).
BRAND NAME PREFERENCE RATING
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie

151
APPENDIX IB-4
INSTRUCTIONS FOR MOST LIKELY PRICE ESTIMATE
"SKOR" is a brand of candy currently available in the
Gainesville market. It is priced at 55 cents. If the new
brands were also available, please try to estimate the most
likely price at which you might expect to see them in most
stores. Your task is to estimate the most likely price for
each brand listed below.
BRAND NAME MOST LIKELY PRICE
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie __
Coffee Crisp
Dairy Milk
Sweet Marie

152
APPENDIX IB-5
INSTRUCTIONS FOR HIGHEST (LOWEST) LIKELY PRICE ESTIMATES
"SKOR" is a brand of candy currently available in the
Gainesville market. It is priced at 55 cents in most stores.
If the new brands were available in the market and you were
to visit several stores, try to estimate the highest (lowest)
likely price for these brands across stores. Your task is to
estimate the highest (lowest) likely price for each brand
listed below.
BRAND NAME HIGHEST LIKELY LOWEST LIKELY
PRICE PRICE
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie

153
APPENDIX IB-6
INSTRUCTIONS FOR SIMILARITY RATING TASK
Your task is to make similarity judgments between pairs
of candy bars. The referent candy bar is SMARTIES. Please
rate the similarity of this brand with other brands on a
scale of 1 (Highly Dissimilar) to 5 (Highly Similar).
SMARTIES
Highly
Dissimilar
Crispy Crunch 1
Caramilk 1
Gold 1
Breakaway 1
Mirage 1
Eat-more 1
Mr. Big 1
Crunchie 1
Coffee Crisp 1
Dairy Milk 1
Sweet Marie 1
2
2
2
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
4
4
Highly
Similar
5
5
5
5
5
5
5
5
5
5
5

154
APPENDIX IC-1
INTRODUCTION BEFORE EXPOSURE TO ADVERTISING
You have just been exposed to some information on
several brand of candy bars. You will now be seeing ads for
these brands before continuing to the next screen.
The experimenter will show you the ads only when all of
you are ready. So if you have finished before the others,
please wait quietly for the other participants to finish. DO
NOT PRESS NOW.
Only after you have seen the ads should you press
to continue...

155
APPENDIX IC-2
INTRODUCTION TO MEMORIZATION TASK
You will now be given a list consisting of brand names
of candy bars available in Gainesville. You are required to
memorize these names.

156
APPENDIX IC-3
INSTRUCTIONS AND STIMULI FOR THE MEMORIZATION TASK
Please take the next three minutes to memorize the
following list of candy bar names:
1.Celias
2.Crunch
3.Whatchmacallit
4.Cote d'Or
5.Pastilles Almond
6.Marabou
7.Mars
8.Twix
9.Krackel
10.Kitkat
11.Tobler
11.Skor
13.Almond Joy
12.100 Grand
15.Barnone
16.Solitaires
17.Suvretti
18.M & M's
19.Capers
20.Ferrara
21.Mr. Goodbar
22.Chocoletti
23.Chocolat Lindt
24.Alpin Milch

APPENDIX II
DETAILED LISTING OF STIMULI AND TASKS FOR EXPERIMENT 3

1
2
3
4
5
6
7
8
9
10
11
12
APPENDIX IIA-1
PRICE PROFILES FOR THE TWELVE BRANDS
ACROSS FIRST 8 SHOPPING TRIPS
SHOPPING TRIPS
12345678
L
L
L
L
L
L
L
L
L
L
L
L
L
L
L
L
H
L
H
H
H
H
H
L
L
L
L
H
L
H
H
H
L
L
H
H
L
L
L
H
H
H
L
L
H
H
L
H
L
H
H
L
L
L
H
L
H
L
H
H
L
H
H
L
H
L
L
H
L
H
L
H
L
H
H
H
L
H
L
H
H
L
L
L
L
H
H
H
H
H
H
L
L
H
H
L
158

1
2
3
4
5
6
7
8
9
10
11
12
159
APPENDIX IIA-1 continued
PRICE PROFILES FOR THE TWELVE BRANDS
ACROSS LAST 8 SHOPPING TRIPS
SHOPPING TRTPS
9 10 11 12 13 14 15 16
H H
L L
H H
L L
L H
H H
H L
H L
H L
H L
L H
H H
H H
L L
H H
H H
L H
L L
L H
L H
H L
H L
H L
L L
H
H
L
L
L
H
L
H
L
H
H
L
H
H
L
L
H
H
H
L
H
L
L
L
H H
H H
L L
H H
L H
L L
H L
L H
L H
H L
L H
H H

160
APPENDIX IIA-2
HIGHEST AND LOWEST PRICES FOR TWELVE BRANDS
IN
THE NO ADVERTISING
CONDITION a
BRAND
HIGHEST LIKELY
PRICE
LOWEST LIKELY
PRICE
Crispy Crunch
64.25
41.75
Caramilk
63.63
42.38
Gold
64.25
41.13
Smarties
60.50
37.38
Breakaway
61.76
39.88
Mirage
66.13
43.00
Eat-more
60.50
39.25
Mr. Big
72.37
47.38
Crunchie
64.25
44.25
Coffee Crisp
62.38
41.75
Dairy Milk
64.88
44.25
Sweet Marie
66.75
46.12
Mean
64.30
42.42
a: Prices are in cents

161
APPENDIX IIA-3
HIGH AND LOW PRICES USED FOR THE EXPERIMENT
BRAND
HIGH PRICE
LOW PRIC
Crispy Crunch
$0.65
$0.40
Caramilk
$0.65
$0.40
Gold
$0.65
$0.40
Smarties
$0.60
$0.35
Breakaway
$0.60
$0.35
Mirage
$0.65
$0.40
Eat-more
$0.60
$0.35
Mr. Big
$0.70
$0.45
Crunchie
$0.65
$0.40
Coffee Crisp
$0.60
$0.35
Dairy Milk
$0.65
$0.40
Sweet Marie
$0.70
$0.45

162
TRIPLE # 1
TRIPLE # 2
TRIPLE # 3
TRIPLE # 4
APPENDIX IIB1
BRAND-TRIPLES USED IN EXPERIMENT 3
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie

163
APPENDIX IIB-2
GROUPING OF SEQUENCE FACTOR FOR COUNTERBALANCING ORDER
OF PRESENTATION OF BRAND TRIPLES
STIMULUS-BASED
MEMORY-BASED
NO-AD
R
D
NO-AD
R
D
ORDER 1
SEQ 1,8, 9, 16
ORDER 2
SEQ 3,6,11,14
ORDER 3
SEQ 2,7,10,15
ORDER 4
SEQ 4,5,12,13

164
APPENDIX IIB-3
ORDER OF PRESENTATION OF PRODUCT AND PACKAGE INFORMATION
1
POSITION
2
3
4
ORDER 1
3
1
4
2
ORDER 2
1
2
3
4
ORDER 3
4
3
2
1
ORDER 4
2
4
1
3

165
APPENDIX IIB-4
ORDER OF PRESENTATION OF ADVERTISING INFORMATION
DURING SESSION 1
POSITION
1 2 3 4
ORDER 1
ORDER 2
ORDER 3
ORDER 4

166
APPENDIX IIC-1
INTRODUCTION TO SECOND SESSION
Welcome to the second part of the study on consumer
responses to new brands of chocolate candy bars being
considered for introduction into the Gainesville market.
In this session you will be shopping for candy bars on
the computer. As in the previous session, you will be
required to use the keyboard to type in your responses, when
prompted by messages on the screen. Please pay careful
attention to these messages. If you have any questions,
raise your hand and let the experimenter know that you need a
clarification.
Press to continue....

167
APPENDIX IIC-2
PRELIMINARY INSTRUCTIONS FOR SECOND SESSION
Earlier in this experiment you have been exposed to
information (brand name, weight and contents) on several
brands of chocolate candy bars which are currently available
in Canada, and which are now being considered for
introduction into the Gainesville market. Imagine you are
shopping for candy bars. You have $3.00 to spend on any of
the candy bars that you have seen information on. If you are
interested in getting price information on any of the brands,
you will have to type in the name of the candy bar. You will
be going on 16 of these shopping trips. Your purchases on
any ONE of these trips will be randomly selected to decide
which of the candy bars you will get.
Remember, prices will be varying across these shopping
trips, so that the best buy(s) on one particular trip need
not be the same for all occasions. Thus, if you are to get
your money's worth, you should be making reasoned choices.
Press to continue....

168
APPENDIX IIC-3
INTRODUCTION TO THE PRACTICE SHOPPING TRIPS
Before shopping for candy bars, you will go on four
practice shopping trips to familiarize yourself with the
shopping task on the computer. For the practice shopping
trips, the product category will be soaps. Remember, the
prices of the different brands will be varying from one
shopping occasion to the next.
The objective of the practice trips is to give you an
idea of shopping on the computer. You can spend the $3.00 on
one or more brands, in any combination you like.
Press to continue....

169
APPENDIX IIC-4
INSTRUCTIONS FOR THE PRACTICE SHOPPING TRIPS
Given below is a listing of all brands of soap that are
available. If you would like price information on a
particular brand, type in the brand name. You may do so for
any number of brands on which you want price information,
before making your choice. You may make a note of any
information that the computer makes available.
The following brands are available:
Ivory
Jergens
Coast
Shield
Irish spring
Dial
TYPE IN THE BRAND NAME AND PRESS ENTER

170
APPENDIX IIC-4 -- continued
PRACTICE SHOPPING TRIP #
You have $3.00 left to spend.
Do you want to buy any more
Which brand do you want to buy?
BRAND NAME AMOUNT PURCHASED
Ivory
Jergens
Coast
Shield
Irish Spring
Dial

171
APPENDIX IID-1
INSTRUCTIONS BEFORE EXPOSURE TO ADVERTISING
You will now be seeing ads for the candy bars before you
resume shopping. The experimenter will show the ads only
when all of you are done with your shopping. So if you have
finished before the others, please wait quietly for the other
participants to finish also. DO NOT PRESS NOW.
Only after you have watched the ads should you press
to continue....

172
APPENDIX IID-2
INSTRUCTIONS FOR SHOPPING TRIPS
STIMULUS-BASED CONDITION
After these practice shopping trips, now you will be
shopping for candy bars. These shopping trips will be
essentially similar to the practice trips. You are given a
list of candy bars that are available and you have to type in
the names of the candy bars on which you want to see price
information.
Remember, prices for these candy bars will be varying
across purchase occasions, so that the best buys(s) on any
particular trip need not be the same on another purchase
occasion. Thus, if you are to get the best value for money,
it is important that you make reasoned choices. Also, you
are required to spend as much of your budget of $3.00 as you
possible can.
Press to continue....

173
APPENDIX IID-2continued
Given below is a listing of all brands of candy that are
available. Please type in the name(s) of the candy bars that
you want price information on. You may make a note of any
information that the computer makes available.
The following brands are available:
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie
TYPE IN THE BRAND NAME AND PRESS ENTER

174
APPENDIX IID-3
INSTRUCTIONS FOR SHOPPING TRIPS
MEMORY-BASED CONDITION
After these practice shopping trips, now you will be
shopping for candy bars. These are similar to the practice
shopping trips except for one fact. In the practice trips
you were given a list to decide the brands for which you
wanted price information. But when you go on these trips,
you will not have such a list of brand names available to
you. You will have to retrieve from memory and type in the
brand names that you want price information on.
Remember, prices for these candy bars will be varying
across purchase occasions, so that the best buys(s) on any
particular trip need not be the same on another purchase
occasion. Thus, if you are to get the best value for money,
it is important that you make reasoned choices. Also, you
are required to spend as much of your budget of $3.00 as you
possible can.
Press to continue....

175
APPENDIX IID-3continued
In the previous session you were exposed to several
brand names (as well as weight and contents) of candy bars
which are currently available in Canada, and which are now
being considered for introduction into the Gainesville
market. Please type in the name of the brand (s) of candy
bars for which you want price information. You may make a
note of any information that the computer makes available.
TYPE IN THE BRAND NAME AND PRESS RETURN

176
APPENDIX HE
ERROR TERMS USED TO TEST HYPOTHESIZED EFFECTS
BRANDS ARE TREATED AS RANDOM
QUASI F RATIOS
MAIN EFFECT OF ADVERTISING:
p, = ^AD
MSADXBRAND + MSSUB/ENVXADXSEQ MSBRANDXSUB/ENVXADXSEQ
MAIN EFFECT OF DECISION ENVIRONMENT:
MSeNV
MSENVXBRAND + MSSUB/ENVXADXSEQ MSBRANDXSUB/ENVXADXSEQ
INTERACTION OF ENVIRONMENT AND ADVERTISING:
, mSenvxad
MSADXENVXBR + MSSUB/ENVXADXBR MSBRXSUB/ENVXADXSEQ

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180
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"Choices from sets Including Remembered Brands: Use of
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BIOGRAPHICAL SKETCH
Anusree was born January 10,1961, in Calcutta, India.
From 1965 to 1976 she attended Modern High School at Calcutta
and completed the Higher Secondary Examination in 1979. For
the next three years she pursued an undergraduate degree in
economics at the Presidency College at Calcutta. She
graduated in 1982 with honors in economics and a minor in
mathematics.
She then entered the Post-graduate Program in Management
at the Indian Institute of Management (I.I.M.) Calcutta in
July 1982. In April 1984, she received her master's degree
in Management from I.I.M., having specialized in marketing
and finance.
In 1984 Anusree joined Lintas India Limited, a member of
the SSC&B:LINTAS Worldwide Advertising Network. She worked
as account executive and worked on advertising campaigns for
Lever Brothers, Union Carbide, among other accounts.
She gave up the job in advertising in order to pursue
doctoral studies in the United States. In Fall 1985, she was
admitted to the Ph.D. program in marketing at the University
of Florida and has worked towards her degree since that time.
During her term in the doctoral program, Anusree
acquired teaching experience as an instructor for the
183

184
undergraduate marketing research course. She also assisted
with various undergraduate and graduate marketing classes.
Additionally, she has worked on several academic consumer
behavior research projects.
She accepted an offer for a position as Assistant
Professor of Marketing at the American University. In summer
1990 she assumed the full-time position.

I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
V- io
Johyy G. Lynch, Chairman yj
Associate Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
Associate Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree o//f)9^toryr)fy/^hilosophy.
j/ Wesley/Hutchinson
/Associaxe Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree ofi Doctor of Philosophy.
BartoriV A. Weitz
Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
{U^Uc^J
Richard E. Romano
Associate Professor of Economics

This dissertation was submitted to the Graduate Faculty
of the Department of Marketing in the College of Business
Administration and to the Graduate School and was accepted as
partial fulfillment of the requirements for the degree of
Doctor of Philosophy.
August 1990
Dean, Graduate School




129
between the two advertising conditions reflect the indirect
effects of the dispersion of utilities on the price
elasticity of demand. However, the recall-facilitating
effect of differentiating advertising was more powerful, so
that there was an overall increase in the size of the
consideration set even under differentiating advertising.
Thus, compared to the no advertising condition,
differentiating advertising led to greater price sensitivity.
In the stimulus-based condition, there were no
significant effects of advertising on the size of the
consideration set. The presence or absence of advertising or
the information provided by advertising did not have an
effect on the number of brands searched when the brand names
were readily available. On average, consumers searched for
information on about roughly one-third of the available
brands. As has been noted earlier, in this situation the
facilitating effects of advertising on recall are not as
important as in the memory-based case.
However, there were significant effects of advertising
on the dispersion of brand-utilities. Since the effects on
price elasticity are very similar to the pattern of results
obtained for the dispersion of preferences, it is possible to
conclude that in stimulus-based environments, the
differential preference for the various brands is a key
mediator of price elasticity.


180
Kirmani, A., & P. Wright (1989), "Money Talks: Perceived
Advertising Expense and Expected Product Quality," Journal of
Consumer Research, 16, 344-353.
Krishnamurthi, L., & S. P. Raj (1985), "The Effect of
Advertising on Consumer Price Sensitivity," Journal of
Marketing Research, 22, 119-129.
Lambin, J. J. (1976), Advertising, Competition and Market
Conduct in Oligopoly over Time, Amsterdam: North-Holland
Publishing Co.
Leffler, K. B. (1982), "Persuasion or Information? The
Economics of Prescription Drug Advertising, Journal of Law
and Economics, 24, 45-74.
Lutz, R. J. (1975), "Changing Brand Attitudes through
Modification of Cognitive Structure," Journal of Consumer
Research r 1, 49-59.
Lynch, J. G., & P. N. Bloom (1987), "Psychological
Perspectives on the Economics of Advertising," Paper
presented at the Annual Conference of the Association for
Consumer Research, Cambridge, MA.
Lynch, J. G., Chakravarti, D., & Mitra A. (1990),
"Distinguishing Contrast Effects Caused by Changes in Mental
Representation from those Caused by Changes in Response
Language,.Working Paper, Center for Consumer Research,
University of Florida, Gainesville.
Lynch, J. G., Marmorstein, H. M. & M. F. Weigold (1988),
"Choices from sets Including Remembered Brands: Use of
Recalled Attributes and Prior Overall Evaluations, Journal
of Consumer Research, 15, 225-233.
Lynch, J. G., & T. R. Srull (1982), "Memory and Attentional
Factors in Consumer Choice: Concepts and Research Methods,"
Journal of Consumer Research, 9, 18-37.
McAulife, R. E. (1987), Advertising, Competition and Public
Policy: Theories and New Evidence, Lexington MA: D. C. Heath
& Co .
Milgrom, P., & J. Roberts (1986), "Price and Advertising as
Signals of Quality," Journal of Political Economy, 94, 796-
821.
Moran, W. T. (1978), Information for Advertising Budgeting,"
(report), Greenwich, CT: Moran Inc.


173
APPENDIX IID-2continued
Given below is a listing of all brands of candy that are
available. Please type in the name(s) of the candy bars that
you want price information on. You may make a note of any
information that the computer makes available.
The following brands are available:
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie
TYPE IN THE BRAND NAME AND PRESS ENTER


16
1977; Prasad & Ring 1976) Eskin & Baron, for example,
report a negative interaction between advertising and price,
i.e., the simple effect of price on quantity sold increased
with an increase in advertising. They interpret this to mean
greater responsiveness (higher price elasticity) to price
when advertising is increased. However, the elasticity of
demand depends not only on the slope but also on the original
position on the curve. Thus it is not possible, simply by
observing a negative interaction between price and
advertising, to make general statements about changes in
price elasticity in response to advertising. It is easy to
imagine situations in which price elasticity might decrease,
even though the analysis of variance tests show a negative
interaction, as was observed in the Eskin & Baron study. A
related problem stems from the disguised nature of the data
employed by these researchers. To preserve confidentiality,
Eskin and Baron applied a positive linear transformation to
their sales data. Such linear transformations on the data
will not affect the price-advertising interaction, but the
elasticities will be affected. Due to these factors, it is
difficult to make valid generalizations about the effect of
advertising on price elasticity from an examination of price
advertising interactions.
Limitations Past research into the effect of
advertising on price sensitivity suffers from certain
limitations. The evidence appears to be mixed, but the lack


125
Memory for brands and the size of the consideration set.
The results from Experiment 1 and 2 show that in memory-based
decision environments, both reminder and differentiating
advertising enhance the ability to recall brand names.
Experiment 3 shows that this has a positive effect on the
size of the consideration set. The significant differences
in consideration set size in the advertising conditions as
compared to the control condition lend strong support to the
hypothesis that advertising makes brand names more accessible
in memory, and thus increases the size of the consideration
set. This memory-enhancing capability of advertising holds
for differentiating advertising as well.
Dispersion of brand-utilities and the size of the
consideration set. Besides affecting the memory of brand
names, advertising also increased the variance in interbrand
preferences. It has been noted earlier that differentiating
ads contained more utility connoting information than
reminder ads and thus resulted in more significant increases
in the dispersion of perceived utilities. This is reflected
in the size of the consideration set in the memory-based
condition.
Recall that the results of Experiment 2 showed that
there are no significant differences between reminder and
differentiating advertising on the ability to recall brand
names. They were equivalent in that they both increased the
ability to recall brand names from memory by increasing the


70
target brand names so that advertising might have a
significant effect on recall scores.
Subjects
Twenty-four subjects enrolled in an introductory
marketing course in the University of Florida participated in
the experiment. Participants were given two extra credits in
their class.
Procedure
All subjects participated in two experimental sessions.
In the first session they were exposed to product and package
information (via the computer) on the brands and were given
the modified recognition task to ensure that the brand names
were available in memory. This implied that if even after
two exposures to the brand information subjects did not
perform satisfactorily on the recognition task, they went on
to the next stage of the experiment.
After this, subjects in the differentiating advertising
condition saw twelve ads, while subjects in the reminder
advertising condition saw twelve reminder ads for the candy
bars. The modified instructions to the subjects at this
stage of the experiment are detailed in Appendix IC-1 .
Subjects in the no advertising condition did not see any ads
and therefore went on to the next task. The advertising
stimuli that were used for this experiment were the same as
those used in the first pretest.


149
APPENDIX IB-2
INSTRUCTIONS FOR ATTRIBUTE RECALL TASK
Earlier you saw information on several brands
Canadian candy bars. Your task is to recall as much of
information on what it contains. Write down what you
remember in as much detail as you can.
BRAND NAME CONTAINS
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
of
the
can
Sweet Marie


166
APPENDIX IIC-1
INTRODUCTION TO SECOND SESSION
Welcome to the second part of the study on consumer
responses to new brands of chocolate candy bars being
considered for introduction into the Gainesville market.
In this session you will be shopping for candy bars on
the computer. As in the previous session, you will be
required to use the keyboard to type in your responses, when
prompted by messages on the screen. Please pay careful
attention to these messages. If you have any questions,
raise your hand and let the experimenter know that you need a
clarification.
Press to continue....


31
the awareness of substitutes and the ability to remember
substitutes of which one is aware. First, it might change
the size of the consideration set by affecting the awareness
of substitutes and the ability to remember substitutes of
which one is aware. Second, it might alter preferences for
the advertised brand given inclusion in the consideration
set. Third, it might also reduce the size of the
consideration set through preferential mechanisms. The
greater the variance in utilities, the less the incentive to
consider brands other than one's most preferred ones, in the
hope that a price discount for a less-liked brand would cause
it to be preferred to the normally favored brands.
The next chapter details an experiment that is designed
to empirically test the concepts discussed in the framework.


4
been able to offer any conclusive evidence on this
controversial issue.
In this past research, advertising is conceptualized in
terms of the total expenditure on this element of the
marketing mix. None of these studies has explicitly taken
into account variations in advertising content. It is
suggested in this dissertation that the results could vary
with advertising content, because consumer responses to
different types of advertising messages are likely to differ.
It is the central thesis of this paper that assertions about
the potential effects of advertising on the consumer require
a more detailed analysis of the consumer's decision process.
A Behavioral Approach
This dissertation adopts a behavioral approach in an
attempt to arrive at an improved understanding of the impact
of advertising on consumer price sensitivity. It draws on
insights from behavioral literature and focuses on the
consumer's choice decision with the objective of identifying
the various possible mechanisms by which advertising might
affect price sensitivity. In the conceptual framework that
is adopted, it is suggested that the effect of advertising on
price elasticity could be better understood by examining how
advertising influences two mediating variables: the size of
the consideration set and the dispersion of brand-utilities.


134
more brands (Nelson 1970, 1974a, 1975; Hauser & Wernerfelt
1990) .
The stimulus-based choice situation was used as the
baseline to demonstrate that consideration sets are likely to
be situation-specific. Here, he same differentiating ads did
not lead to any significant reduction in the size of the
consideration set, even though they had significant effects
on the dispersion of brand-utilities. It is likely that in
the laboratory setting, subjects were more motivated than the
average consumer. In this situation in which perceived costs
were less than expected benefits, the consideration set size
was not significantly reduced. Therefore the effects of
advertising on price elasticity were mediated by the
dispersion of brand-utilities.
It can be argued that in real-world situations the
information processing costs of exhaustively considering and
evaluating all brands for choice are much higher than in the
laboratory setting. Therefore, even decisions which are in
principle, stimulus-based have a large memory component(Alba
et al. 1990). Consumers need to concentrate on a subset of
alternatives in order to gain efficiency in shopping. For
example, the consumer making purchases in the branded
packaged goods category does not have the time nor the
motivation to scan every item on the supermarket shelf before
making a decision (Park et al 1989) In such a situation,
the reminder function of advertising becomes crucial in


122
others. Results from the analyses of the four measures of
interbrand variance of revealed preference suggest that
differentiating advertising did have a significant influence
on the dispersion of brand-utilities in the stimulus-based
decision environment. This increased dispersion in brand-
utilities can be expected to have implications for price
elasticities observed under this condition.
It is interesting to note that although reminder
advertising was not expected to significantly affect the
perceived utilities offered by the various brands, the
results indicate that it did have a minor effect. It is
possible that the picture of the package and the brand names
were used as a basis for preference formation. Also, such
ads could have cued the recall of information about
attributes learned in the first session. Keller (1987) shows
that such recall cues have an effect on the spread of memory-
based evaluations. This suggests that even 'reminder'
advertising has the potential for affecting the distribution
of perceived interbrand utilities.
In conclusion, all advertising has a reminder function,
that is, to provide recall cues in order to ensure that the
brand is retrieved at the time of choice. Advertising also
aims at differentiating the brand from competitive offerings
so as to ensure that the brand is preferred to others that
the consumer might consider. With respect to the first
objective, both reminder and differentiating advertising had


153
APPENDIX IB-6
INSTRUCTIONS FOR SIMILARITY RATING TASK
Your task is to make similarity judgments between pairs
of candy bars. The referent candy bar is SMARTIES. Please
rate the similarity of this brand with other brands on a
scale of 1 (Highly Dissimilar) to 5 (Highly Similar).
SMARTIES
Highly
Dissimilar
Crispy Crunch 1
Caramilk 1
Gold 1
Breakaway 1
Mirage 1
Eat-more 1
Mr. Big 1
Crunchie 1
Coffee Crisp 1
Dairy Milk 1
Sweet Marie 1
2
2
2
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
4
4
Highly
Similar
5
5
5
5
5
5
5
5
5
5
5


150
APPENDIX IB-3
INSTRUCTIONS FOR PREFERENCE RATING TASK
Listed below are twelve different brands of candy bars.
Your task is to rate them on a scale of 1 (Extremely low in
preference) to 7 (Extremely high in preference).
BRAND NAME PREFERENCE RATING
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie


82
information on these twelve brands can be conceptualized as
the order of presentation of information on four triples.
The sixteen sequences corresponding to presentation order for
price profiles were divided into four groups (Orders) with
four sequences nested in each (detailed in IIB-2) The
position of these brand-tripies in the string of twelve was
varied across the four groups in a 4X4 Latin square design
(detailed in Appendix IIB-3). Therefore the position of each
particular triple was counterbalanced across subjects.
Recognition task. After being exposed to the brand
information, subjects performed a recognition task, the
purpose of which was to test whether the brand names were in
memory. The task involved correctly identifying the twelve
target brands from a larger list of twenty-four Canadian
candy bar names randomly intermixed with the target brands.
Subjects who failed to satisfy the criteria for the
recognition task were exposed to the product and package
information once more before they attempted to perform the
recognition task again. If after the second exposure to the
brand information they did not perform satisfactorily on the
recognition test, they went on to the next stage of the
experiment. The computer recorded the number of exposures
required for each subject to satisfy the criteria for the
recognition test. Subjects who finished earlier than the
others were asked to wait quietly.


69
felt that an overexposure to this information was probably
responsible for reducing the marginal effect of advertising
in making brand names accessible in memory. Therefore it was
necessary to limit the maximum number of times that subjects
were exposed to this information. Accordingly, the procedure
for this experiment was modified such that subjects could see
the information no more than two times.
In the first pretest, subjects in the advertising
conditions were exposed to ads for the candy bars only during
the second session. In order for advertising to have
significant effects on recall it was decided that subjects in
the advertising conditions would be exposed to the ads two
timesonce during the first session and once during the
second session.
It was evident from the first pretest that subjects had
fairly high brand name recall scores in general, which made
it difficult to detect significant improvements in recall due
to advertising. Besides the modification in the recognition
task to control for overexposure to brand information, a
change was made in the procedure for this experiment. It was
felt necessary to interfere with subjects memory for target
candy bar names, so that advertising might result in a
stronger effect on recall scores. Accordingly, at the end of
the first session, subjects were given a list of candy bar
names to memorize. It was hoped that names from the same
product category would interfere with their memory for the


42
superior to others, it is unlikely that consumers will
attempt to include clearly dominated alternatives in their
consideration sets. Research in consumer behavior has shown
that more preferred brands are likely to be more easily
retrieved, simply because preference leads to brand usage and
the rehearsal that this produces increases the brand's
accessibility in memory (Nedungadi & Hutchinson 1985). Thus
consumers are more likely to retrieve brands that they
perceive will provide the maximum utility (Hauser &
Wernerfelt 1990). Therefore, the size of the consideration
set is likely to be negatively related to the perceived
superiority of the brands retrieved initially. Hence, in
memory-based choice situations, differentiating advertising,
if it leads to changes in brand perceptions and preferences,
might lead to a reduction in the size of the consideration
set.
When choice is stimulus-based, the environment provides
the relevant information, and reminder advertising is not as
important a determinant of the size of the consideration set.
This is because the reminder function of advertising is not
expected to be crucial in helping the consumer decide on the
brands to consider before making a choice. However, it
should be recognized that many real world choice environments
in which stimulus information is available, consumers ignore
it and make decisions based on memory.


ACKNOWLEDGMENTS
It is truethere really is light at the end of the
tunnel! I'm not sure that I fully realize the implication of
the statement as yet. But what I do feel is appreciation for
all those who have helped make this dissertation a reality.
I wish to offer my deepest thanks and heartfelt
gratitude to the person without whom this dissertation would
have always remained a dream--my advisor and chairman,
Professor John Lynch. At times when everything else seemed
to be going wrong, when life posed problems that made
academic targets seem quite meaningless, his constant support
was all I had. He has been beside me on this project from
start to finish and has provided insightful comments and
careful critiques, all of which significantly influenced the
conceptual analysis and research methodology. Like a true
friend he has has been jubilant at my successes and has urged
me on when my spirits were flagging. John has taught me, by
his own example, that striving for excellence can exist side
by side with compassion and empathy for people.
I am grateful to Professors Joe Alba and Wes Hutchinson
for their encouragement and guidance. Their suggestions
provided direction for making refinements in the study
design. Thanks are also offered to Professor Bart Weitz for
helping position this work and to Professor Rich Romano for
sharing insights about the economics literature.
iii


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11
12
APPENDIX IIA-1
PRICE PROFILES FOR THE TWELVE BRANDS
ACROSS FIRST 8 SHOPPING TRIPS
SHOPPING TRIPS
12345678
L
L
L
L
L
L
L
L
L
L
L
L
L
L
L
L
H
L
H
H
H
H
H
L
L
L
L
H
L
H
H
H
L
L
H
H
L
L
L
H
H
H
L
L
H
H
L
H
L
H
H
L
L
L
H
L
H
L
H
H
L
H
H
L
H
L
L
H
L
H
L
H
L
H
H
H
L
H
L
H
H
L
L
L
L
H
H
H
H
H
H
L
L
H
H
L
158


86
requested information by typing in the brand name, the
computer responded with the price for that particular brand.
Subjects could search for information on as few or as many
brands as they liked. When they specified that they did not
require further information they were instructed to allocate
their budget of $3.00 among soaps of their choice. After
each purchase, the computer tallied the remainder of the
budget that was still available. After completing one
particular practice shopping trip, subjects went on to the
next trip. The instructions for the practice trips are
detailed in Appendix IIC-4.
Advertising Exposure #1. After the practice shopping
trips, subjects in the advertising conditions were exposed to
ads for the candy bars. Subjects in the no advertising
condition did not see any ads and therefore went on to the
next task.
A similar procedure was used for the advertising
exposure manipulation for the second session as in the first
session. The instructions before the exposure to advertising
is detailed in Appendix IID-1. The same 4X4 Latin Square
design (detailed in IIB-4) was used for this purpose, thus
resulting in subjects seeing the ads in the same sequence in
this session compared to the first session.
Shopping trios. After this, subjects went on 16 shopping
trips for candy bars. Subjects in the stimulus-based choice
condition were given a list of the twelve candy bars and they


141
APPENDIX IA-1 continued
This experiment is concerned with consumer responses to
several new brands of chocolate candy bars which are now
available in Canada and which are likely to be introduced
into the Gainesville market.
In the next few minutes you will be given some
information on these candy bars. Please pay attention to the
information. After this, you will be asked some questions on
them. If you do not answer the questions correctly, you will
be shown the information once more.
Press to continue


170
APPENDIX IIC-4 -- continued
PRACTICE SHOPPING TRIP #
You have $3.00 left to spend.
Do you want to buy any more
Which brand do you want to buy?
BRAND NAME AMOUNT PURCHASED
Ivory
Jergens
Coast
Shield
Irish Spring
Dial


35
The ability to recall a brand depends on the accessibility of
the brand in memory. It has been noted earlier that mere
awareness of the brand is not enough for it to be considered
at the time of choice. In order to be chosen, the brand must
be retrieved from long-term memory and included among the
subset of alternatives that comprise the consumer's
consideration set. Advertising for even well-known brands
keeps the brand salient in the consumers mind and increases
the probability that it would be retrieved at the time of
choice (Hauser and Wernerfelt 1990; Silk & Urban 1978;).
Consider a situation in which the marketers use
advertising for their brands, but the advertising is of a
reminder nature. That is, its major objective is to keep the
brand name accessible in memory, and thereby increase the
probability that the sponsored brand is included in the
consumer's consideration set. In fact, some authors note
that in many instances, the aim of advertising is to place
the brand in the consumer's evoked set (Wilkie & Farris 1976,
Wittink 1977) Though the evoked set they are referring to
is more akin to an 'awareness set', it is possibly true that
keeping the brand salient in the consumer's mind through
reminder advertising also enables it to be considered at the
time of choice. In other words, reminder advertising
provides retrieval cues at the time of choice, and thereby
increases the size of the consideration set.


77
the signalling properties of advertising and how advertising
affects preferences. But this might have led to demand
artifacts, especially in a rating/choice situation. Also
advertising for a few brands was likely to lead to inhibition
effects (Alba & Chattyopadhyay 1986) It was felt that the
power of detecting any of the hypothesized effects was also
likely to be greater if all the brands were advertised.
Decision Environment
Subjects went on shopping trips in which they made
choices among the candy bars. In order to gauge the effects
of consideration set size on price elasticity and the effects
of advertising on consideration set size, the decision
environment was manipulated at two levels. Subjects in the
stimulus-based choice condition were provided with a list of
all twelve brands and could therefore use this list to decide
which brands to examine for price information and purchase.
This was intended to reflect real-world situations in which
the aisle display or a salesperson reminds the consumer of
the set of brands that might actually be purchased.
Subjects in the memory-based choice condition did not
have such a list available to them. These subjects could
only search for price information on brands that they were
able to recall on their own. Therefore they could only
purchase brands that they could retrieve from memory. This
manipulation was intended to reflect real-world decision
situations in which the consideration set is typically


126
accessibility of these names. If consideration set size is a
function of ability alone and is unaffected by the motivation
to recall brand names from memory, then there should be no
differences between the two advertising conditions in the
size of the consideration set. However, results from
Experiment 3 showed that consideration sets were
significantly smaller in size under the differentiating
advertising condition compared to the reminder advertising
condition. This suggests that the information contained in
the two types of advertising differentially affected the
motivation to retrieve brand names in a prepurchase situation
under which the objective was to search for prices. In
short, different cues or criteria are used for consideration.
When brand names have to be generated form memory, the
most preferred brands are likely to be recalled first
(Nedungadi and Hutchinson 1985). Under such a scenario the
expected marginal benefit of adding brands for consideration
are expected to be low, because is is unlikely that a price
discount on a less favored brand will be able to compensate
for the perceived superiority of the top brands. Results
showed that differentiating advertising resulted in higher
perceived variance of interbrand preferences compared to
reminder advertising. Consistent with this finding, when
brand names had to be generated from memory, consideration
set sizes were significantly smaller when advertising was of
the differentiating variety.


146
APPENDIX IA-3
INSTRUCTIONS FOR RECOGNITION TASK
You will
now be
seeing
the names of
several
brands of
candy bars.
Half of
these
are brands that you
have
just
received information
on.
Additionally,
half of
the
list
consists of brand names that you did not encounter before.
Your task is to identify which are the brand names for which
you have just seen some information. If you recognize a
particular brand as one on which you have just seen some
information, type "Y", if not, type "N" and press .
Press to continue....


56
(real or image-based) differentiation among brands was
postulated to have an effect on the relative overall
preferences. Specifically, differentiating advertising is
likely to make perceived utilities of the brands more
variable, resulting in some being perceived to be clearly
preferred to others. For example, it is likely that
advertising will increase the utility difference between the
most preferred brand and the next preferred brand. Reminder
advertising was not expected to have significant effects on
interbrand differences in preference. On the basis of the
above discussion, the following predictions were made:
P3a. Differentiating advertising will lead to a significant
increase in mean preference ratings and the dispersion
in preference ratings compared to the no-advertising
condition.
P3b. Reminder advertising will not lead to a significant
increase in mean preference ratings and the dispersion
in preference ratings compared to the no-advertising
condition.
Effects of advertising on price perceptions. Consumers'
perceptions of prices of brand alternatives are a function of
the information available. Thus, in the absence of
advertising, consumers are less likely to perceive
significant differences across comparable brands. In
contrast, when differentiating advertising conveys
information on the attributes of the various brands, it is


57
likely that some will be perceived as being clearly superior
to others. This is expected to affect price expectations for
the various brands and also the variance in expected prices.
Therefore the following prediction was made:
P4. Differentiating advertising will result in higher mean
expected prices and higher dispersion in expected prices
compared to the no advertising condition.
Subjects' expectations of prices were likely to be
different across various brands. The pretest was also
designed to help calibrate the price levels and price
variations to be used in Experiment 3 which would directly
test for the effects of advertising on price elasticity. It
was desired to set normal price levels for each brand that
would make all brands roughly equal in attractiveness, so
that the preference orderings would be maximally sensitive to
price discounts. This was especially crucial for a product
category such as candy bars where consumers are not expected
to be very price sensitive a priori.
Effects of advertising on interbrand variances in
perceptions. Marketers often attempt to differentiate brands
on certain advertised dimensions in order to alter the
consumers' preference-ordering for the various alternatives
available. The increased salience of certain advertised
attributes might result in consumers using criteria provided
in the ad for the purpose of evaluation. If differentiating
advertising 'frames out' a relevant subset of brands based on


27
which the ordering of preferences is not sensitive to changes
in price. The greater the dispersion in the consumers' mind
among the utilities of the alternative brands, the less price
elastic should be their demand for any individual brand.
Advertising might lead to some brands being perceived to be
clearly superior relative to others. In other words,
advertising, by increasing the perceived utility for the
advertised brand relative to that of competing brands, might
lead to a lower price elasticity for the sponsored brand.
A second way in which advertising might potentially
reduce price sensitivity is by increasing the salience of
non-price attributes and thereby decreasing the importance of
price. Thus, advertising can cause consumers to 'frame'
their choices in terms of the evaluative criteria suggested
by advertisers (Alba & Hutchinson 1990; Bettman & Sujan 1987;
Hoch & Deighton 1989). It has been reported that increasing
the salience of product attributes suppresses the ability to
recall unmentioned attributes (Alba & Chattyopadhyay 1985).
Also, by increasing the salience of a particular attribute,
advertising might ensure that this attribute is used in
subsequent evaluations, and thereby increase the effective
weight given to that attribute (Feldman & Lynch 1988) Taken
together, this suggests that advertising, by increasing the
salience of non-price attributes, could lead to decreased
price sensitivity.


83
Advertising exposure manipulation. Subjects were now
exposed to ads for the candy bars. Subjects in the
differentiating advertising condition saw twelve
differentiating ads, while subjects in the reminder
advertising condition saw twelve reminder ads for the candy
bars. Subjects in the no advertising condition did not see
any ads and therefore went on to the next task.
The sequence in which these ads were presented to
subjects was counterbalanced. The ads for the four brand-
triples (described in Appendix IIB-1) were divided into four
triples of three ads each. The position of ads corresponding
to these brand-triples was varied across the four Orders in a
4X4 Latin square design. This is detailed in Appendix IIB-4.
The stimuli used in this study were those that were used
in the pretests. The stimuli for the differentiating
advertising condition were 30-second television commercials
for the twelve brands of candy bars. The stimuli used for
the reminder advertising condition were slides taken from the
television commercials, and showed the package and the brand
name. A remote control slide projector was used to show the
reminder ads to the subjects. The duration of exposure to
the reminder ads for each brand was 15 seconds.
Interference task. After this, subjects were given three
minutes to memorize a list of twenty-four candy bar names
which included twelve American and twelve European brands
available in the Gainesville market.
This was the same list


181
Narayana C. L., & R. J. Markin (1975), "Consumer Behavior and
Product Performance: An Alternative Conceptualization,"
Journal of Marketing, 39, 1-6.
Nedungadi, P. (1987), "Formation and Use of a Consideration
Set," Ph.D. dissertation, University of Florida.
Nedungadi, P., & J. W. Hutchinson (1985), "The
Prototypicality of Brands: Relationships with Brand
Awareness, Preference and Usage," in Advances in Consumer
Research, 12, eds. E. C. Hirschman & M. B. Holbrook, Provo,
UT: Association for Consumer Research, 498-503.
Nelson, P. H. (1970), "Information and Consumer Behavior,"
Journal of Political Economy, 78, 311-329.
Nelson, P. H. (1974a), "Advertising as Information," Journal
of Political Economy, 81, 729-745.
Nelson, P. H. (1974b), "The Economic Value of Advertising,"
in Advertising and Society, ed. Y. Brozen, New York: New York
University Press, 43-65
Nelson, P. H. (1975), "The Economic Consequences of
Advertising," Journal of Business, 48, 213-241.
Nelson, P. H. (1978), "Advertising as Information Once More,"
in Issues in Advertising: The Economics of Persuasion, ed. D.
G. Tuerck, New York: New York University Press, 133-161.
Nerlove, M., & K. J. Arrow (1962), "Optimal Advertising
Policy under Dynamic Conditions," Economica, 29, 129-142.
Norris, V. P. (1984), "The Economic Effects of Advertising: A
Review of the Literature," Current Issues and Research in
Advertising, 39-134.
Ornstein, S. I. (1977), Industrial Competition and
Advertising Intensity. Washington DC: American Enterprise
Institute.
Park. C. W. Iyer, E. S., & D. C. Smith (1989), "The Effects
of Situational Factors on In-Store Grocery Shopping Behavior:
The Role of Store Environment and Time Available for
Shopping," Journal of Consumer Research, 15, 422-433.
Parkinson T. L., & M. Reilly (1979), "An Information
Processing Approach to Evoked Set Formation," in Advances in


39
on all the alternatives readily available at the time of
choice. In such a case, the environment is providing all the
information relevant to making the decision. This is what we
term 'stimulus-based' choice environment. In such a
situation, the consideration set is likely to be determined
by external cues provided by the environment, e.g., price
rebates or end-aisle display.
Even in the case of stimulus-based choices, as in our
supermarket example earlier, it may be argued that the
consumers do not spend their time exhaustively considering
all* possible alternatives. Even in such situations which are
in principle, purely stimulus-based, it is contended that
memory factors play a crucial role (Alba et al. 1990) .
Research in consumer behavior (Hoyer 1984; Park et al 1989)
suggests that consumers do not engage in elaborate processing
of package information at the time of choice. Thus it is
likely that consumers retrieve relevant information from
memory in order to concentrate on a subset of alternatives
and thus gain efficiency in shopping.
In short, for certain decisions, consumers might have to
retrieve information from memory in order to evaluate and
choose from a candidate set of brands. In other situations,
they could rely on external cues to some extent. The more
the consumer relies on external cues to guide choice, the
more the decision is said to be stimulus-based. But, as


94
consideration set will be larger under reminder advertising
conditions compared to the control condition.
It was expected that under memory-based conditions, the
size of the consideration set will be larger in the no
advertising condition than in the differentiating advertising
condition. Contrary to this prediction, the number of brands
considered were significantly smaller in the control
condition (M = 2.26) than in the differentiating advertising
condition (M = 3.67), £(1,95) = 6.9, jg < .01. This result
(presented in Table VI-6) lends further support to the
assumption that the size of the consideration set is a
positive function of the ability and motivation to retrieve a
number of brands from memory. In the absence of advertising,
the consumer has to rely on memory to recall brands for
consideration. In comparison, advertising increases the
ability to recall brands and therefore increases the size of
the consideration set.
The results of Experiment 2 provided evidence that
advertising increases the ability to recall brand names and
that both reminder and differentiating advertising are
equivalent in this respect. If consideration set size is a
function of ability alone and is unaffected by the motivation
to recall brand names from memory, then we would expect no
differences in the effects of the two types of advertising on
the size of the consideration set. However, results
(presented in Table VI-7) showed that the average size of the


5
Advertising-induced changes in the size of the
consideration set. The consumer's 'consideration' set
consists of those brands that the consumer actively considers
at the time of choice. It is proposed that advertising might
have a role in placing a brand in the consumer's
consideration set and/or keeping other brands out of the set.
In other words, advertising might influence consumer choice
by ensuring that the sponsored brand is considered at the
time of decision making and by simultaneously determining the
other alternatives that will be considered along with the
advertised brand.
Advertising-induced changes on interbrand dispersion in
utilities. Another way in which advertising for a particular
brand might affect choice is by changing the dispersion of
utilities for the various alternatives. Thus if advertising
results in some brands being perceived to be clearly superior
to competitive offerings, these brands are likely to be
relatively insulated from price competition. These factors
are likely to have implications for price sensitivity.
Objective
This dissertation attempts to demonstrate that prior
conceptualizations that have addressed only one possible
relationship between advertising and price sensitivity are
too simplistic. In other words, there are different causal
mechanisms by which advertising influences consumer price


115
The findings show that price elasticity was greater
under reminder advertising (M = -1.59) compared to the
control condition (M = -0.53), F(l,95) = 25.07, p. < .001.
Thus result supports H3b which predicted that reminder
advertising will increase price elasticity. This parallels
the the effects of reminder advertising on the size of the
consideration set.
Results presented in Table VI-25 show that price
elasticity was significantly greater in the reminder
advertising condition (M_ = 1.59) compared to the
differentiating advertising condition (M = 0.94), F(l,95) =
1.03, p < .01.
ANOVA effects treating brands as random. Thus far the
analysis has treated brands as a fixed factor. In such
cases, statistical generalizations are limited to the
treatment effects observed with the specific treatment
conditions used in the experiment. In order for statistical
conclusions to extend to brands in general, the twelve level
brands factor has to be treated as random. This implies that
the structural model appropriate for this design is different
from the one that was used for the case where brands were
treated as fixed.
When the brands factor is treated as random, the usual
error terms cannot be used to estimate the between-subjects
effects of interest to the study (Keppel 1982) Therefore
the denominator in the F-ratio is a combination of terms


78
generated from memory. Once they could recall a brand name
correctly, subjects had access to the same information that
was available to subjects in the stimulus-based decision
environment, because attribute information was memory-based
for both groups.
Thus the only difference between these two groups was
whether they had to recall the brand names or had to access
them from memory. In the absence of any advertising for the
brands, the differences between groups in the two decision
environments could be attributed purely to memory factors.
This provides better insights on the cuing properties of
advertising and how advertising influences the size of the
consideration set.
Dependent Variables
For each subject, the following dependent measures were
collected:
1. measures of average consideration set size;
2. measures of dispersionthe proportion of budget
allocated to the top brand, the number of brands ever
considered, the standard deviation of the proportion of
budget allocated to the various brands, the standard
deviation of the frequency of choosing the various
brands;
3. price elasticity of each brand.


167
APPENDIX IIC-2
PRELIMINARY INSTRUCTIONS FOR SECOND SESSION
Earlier in this experiment you have been exposed to
information (brand name, weight and contents) on several
brands of chocolate candy bars which are currently available
in Canada, and which are now being considered for
introduction into the Gainesville market. Imagine you are
shopping for candy bars. You have $3.00 to spend on any of
the candy bars that you have seen information on. If you are
interested in getting price information on any of the brands,
you will have to type in the name of the candy bar. You will
be going on 16 of these shopping trips. Your purchases on
any ONE of these trips will be randomly selected to decide
which of the candy bars you will get.
Remember, prices will be varying across these shopping
trips, so that the best buy(s) on one particular trip need
not be the same for all occasions. Thus, if you are to get
your money's worth, you should be making reasoned choices.
Press to continue....


97
Standard deviation of choice frequencies. For each
subject, the number of times each brand was bought was
computed across shopping trips. The standard deviation of
the twelve brands' choice frequencies was taken as a measure
of dispersion of brand-utilities. It was expected that in
the absence of any perceived utility differences across
brands, each brand has approximately equal probability of
being chosen. Thus the variance in the choice frequencies
for the various brands were expected to be small in the no
advertising condition. Compared to this, the variance in
choice frequency was expected to be greater in the
differentiating advertising condition, in as much as the
information from such advertising was likely to make some
brands preferable to others. Reminder advertising was not
expected to significantly affect the variance in choice
frequencies.
Standard deviation of share of the budget. This is
similar to the above measure but looks at the dispersion in
the percentage of actual dollar expenditures. For each
subject, the share of each brand in the total budget across
the shopping trips was computed. The standard deviation of
the percentage shares of the 12 brands was taken as a measure
of dispersion of brand-utilities. It was expected that if
there are no significant differences in perceived utility
across brands, then each brand has a constant probability of
being chosen. Since all the brands were in the same price


50
brands to use during shopping trips. They could therefore
use this list to decide which brands to examine for price
information and purchase. This was intended to reflect real-
world situations in which the aisle display or a salesperson
reminds the consumer of the set of brands that might actually
be purchased.
Subjects in the memory-based choice condition did not
have such a list available to them. These subjects could
only search for price information on brands that they were
able to recall on their own. Therefore they could only
purchase brands that they could retrieve from memory. This
manipulation was intended to reflect real-world decision
situations in which the consideration set is typically
generated from memory.
Chapter IV describes the pretests (Experiments 1 and 2)
that tested some assumptions arising from the above
discussion. Chapter V details the methodology employed in
Experiment 3 to test the hypotheses on the impact of
advertising on price sensitivity. Chapter VI presents a
discussion of the results of Experiment 3. Chapter VII
develops the implications of these findings for research in
consumer behavior.


121
larger effects than differentiating advertising on the number
of alternatives considered at the time of choice. It was
suggested that the effect of advertising on the size of the
consideration set is moderated by whether the decision
environment is stimulus-based or memory-based. That is, the
more the consumer relies upon memory to generate a set of
candidate brands, the more important will be the tendency for
advertising to increase the size of the consideration set by
facilitating recall. This will lead to an increase in price
elasticity. Insofar as the consumer can and does rely on
external information in the decision environment to generate
a consideration set, the facilitating effects of advertising
will be mitigated. In such a case, advertising's primary
effect will be to make demand more inelastic by producing
larger perceived differences in utility among the various
brands. Thus the primary contribution of the dissertation is
to document the effects of advertising on these two mediating
constructs that were hypothesized to have direct implications
for the nature of the relationship between advertising and
price elasticity.
Effects of Advertising on Distribution of Brand-Utilities
The study examined the effect of advertising on the
variance of interbrand utilities. It was expected that
advertising that resulted in real or 'image'-based
differentiation would increase the dispersion in utilities,
leading to some brands being perceived to be superior to


118
differentiating advertising condition, F(l,55) = 10.06, p <
.001.
In the absence of advertising, there was greater price
sensitivity in the stimulus-based decision environment than
in the memory-based environment, F(l,45) = 55.16, p < .001.
To conclude, when brands are treated as a random factor
there is no major change observed in the pattern of results.
The major hypotheses of the experiment were supported and
therefore it was possible to demonstrate that advertising
does affect price sensitivity. The nature of the effect of
advertising depends on nature of the advertising and also the
information that is available at the time of choice. It is
possible to assert that interactions of the major results
with brands are sufficiently small that the results obtained
need not be limited to the brands used for the study, but are
likely to hold in a more general case.
Chapter VII presents a general discussion of the results
obtained in Experiment 3. Implications of the results for
research on the economic effects of advertising are also
discussed.


THE IMPACT OF ADVERTISING ON CONSUMER PRICE SENSITIVITY
A BEHAVIORAL ANALYSIS
By
ANUSREE MITRA
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA ON PARTIAL FULFILLMENT
OF THE THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1990


169
APPENDIX IIC-4
INSTRUCTIONS FOR THE PRACTICE SHOPPING TRIPS
Given below is a listing of all brands of soap that are
available. If you would like price information on a
particular brand, type in the brand name. You may do so for
any number of brands on which you want price information,
before making your choice. You may make a note of any
information that the computer makes available.
The following brands are available:
Ivory
Jergens
Coast
Shield
Irish spring
Dial
TYPE IN THE BRAND NAME AND PRESS ENTER


151
APPENDIX IB-4
INSTRUCTIONS FOR MOST LIKELY PRICE ESTIMATE
"SKOR" is a brand of candy currently available in the
Gainesville market. It is priced at 55 cents. If the new
brands were also available, please try to estimate the most
likely price at which you might expect to see them in most
stores. Your task is to estimate the most likely price for
each brand listed below.
BRAND NAME MOST LIKELY PRICE
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie __
Coffee Crisp
Dairy Milk
Sweet Marie


34
effect on the size of the consideration set. For example,
the inclusion of highly preferred brands in the consideration
set is likely to reduce the motivation to consider additional
brands for evaluation and choice. This will reduce the size
of the consideration set and also affect its composition.
Hence the consideration set is likely to vary over time,
depending on whether factors that are present when the choice
is made result in an increase or decrease in the ability and
motivation to retrieve brands for consideration.
Presence or Absence of Advertising
Advertising for the brand is an important factor that
can influence brand choice by affecting the ability and the
motivation to place the sponsored brand in the consideration
set. In today's competitive environment, the consumer is
faced with an assortment of brands and has to focus on a
subset of brands in order to gain efficiency in shopping.
Under such a scenario, marketer-controlled advertising can
serve important purposes that help consumers make the choice
decision from among the numerous alternatives that they
encounter.
This study will consider the effects of the institution
of advertising on price elasticity. In other words, this
research will compare the case when none of the brands
advertise to that when all brands engage in advertising.
Reminder advertising. First, advertising can result in
keeping the sponsored brand salient in the consumer's mind.


29
consideration set. Ad-induced changes in utility may cause
some alternatives to become dominated and, therefore, removed
from the consideration set. In other words, advertising, by
changing brand preferences, might determine the number and
type of brands that the consumer considers at the time of
choice. Advertisers often attempt to differentiate the
product on certain advertised dimensions. The increased
salience of this differentiating attribute might lead to a
greater attention being given to that attribute at the time
of choice (Gardner 1983) The prominence given to the
attribute might have an effect on the choice heuristic
employed by consumers. If noncompensatory choice processes
are modelled as though it were compensatory, this would
affect the revealed importance of the attribute (Johnson &
Meyer 1984) .
The market power view of advertising asserts that
advertising differentiates products and creates a situation
in which the advertised brand is perceived to have few close
substitutes This might be taken to imply that when the
advertised brand is included in a consumer's consideration
set, few other brands are simultaneously included. This is
because the perceived benefit from including additional
brands in the consideration set will be less when some
clearly preferred brand is already included (Hauser &
Wernerfelt 1990). Since price sensitivity is a function of
the perceived substitutability among brands, differentiating


46
to the extent that it will have minimal effects on the
dispersion of brand-utilities.
6b. Advertising that seeks to differentiate the brands
serves to change brand-utilities and the inter-brand
variance of utilities, and thereby reduce the size of
the consideration set.
7. When the consumer must remember the names of all
relevant brands (memory-based environment), there will
be a large simple effect of advertising on the size of
the consideration set.
Specifically,
7a. Consideration set sizes will be larger when advertising
is of a reminder nature than if no brands advertise.
7b. Consideration set sizes will be smaller when all brands
use differentiating advertising than if no brands
advertise.
8. Average size of the consideration set will be larger
when choice is stimulus-based than when choice is
memory-based.
Hypotheses
HI. When choice is stimulus-based, price sensitivity will be
greater than when choice is memory based.
H2. When choice is stimulus-based, the only effect of
advertising on price sensitivity is through a change in
perceived utilities of the various brands.


104
TABLE VI-12
AVERAGE NUMBER OF BRANDS EVER CHOSEN
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
30.25000000
1
6.68
0.0145
SEQ
59.43750000
15
0.87
0.5962
AD*SEQ
50.75000000
15
0.75
0.7213
SS/AD,SEQ
145.00000000
32
ever chosen, because it will lead to some brands being
perceived to be clearly superior to others.
Taken together, the pattern of results discussed in this
section indicate that differentiating advertising did
significantly affect brand-utilities in the stimulus-based
decision environment. The increased dispersion in brand-
utilities can be expected to have implications for price
elasticities observed under this condition.
Effects of reminder advertising. A multivariate
contrast between the reminder advertising condition and the
no advertising condition in a MANOVA analysis of the four
preference measures showed no significant differences F(4,29)
< 1.
Univariate tests reveal that the effects of reminder
advertising on the measures of interbrand variance in
preferences approached significance in some cases. Reminder
advertising increased the standard deviation of choice


12
advertising provides consumers with valuable information
about products and consequently reduces consumer search
costs.
Evidence of the price-reducing effects of advertising
has been drawn from the prescription drug and retail eyeglass
industries. Retail prescription drug prices were found to be
higher in states that restricted prescription drug price
advertising than they were in states that did not (Cady
1976) Price and non-price advertising restrictions were
found to increase retail eyeglass prices by 20 to 100 percent
(Benham 1972). Moreover, this excess consumer cost did not
appear to have brought about any offsetting public health or
safety benefits.
From the above discussion, it is clear that there are
two general viewpoints among economists about the role of
advertising. According to one, advertising is a means of
persuasion and according to the other, advertising is a means
of transmitting information. These philosophic differences
between the economists have influenced their
conceptualization of the relationship between advertising and
price elasticity, which is discussed in the next section.
The Impact of Advertising on Price Elasticity
Theoretical Foundations
The concept of elasticity of demand occupies a very
important position in economics because it is a measure of


13
market power. The price elasticity of demand refers to the
relative change in quantity demanded in response to a
relative change in price. Specifically it is defined as the
percentage change in the quantity of a product demanded in
response to a percentage change in price. The relationship
between advertising and price elasticity is therefore of
central concern to economists concerned with advertising's
effect on industry competition.
In the market power model, advertising is postulated to
lead to artificial product differentiation and to lower the
perceived substitutability among competing alternatives. The
arguments presented in these theories (Bain 1956; Comanor &
Wilson 1979) suggest that advertising reduces the price
elasticity of demand for firms, allowing them to charge
prices above marginal costs and earn higher profits. On the
other hand, the information view assumes that consumers do
not have perfect information about product qualities, prices
and other relevant product characteristics. In this model,
price elasticity is taken to be a function of consumer
awareness and qualitative knowledge about close brand
substitutes rather than their mere existence. Advertising
increases the number of known substitutes and also provides
information about them. In this way, it increases price
sensitivity and reduces monopoly power (Nelson 1970,1974a,
1974b,1975,1978).


174
APPENDIX IID-3
INSTRUCTIONS FOR SHOPPING TRIPS
MEMORY-BASED CONDITION
After these practice shopping trips, now you will be
shopping for candy bars. These are similar to the practice
shopping trips except for one fact. In the practice trips
you were given a list to decide the brands for which you
wanted price information. But when you go on these trips,
you will not have such a list of brand names available to
you. You will have to retrieve from memory and type in the
brand names that you want price information on.
Remember, prices for these candy bars will be varying
across purchase occasions, so that the best buys(s) on any
particular trip need not be the same on another purchase
occasion. Thus, if you are to get the best value for money,
it is important that you make reasoned choices. Also, you
are required to spend as much of your budget of $3.00 as you
possible can.
Press to continue....


6
sensitivity. The objective of this paper is to provide
insights on the mechanisms by which advertising might affect
consumer behavior and to identify conditions under which
these are likely to hold. Using price elasticity as the
dependent measure, several propositions that follow from
behavioral assumptions about consumer responses to
advertising are tested in a laboratory setting.
Chapter II begins with a survey of the literature on the
economic effects of advertising. Relevant theoretical and
empirical research on the effect of advertising on price
elasticity is reviewed. The limitations of previous research
in making any theoretical statements about the effects of
advertising on consumer behavior are discussed. A conceptual
framework is proposed that attempts to better understand and
predict the effects of advertising on consumer price
sensitivity.
In Chapter III the specific focus of the dissertation is
articulated. An experiment designed to test several research
hypotheses on advertising's economic effects is presented.
Chapter IV presents some propositions, methods and results of
two experiments that were designed to serve as pretests for
the Experiment 3, which examined the effects of advertising
on price elasticity. Chapter V presents the research
methodology employed to test the hypotheses. Chapter VI
presents the results of the third experiment, which provide
strong support for the primary hypotheses.


In loving memory of my mothermy strongest supporter,
best friend and constant source of wisdom and strength, who
always inspired me to scale greater heights.


80
particular point in time, a given brand was at its high price
for half the subjects and at its low price for the other
half. The price manipulation was used to compute independent
measures of self price elasticities at the brand level.
The high prices were calibrated from the average highest
likely price estimates (which are detailed in Appendix IIA-2)
that were obtained from the control group of subjects in
Experiment 1. In order to detect effects on price
sensitivity it was necessary that the price differential was
sufficient to cause a change in purchase patterns. The mean
lowest likely price estimates obtained from the control group
in Experiment 1 were used to calibrate the low prices for the
brands. The figures were rounded off to the nearest 5 cents
to arrive at the high prices for the various brands. The low
price used in the experiment was 25 cents lower than the high
price, which worked out to an average 34% discount. The
actual high and low prices that were used for the twelve
brands are detailed in Appendix IIA-3.
Procedure
To test the hypotheses, a computer-based shopping
simulation was developed and employed. The study was
conducted at the behavioral laboratory provided by the
Center for Consumer Research at the University of Florida.
The experiment was conducted on four IBM PC-XT computers with
enhanced graphics (EGA) monitors. All subjects participated


5 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: RESEARCH
METHODOLOGY 73
Chapter Overview 73
Subjects 74
Stimuli 75
Experimental Factors 7 6
Dependent Variables 7 8
Stimulus Design 7 9
Procedure 80
6 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: RESULTS 89
Overview 8 9
Results 89
7 GENERAL DISCUSSION AND IMPLICATIONS 119
APPENDIX 139
Introduction and Preliminary Instructions... 140
Price Profiles for the Twelve Brands
Across First Eight Shopping Trips 158
REFERENCES 177
BIOGRAPHICAL SKETCH 183
vii


133
differentiating advertising might lead to an increase in
price elasticity.
This research suggests that the mechanism by which
advertising effects on price sensitivity when all brand names
are externally available might be quite different from that
when the names are retrieved from memory. Results showed
that advertising influences the ability to retrieve brands in
the memory-based situation, with much smaller effect on the
stimulus-based situation. It also differentially affects the
motivation to consider more brands. Because the cost of
thinking associated with adding another brand to the
consideration set may be less in stimulus-based decisions, it
requires more advertising-induced dispersion of brand-
utilities to discourage consumers from at least considering
brands.
Moreover, in the memory-based environments, more
preferred brands are likely to be recalled first. Thus if
advertising increases the dispersion of interbrand
preferences, it will reduce the size of the consideration
set. To the extent that in stimulus-based environments,
order of search is guided by the organization of the display
(Bettman & Kakkar 1977; Biehal & Chakravarti 1982; Alba et
al. 1990) such that the most preferred brands are not
considered first, increases in interbrand variance resulting
from advertising should increase the motivation to consider


85
price information on the brands that they liked. It was
hoped that these practice trips would demonstrate to them
that prices were indeed varying from trip to trip. The
introduction to the practice trips are detailed in Appendix
IIC-3.
The product category of soaps was used for the practice
trips. It was desirable that the product category used for
the practice trips was one in which there are not many
perceived differences between brands so that price would be
an important factor in decision making. Since candy bars
were to be used for the main study, and consumers are
believed not to be very price sensitive in that category, it
was important to devise ways that would increase the weight
given to price, and thus increase the power of the experiment
to detect effects. In choosing a product category it was also
necessary to ensure that it was not one that would make the
price differences for candy bars seem insignificant.
Therefore six familiar brands of soaps were used for the
practice trips.
The prices of soaps were varied independently of each
other. Four brand-price profiles were constructed with each
brand being at its high price for two profiles and at its low
price for two profiles.
Subjects went on four practice trips. On each trip, the
computer made available the list of six brand names for which
they could search for price information. When subjects


21
Advertising-induced Changes in the Size of the Consideration
Set
The consideration set consists of the group of brands
that the buyer actively considers when making a choice
(Campbell 1969). These brands become the alternatives in the
buyer's choice decision. It has been suggested (Alba and
Chattyopadhay 1985; Hauser & Wernerfelt 1990; Nedungadi 1987)
that the consumers faced with an assortment of brands attempt
to concentrate on a subset of alternatives in order to gain
efficiency in shopping. Therefore, marketers need to
organize their efforts in such a way that their particular
brand is included in the consumer's consideration set. The
consideration set is a dynamic entity varying over different
types of choice situations (Nedungadi 1987) Thus, the
marketer's task involves more than simply ensuring consumer
awareness of the brand's existence; the brand has to be
retrieved and considered at the time of choice. Advertising
could ensure that the advertised brand is included and also
prevent simultaneous inclusion of other brands. Thus
advertising could have a positive or negative effect on the
size of the consumer's consideration set.
In the real world, there are many instances of an
advertiser attempting to place the sponsored brand in the
consumer's consideration set. For example, reminder
advertising often attempts to provide retrieval cues at the
time of choice (Keller 1987). Such efforts might ensure that
the advertised brand is included in the consumer's


68
Experiment 2
In the first pretest, the analysis of variance on the
number of brands recalled across advertising conditions was
. a 2
marginally significant (p. < .10, CD = .11) As predicted,
there was a significantly positive effect on recall scores
when subjects were exposed to advertising (M = 7.31) and
compared to the no advertising condition (M = 4.87) .
However, it was desired to have a stronger memory
manipulation which would result in sufficient power to detect
significant effects on price sensitivity. Moreover, it was
desired to reduce the average size of the consideration set
in the no advertising condition because a proportionate
change in consideration set size should have a larger effect
on price elasticity if set sizes are small rather than large.
In other words, it was important to ensure that the
differences in recall between the advertising and control
conditions were even greater. Therefore this pretest was
designed to incorporate modifications in the experimental
procedure in order for advertising to have a stronger effect
on the size of the consideration set. In order to achieve
this objective, three specific changes were made in the
procedure to be used for Experiment 3. The rationale for
these changes are detailed below.
In the first pretest, subjects had been exposed to the
brand information repeatedly until they met the criteria for
satisfactory performance on the recognition task. It was


18
the optimal level of advertising depends on the price
elasticity of demand (Dorfman & Steiner 1954). Studies done
in the econometric tradition, which seem to support the
monopoly view of advertising (e.g., Comanor & Wilson 1974;
Lambin 1976), did not explicitly control for extraneous
variables that might have had a potential effect on the
results. In the absence of a controlled experiment
specifically testing for the relationship, it is not possible
to make any statement about its causal nature. Other
researchers who have used controlled field experiments (Eskin
& Baron 1977; Krishnamurthi & Raj 1985) could possibly make
claims about causality. But in the absence of controls
factors such as advertising content and the stage in the
product life cycle, which could have a potential effect on
the results obtained, they too have not been able to provide
conclusive evidence about the causal relation between
advertising and price elasticity.
A Conceptual Framework
This section presents a generalized conceptual framework
for examining the relationship between advertising and price
sensitivity. In this dissertation, price sensitivity is to
be measured directly by examining price elasticities. An
attempt is made to establish a causal link between consumer
responses to advertising and the resulting price sensitivity;
this is to be experimentally tested under controlled


58
the attributes used for differentiation, it is likely that
brands within a particular subset will be perceived as being
more similar than brands in general. Brands in different
subcategories are likely to be perceived as being more
dissimilar when subjects are exposed to differentiating
advertising compared to subjects in the control condition.
This leads to the following prediction:
P5. The variance in pairwise similarities among brands will
be higher in the differentiating advertising condition
than in the no advertising condition.
Subjects
Twenty-four subjects enrolled in an introductory
marketing course in the University of Florida participated in
the experiment. Those who participated were given two extra
credits in their class.
Procedure
The study was conducted at the behavioral laboratory
provided by the Center for Consumer Research at the
University of Florida. The experiment was conducted on four
IBM PC-XT computers with enhanced graphics (EGA) monitors.
Subjects participated in groups of one to four, with groups
randomly assigned to between-subjects conditions. All
subjects participated in two experimental sessions held on
two consecutive days. The stimuli and tasks for the
experiment are detailed in Appendix I.


162
TRIPLE # 1
TRIPLE # 2
TRIPLE # 3
TRIPLE # 4
APPENDIX IIB1
BRAND-TRIPLES USED IN EXPERIMENT 3
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie


184
undergraduate marketing research course. She also assisted
with various undergraduate and graduate marketing classes.
Additionally, she has worked on several academic consumer
behavior research projects.
She accepted an offer for a position as Assistant
Professor of Marketing at the American University. In summer
1990 she assumed the full-time position.


41
ability and motivation to retrieve brands from memory. If
there is no advertising for the various brands, then the
consideration set in a memory-based choice situation depends
purely on the consumer's capacity to retrieve brand
alternatives. Hence the size of the consideration set is
likely to be smaller in the memory-based environment than in
the stimulus-based environment.
When the decision is such that brand names have to be
remembered to be considered, the consumer has to rely on
memory to retrieve brands for consideration. Therefore
marketers try to organize their efforts in such a way that
their particular brand is considered at the time of choice
(Narayana & Markin 1975) Thus, under memory-based
situations, reminder advertising will lead to an increase in
the ability to recall brands and thereby increase the number
of brands considered for choice. If all firms pursue this
strategy, there should not be any inhibition effects
resulting from the salience of a few brands in memory as has
been observed by some researchers (Alba & Chattyopadhyay
1986) .
Differentiating advertising has a positive effect on the
ability to recall brands and can therefore increase the size
of the consideration set. But this type of advertising is
also likely to negatively affect the motivation to recall
brands for consideration. In other words, if this type of
advertising results in some brands being perceived as clearly


44
smaller. That is, if advertising increases consideration set
sizes from 2 to 3, this will have a more dramatic effect on
price elasticity than if it increases consideration set sizes
from 4 to 6. Thus, under memory-based choice situations,
reminder advertising, which increases the size of the
consideration set, tends to increase price sensitivity, and
differentiating advertising, which reduces the size of the
consideration set, tends to decrease price sensitivity.
Differentiating advertising for brands will also increase
relative preference for some and thus have a negative effect
on price sensitivity.
Even when advertising has no effect on the size of the
consideration set, it can lead to an increase in the
dispersion of brand-utilities. Advertising that seeks to
convey attribute information and thereby differentiate the
sponsored brand from close substitutes often results in
changing the relative overall preference for the various
brands. The larger the variance in utilities, the larger is
the price discount necessary to change purchase patterns.
Therefore differentiating advertising would be expected to
increase the dispersion of brand-utilities and thus lower the
price elasticity in the stimulus-based choice environment.
Assumptions
1 Holding constant the size of the consideration set,
price elasticity is inversely related to the dispersion
of brand-utilities.


17
of comparability across studies on the conceptualization and
design makes it impossible to generalize from such evidence.
Part of the problem arises from the lack of consistency among
authors in what they mean by 'advertising.' Variations in
advertising content, which might have a potential effect on
price sensitivity, have not been considered (Albion & Farris
1980,1981; Lambin 1976). As we shall see in the following
sections, advertising messages are not identical, and
different types of advertising can be expected to have
potentially different effects on price sensitivity. In light
of this, it is meaningless to view advertising as a
homogeneous activity and hypothesize its potential effect on
price sensitivity without regard for the variation in
content. The use of different types of dependent measures of
price sensitivity with respect to advertising (e.g. price
advertising interactions or price elasticities) might also
account for part of the conflicting evidence.
Second, the causal relation between advertising and a
measure of market power such as price elasticity is also a
controversial point (McAulife 1987). A correlation between
advertising and price elasticity does not prove that
advertising is the cause of an increase or decrease in price
elasticity, especially because such correlational studies
have not controlled for other possible causal factors. Even
if a causal relationship exists, it is not clear what the
direction of causality is, since it has also been shown that


161
APPENDIX IIA-3
HIGH AND LOW PRICES USED FOR THE EXPERIMENT
BRAND
HIGH PRICE
LOW PRIC
Crispy Crunch
$0.65
$0.40
Caramilk
$0.65
$0.40
Gold
$0.65
$0.40
Smarties
$0.60
$0.35
Breakaway
$0.60
$0.35
Mirage
$0.65
$0.40
Eat-more
$0.60
$0.35
Mr. Big
$0.70
$0.45
Crunchie
$0.65
$0.40
Coffee Crisp
$0.60
$0.35
Dairy Milk
$0.65
$0.40
Sweet Marie
$0.70
$0.45


20
Lynch and Bloom (1987) use this conceptualization of
choice in their proposed framework for examining the effects
of advertising on consumer price sensitivity. They suggest
that advertising could influence the probability of choice by
determining the size of the consumer's consideration set.
Advertising that increases the probability of inclusion of
the advertised brand in the consideration set increases the
size of the set, and advertising that inhibits the
probability of simultaneous inclusion of competing brands,
reduces the size of the consideration set. In short,
advertising could have either a positive or negative effect
on the size of the consideration set All else equal, the
elasticity of demand for any given brand to changes in its
price will be greater the larger the number of brands that
are simultaneously considered.
Advertising could also potentially influence the
dispersion of brand-utilities It could increase the
perceived utility for the sponsored brand and decrease the
perceived utilities for competing brands. Advertising could
change perceptions about market offerings or alter the
criteria consumers use to evaluate products. In this way, by
changing the consumer's preferences for the various
alternatives, advertising could have a positive or negative
effect on the probability of choosing the advertised brand.


64
4.56), F(l,21) < 1. Although reminder ads were not expected
to have a significant effect on preferences for the various
brands, mean ratings were lower in this condition (M = 4.17)
than in the control condition.
It was predicted that differentiating advertising will
lead to a greater variance in preference ratings in
comparison to the no advertising condition. An analysis of
variance performed on the standard deviation of preference
ratings approached significance, £(2,21) = 2.16, p < .14, (G)2
= .09) As expected, the dispersion in brand-utilities was
marginally greater in the differentiating advertising
condition (M = 1.72), as compared to the control condition (M
= 1.37), F(l,21) = 3.24, p < .08. There were no significant
differences between the control condition and the reminder
advertising condition in the variance in brand-utilities,
F_(l,21) < 1. Thus the results were in the predicted
direction and showed that differentiating advertising did
result in a greater spread in brand-utilities.
Results show that the differences across advertising
conditions were not large. It is possible that subjects
anchored high and low ends of the preference scale with
whatever stimuli seemed most and least preferred. Such
response language differences across conditions could have
thus defeated this prediction (Lynch, Chakravarti & Mitra
1990; Upshaw 1962; Wyer 1974).


127
Costs of thinking. Even though differentiating and
reminder advertising differentially affected the interbrand
dispersion of utilities, this was not reflected in
significant differences in the size of the consideration set
in the stimulus-based situation. This is in contrast to the
memory-based case discussed in the preceding section. There
is no evidence to support the prediction that differentiating
advertising will reduce the size of the consideration set
more than reminder advertising in the stimulus-based decision
environment.
Because subjects had a list of brand names available to
them, it is possible that the perceived marginal cost of
thinking (Hauser & Wernerfelt 1990; Shugan 1980) associated
with adding another brand to the consideration set was
relatively low in stimulus-based decisions. Therefore it
would require more advertising induced dispersion of brand-
utilities to discourage subjects from at least considering
more brands, even though some brands were more preferred and
thus had a greater probability of being chosen. This would
explain why, under such conditions, differentiating
advertising did not result in shrinking the size of the
consideration set, even though it affected the variance of
brand-utilities.


117
An analysis of planned comparisons revealed that there
was a simple main effect of advertising in the stimulus-based
choice environment, F.(2,55) = 7.69, p. < .01. There were
significant differences in price elasticity when subjects
were exposed to differentiating advertising, compared to the
situation when they were not exposed to any ads, F(l,55) =
15.05, p < .001. This result supports H2a. There were also
significant differences in price elasticity between the
reminder ad and the control condition, £(1,55) = 5.88, p
<.025. The results were in support of HI that advertising
will have a significant effect on price sensitivity in the
stimulus-based environment. The difference in price
elasticity between the reminder advertising condition and the
differentiating advertising condition was marginally
significant, £.(1,55) = 2.20, p < .10.
In the memory-based choice environment, there was a
simple main effect of advertising on price elasticity,
£(2,55) = 14.16, p_ < .001. There were significant
differences between reminder advertising and differentiating
advertising in their respective effects on price elasticity.
There was a significant positive effect of reminder
advertising, £(1,55) = 27.9, p < .001. This result supports
H3a. Also, differentiating advertising had a positive effect
on price elasticity compared to the control condition,
£ (1,55) = 4.12, p < .05. Price elasticity was significantly
greater in the reminder advertising condition compared to the


CHAPTER VI
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: RESULTS
Chapter Overview
This chapter presents the results of Experiment 3 in two
parts. The results pertaining to the average size of the
consideration set and the dispersion of brand-utilities are
first presented. Subsequently the findings corresponding to
price sensitivity are discussed.
The purpose of this study was to provide a better
understanding of the effects of advertising on price
elasticity by isolating the causal mechanisms underlying
these effects. It was proposed that the relationship between
advertising and price sensitivity is mediated by two basic
theoretical constructs--consideration set size and the
dispersion of brand-utilities. Therefore, before specific
hypotheses linking advertising with price sensitivity were
tested, it was necessary to verify that advertising did have
the predicted effects on these two mediating variables.
Results
Consideration Get Si ze
Consideration set was measured at the individual subject
level by the number of brands about which the subject asked
for price information on a given shopping trip averaged
89


I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
V- io
Johyy G. Lynch, Chairman yj
Associate Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
Associate Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree o//f)9^toryr)fy/^hilosophy.
j/ Wesley/Hutchinson
/Associaxe Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree ofi Doctor of Philosophy.
BartoriV A. Weitz
Professor of Marketing
I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.
{U^Uc^J
Richard E. Romano
Associate Professor of Economics


71
After this, subjects were given three minutes to
memorize a list of twenty-four candy bar names which included
twelve American and twelve European brands available in the
Gainesville market. The instructions and stimuli for this
task are listed in Appendix IC-2 and IC-3 respectively. When
they had completed this task they were thanked and asked to
come back for the next session.
In the second session, all subjects completed the brand
name recall task where their objective was to recall and list
as many brand names as they could. Before they performed
this task, subjects in the advertising conditions were
exposed to ads for the candy bars. These ads were the same
as those that they had seen in the first session. Subjects
in the no advertising condition did not see any ads and
completed the questionnaire directly.
Results and Discussion
It was predicted that advertising will have a
significant effect on the total number of brands recalled.
An analysis of variance across the three advertising
conditions was significant, F(2,21) = 18.59, p. < .0001, (CO2
= .59). Subjects in the two advertising conditions recalled
a significantly greater number of brands than subjects in the
control condition (M = 8.43 and M = 3.00 respectively),
F.(2,21) = 38.57, p < .0001. As in Experiment 1, there were
no significant differences in recall scores between the


TABLE OF CONTENTS
Pag_e
ACKNOWLEDGMENTS iii
ABSTRACT viii
CHAPTERS
1 INTRODUCTION 1
Effects of Advertising on Price Elasticity... 3
A Behavioral Approach 4
Objective 5
2 TOWARD A CONCEPTUAL FRAMEWORK FOR EXAMINING
THE IMPACT OF ADVERTISING ON CONSUMER PRICE
SENSITIVITY 8
Chapter Overview 8
Economic Theoretic Views on the Impact of
Advertising 8
Impact of Advertising on Consumer Price
Sensitivity 12
Conceptual Framework 18
3 AN EMPIRICAL INVESTIGATION OF THE IMPACT OF
ADVERTISING ON PRICE ELASTICITY: CONCEPTUAL
HYPOTHESES AND STUDY DESIGN 32
Objective 32
Background 32
Hypotheses 4 6
Overview of Research Methodology 47
4 PRETESTS 51
Overview 51
Experiment 1 52
Experiment 2 68
vi


60
information again before they attempted to perform the
recognition task again. This was repeated until all subjects
had performed satisfactorily on the test, as measured by the
criteria listed above. The computer recorded the number of
exposures that were required for each subject to satisfy the
criteria for the recognition test. Subjects who finished
earlier than the others were asked to wait quietly. When all
subjects completed the task, they were thanked for their
participation and asked to return for the next session.
Session 2. During the second session, subjects in the
two advertising conditions were exposed to ads for the
various brands. The experimenter showed the ads to the
subjects in the differentiating and reminder advertising
conditions. Subjects in the no-advertising condition did not
see any ads.
Advertising stimuli. The stimuli for the differentiating
advertising condition were 30-second television commercials
for the twelve brands of candy bars. These were provided by
the manufacturers of the Canadian candy bars. The stimuli
used for the reminder advertising condition were slides
created from the television commercials, and showed the
package and the brand name. A remote control slide projector
was used to show the reminder ads to the subjects. The
duration of exposure to the reminder ads for each brand was
15 seconds. It was judged that a 30 second exposure to the


145
APPENDIX IA-2 continued
9)
BRAND NAME:
WEIGHT:
CONTAINS:
Crunchie
1.9 oz.
Golden honeycomb center
10)
BRAND NAME:
Smarties
WEIGHT:
2.1 oz.
CONTAINS:
Candy-coated chocolate
centers
11)
BRAND NAME:
Breakaway
WEIGHT:
1.6 oz.
CONTAINS:
Crispy wafer and chewy
caramel
12)
BRAND NAME:
Mirage
WEIGHT:
1.5 oz.
CONTAINS:
Milk chocolate thick,
yet light


102
was significantly greater under differentiating advertising
(M = .10) than under the no advertising condition (M = .08).
Although differentiating advertising did have the
predicted effect on the proportions allocated to the various
brands, a similar pattern of results is not found for the
share of the budget allocated to the top brand. Analysis of
variance results presented in Table VI-11 show no significant
differences in the share of the budget allocated to the top
brand, F_(l, 62) = 1.34, p. < .25, (CO2 = .01) Thus the
findings do not support the prediction that the share
allocated to the top brand will increase under the
differentiating advertising condition in comparison to the no
advertising condition. A possible reason for this is that
advertising led to a subset of brands being considered as
acceptable, without any clear top choice. As a result, it is
likely that if the top brand is at its high price, it was
bought in lesser quantities as subjects switched to one of
the other well-liked brands.
Table VI-12 presents the results for the analysis of
variance on the number of brands ever chosen under the
differentiating advertising (M = 8.40) and the no advertising
(M = 9.78) conditions. It is evident from the findings that
differentiating advertising led to a significant decrease in
the number of brands ever purchased, F(l, 62) = 6.68, p. < .01,
A 2
(CO = .08) Thus the results support the prediction that
differentiating advertising will reduce the number of brands


CHAPTER III
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: CONCEPTUAL HYPOTHESES AND STUDY DESIGN
Objective
This study attempted to examine the relationship between
advertising and price sensitivity mediated by two key
constructs: the size of the consideration set and the
dispersion of brand-utilities.
Background
The Consideration Set
Consumers are faced with a multiplicity of alternatives
in course of making their regular purchase decisions. In
each product category, consumers are aware of a large number
of brands and have to make their choice from among these
brands. To simplify their decision making, they must make
their selection from a smaller group of brands (Alba &
Chattyopadhyay 1985; Hauser & Wernerfelt 1990; Nedugadi 1987;
). In other words, the consumer's final choice is made from
the consideration seta certain subset of alternatives from
the total number of options available in the market. This
definition is similar to the 'evoked set' notion used by
marketing researchers (Campbell 1969; Howard & Sheth 1969;
Narayana & Markin 1975; Parkinson & Reilly 1979).
32


99
condition, subjects would make purchases on the basis of
price. This would increase the number of brands that are
tried, because across different trials, different brands are
likely to be lowest in price. In contrast, if
differentiating advertising leads to some brands being
perceived to offer greater utility to subjects, it is less
likely that they would purchase clearly inferior brands only
on the basis of its price advantage. Thus differentiating
advertising would reduce the number of brands chosen.
Reminder advertising was not expected to have any significant
effects on preference and therefore on the total number of
brands chosen.
Results of effects of advertising on measures of
interbrand variance in preferences Before a discussion of
the results it is important to note that these behavioral
measures of preference were based on actual purchases made by
subjects. The experimental design was such that subjects
could only purchase what they could recall. Therefore, to
examine the effect of advertising on utilities for the
various brands it is necessary to have measures of revealed
preference that are not confounded with the ability to
recall. Hence, the results of the effect of advertising on
the variance of all four measures of interbrand variances in
preference will be analyzed for the stimulus-based
environment only.


154
APPENDIX IC-1
INTRODUCTION BEFORE EXPOSURE TO ADVERTISING
You have just been exposed to some information on
several brand of candy bars. You will now be seeing ads for
these brands before continuing to the next screen.
The experimenter will show you the ads only when all of
you are ready. So if you have finished before the others,
please wait quietly for the other participants to finish. DO
NOT PRESS NOW.
Only after you have seen the ads should you press
to continue...


76
Experimental Factors
This section details the experimental factors that were
manipulated in the study. As noted earlier, the study
employed a design in which advertising condition and decision
environment were between subjects factors and price of twelve
brands was manipulated within subjects.
Advertising Condition
Advertising Condition was manipulated at three levels in
order to gauge the effects of advertising content on price
elasticity. Subjects in the differentiating advertising
condition saw ads for all twelve candy bars. These ads
provided information on brand attributes and were predicted
to change subjects' relative preference for the brands
compared to a situation where none of the brands were
advertised. Subjects in the reminder ad condition saw ads
which provided information on the package and brand name,
similar to some print or billboard advertising. These ads
were predicted to increase the likelihood of inclusion of the
advertised brands in the consideration set. Subjects in the
no advertising condition served as a control group and were
not exposed to any ads for the candy bars.
An alternative manipulation would have been to advertise
a subset of brands instead of all of them. This would have
been closer to real-world situations where advertised and
unadvertised brands exist simultaneously. Also, this
manipulation could probably have provided better insights on


72
reminder (M = 8.25) and differentiating advertising (M =
8.62) conditions, F(l,21) <1.
On the basis of these findings it was possible to
demonstrate with this independent sample of subjects that
advertising could indeed have significant effects on the
memory for brand names. Therefore in choice environments in
which memory for brand names is important such effects can be
expected to prevail. If the ability to recall brand names is
the only determinant of the number of brands considered, we
can expect consideration set sizes across different
advertising conditions to follow the same pattern as brand
name recall scores. Thus this pretest provided a benchmark
against which to compare and interpret the results on
consideration set size. The next chapter details the
experiment that tests for advertising effects on price
sensitivity, mediated by the preferences and the size of the
consideration set.


14
From this discussion it is clear that the two schools of
economic thought postulate different roles for advertising on
the basis of certain implicit assumptions about consumer
responses to this marketing variable. However, these
assumptions about advertising's potential effect on consumer
behavior remain essentially untested. In addition, past
conceptualizations have not been able to isolate the various
mechanisms by which advertising influences consumer price
sensitivity. Thus it is likely that each of the two opposing
viewpoints on advertising's potential effect on consumer
behavior might hold under a certain set of conditions. It is
proposed that a more general framework that takes account of
these different relationships between advertising and
consumer price sensitivity will be able to offer more
insights on this issue. It is suggested in this paper that a
more detailed analysis of consumer responses to advertising
making use of insights from behavioral research will provide
an improved understanding of the effects of advertising on
the price elasticity of demand. The objective of the present
research is therefore to study individual consumer responses
to advertising and price changes It is hoped that this
integrated perspective might ultimately provide more secure
behavioral foundations for generalizations at the firm and
industry level, but it should be noted that this is not the
objective of this research. Hence this research does not


116
which together provide an appropriate test of the treatment
effect. The terms which were combined to create the
appropriate errors terms for the hypothesized effects are
presented in Appendix HE. These quasi F ratios have degrees
of freedom that are adjusted according to Satterthwaite's
(1946) method.
The results are similar to those obtained when brands
were treated as fixed. There was a main effect of
advertising condition, a main effect of decision environment
and an environment X advertising condition interaction. The
results are presented in Table VI-26.
TABLE VI-26
ANALYSIS OF VARIANCE
TESTS OF HYPOTHESES FOR BETWEEN SUBJECTS EFFECTS
BRANDS AS RANDOM FACTOR
SOURCE
SS
DF
DFe
F
P
> F
ENVIRONMENT
190
.8005
1
45
25 .
. 92
0
.001
ADVERTISING
85
. 1492
2
55
5 ,
.48
0
.009
ENV*AD
252
. 5359
2
52
11,
. 64
0
.001
SEQ
92
. 5226
15
80
0 ,
.75
0
.764
ENV*SEQ
136
. 4264
15
91
1.
.02
0
.412
AD*SEQ
248
. 4186
30
98
0 ,
. 91
0
.536
ENV*AD*SEQ
310
.5784
30
79
1.
.28
0
.251
Note:
DFe implies the adjusted error degrees of freedom used
for the analysis.


APPENDIX I
DETAILED LISTING OF STIMULI AND TASKS FOR PRETESTS


me .
At times when the future seemed uncertain and bleak,
what kept me going was the vision of their happy faces on
seeing me realize a target that I had ventured out to
achieve, a long time ago.
v


25
1981; Lambin 197 6) It may be meaningless to judge the
information potential of advertising on consumer behavior
without regard to its content. In this regard, it would be
too simplistic to postulate, as some economists (Nelson 1970,
1974, 1978) have done, that all advertising is informative
rather than manipulative or persuasive, because this assumes
that consumers have fixed preferences and the only objective
of the ad is to provide functional information. Based on
evidence from the behavioral literature, some authors suggest
that an ad for a brand can change perceptions of the product
and hence can affect the probability of choice (Alba &
Hutchinson 1990; Bettman & Sujan 1987; Hoch & Ha 1986; Lynch
& Bloom 1987).
As noted above, the probability that a consumer chooses
a particular brand depends upon his/her preference or utility
for the brand relative to competing alternatives (Cortsjens &
Gautschi 1983; Nedungadi 1987) Research on consumer
preferences and attitudes has relied heavily on the use of
multi-attribute models. Within the general paradigm of
multi-attribute models, one can envision several possible
ways in which an attitude toward a particular brand can be
changed (Lutz 1975; Wilkie & Pessemier 1973). Basically,
these models postulate that individuals' attitudes toward a
brand is some function of their beliefs about the extent to
which the brand possesses certain attributes, and their
evaluation of the importance of these attributes. Thus,


CHAPTER IV
PRETESTS
Overview
The hypotheses developed in the last chapter concerned
how two basic theoretical constructs mediate the effects of
advertising on price elasticity. These two mediating
variables are the size of the consideration set and the
dispersion of brand-utilities. It was argued that
advertising could lead to an increase or decrease in the size
of the consideration set, with resultant effects on price
elasticity. Also, advertising that seeks to differentiate
brands will increase the variance in perceived utilities for
the various brands and thereby lower price elasticity.
This chapter discusses two pretests which were designed
to examine the effect of advertising on the ability and
motivation to consider brands for evaluation and choice.
These experiments were expected to provide insights on the
hypothesized mediating roles of the theoretical constructs
discussed in the framework. The following specific issues
were investigated:
1. the effects of advertising on the number of brands
recalled;
2. the effects of advertising on the number of attributes
recalled;
51


135
getting a brand considered for choice. This will have
implications for price elasticity.
The memory effects of advertising are even more dramatic
in the case of situations which are necessarily memory-based,
as in the case of the store choice decision discussed
earlier. In this case, advertising can ensure that a brand
is included in the consideration set and thus have a
significant effect on price elasticity.
Managerial Implications
The dissertation highlights certain important facts
about the effect of advertising on consumer behavior which
could be useful to managers. It provides insights on the two
major functions of advertising, which combine to produce its
effects on price sensitivity. Therefore, the difference
between reminder and differentiating advertising is more a
matter of degree. Depending on the environment in which the
decision is made, advertising effects memory for brand names
and/or preferences and the relative strength of these two
parameters determines its net effect on price elasticity.
This suggests that a differentiating strategy need not
necessarily result in reduced price sensitivity. As this
study showed, if the effects of advertising on memory are
substantial, then the increase in price elasticity as a
result of the larger consideration set size can offset the
reduction due to the advertising-induced variance in
preferences.


66
eight subjects for each mean being compared, this could have
been due to the lack of power to detect hypothesized effects.
Estimates of high and low prices. Besides providing
expected most likely price estimates, subjects also reported
highest and lowest likely prices for each brand. These
estimates were used to calibrate high and low prices that
were to be used in Experiment 3. The procedure that was used
to set the discounted price for each brand is detailed in the
next chapter.
Effects of advertising on interbrand differences in
perceptions It was predicted that differentiating
advertising which highlighted attributes of brands would
result in some brands being perceived as similar to some and
more dissimilar to others. Thus the variance in pairwise
similarities was expected to be higher under differentiating
advertising condition compared to the no advertising
condition. An analysis of the variance of pairwise
similarities showed that there were no significant
differences across advertising conditions, F(2,21) < 1, (CO2 <
0) Thus there is not enough evidence to conclude that
differentiating advertising did result in brands being
perceived as more dissimilar.
A possible explanation for this could be that in the
absence of advertising information, subjects used the brand
name and attribute information (presented in the first
session) to make judgments about the similarity of brands.


2
concentration and price levels (Albion & Farris 1981; Norris
1984). Economists are not concerned with consumer responses
to advertising per se, but mainly with its implications from
a social welfare perspective. The regulatory agencies are
charged with the responsibility of providing a fair and
competitive environment in which firms may operate, and of
ensuring that marketers' activities do not prove to be
detrimental to consumer welfare. Thus, the economic effect
of advertising is also of interest to the public policy maker
in charge of advertising regulation and consumer protection
(Bloom 197 6) .
Even though they are studying the same phenomena,
specialists in one field often have little awareness for the
activities of researchers in closely related fields. But
there remain a number of valid reasons why the interaction
between disciplines is important. In many cases, the output
of one field of study serves as the input of another. Also,
the tools and techniques of one discipline can be effective
in answering questions previously studied only by a different
discipline. Finally, good policy decisions can benefit from
the knowledge and insights that different disciplines have to
offer. Thus, our understanding of the economic effects of
advertising may be greatly enhanced by the adoption of an
interdisciplinary approach.
The focus of this dissertation is on the economic effect
of advertising on consumer behavior. This is a topic that


143
APPENDIX IA-2
DETAILED LISTING OF BRAND DESCRIPTIONS
1)
BRAND NAME:
WEIGHT:
CONTAINS:
Coffee Crisp
1.9 oz.
Crisp cream-filled
biscuit
2)
BRAND NAME:
Dairy Milk
WEIGHT:
1.45 oz.
CONTAINS:
Pure milk chocolate
3)
BRAND NAME:
Sweet Marie
WEIGHT:
2.1 oz.
CONTAINS:
Chewy fudge, caramel and
peanuts
4)
BRAND NAME:
Crispy Crunch
WEIGHT:
1.75 oz.
CONTAINS:
Lots of peanuts in milk
chocolate


112
the effects on price elasticity are very similar to the
pattern of results obtained for preferences, it is possible
to conclude that, in stimulus-based environments, the
differential preference for the various brands is a key
mediator of price elasticity. This result provides strong
support for H2, that the only effect of advertising in the
stimulus-based choice situation will be mediated by the
dispersion in brand-utilities.
TABLE VI-20
PRICE ELASTICITY IN STIMULUS-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
116.86385898
1
13.53
0.001
SEQ
79.59978460
15
0.61
0.904
AD*SEQ
238.97790555
15
1.84
0.133
SS/ENV,AD,SEQ 820.53705672
95
TABLE VI-21
PRICE ELASTICITY IN STIMULUS-BASED ENVIRONMENT
REMINDER VERSUS DIFFERENTIATING ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
45.62724071
1
5.28
0.025
SEQ
122.47040230
15
0.72
0.750
AD*SEQ
89.24442242
15
0.52
0.909
SS/ENV,AD,SEQ
820.53705672
95


91
The results indicate that there were significant main
effects of Advertising Condition and Decision Environment and
a significant Advertising Condition X Decision Environment
interaction. To examine more closely the nature of
advertising effects under the two decision environments,
analyses of planned comparisons were carried out.
Recall from Chapter III that it had been predicted that
in the absence of advertising, consideration sets will be
smaller in the memory-based choice condition than in the
stimulus-based choice condition. This is because in the
stimulus-based condition, brand names are readily available,
and therefore it is not necessary to retrieve them from
memory. This prediction was supported by a significant main
effect of decision environment. The size of the
consideration set was significantly smaller in the memory-
based condition (M = 2.26) compared to stimulus-based
condition (M = 5.24), F(l, 95) = 36.44, p< .001, (CO2 = .06).
Consideration sets in stimulus-based decision
environments It was predicted that under stimulus-based
choice environments, the primary effect of advertising on the
size of the consideration set will be through its effect on
the dispersion of preferences. Specifically, it was proposed
that reminder advertising will not have a significant effect
on the size of the consideration set, while differentiating
advertising will increase the interbrand variance of
utilities and thereby reduce the size of the set. The


106
TABLE VI-14
DISPERSION IN PROPORTION OF BUDGET
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.00274298
1
3.16
0.0848
SEQ
0.01727033
15
1.33
0.2429
AD*SEQ
0.01191580
15
0.92
0.5561
SS/AD,SEQ
0.01191580
32
TABLE VI-15
SHARE OF BUDGET ALLOCATED TO TOP BRAND
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.01930218
1
2.12
0.1547
SEQ
0.15181354
15
1.11
0.3835
AD*SEQ
0.17488103
15
1.28
0.2681
SS/AD,SEQ
0.29074490
32
TABLE VI-16
AVERAGE NUMBER OF BRANDS EVER CHOSEN
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
11.39062500
1
2.22
0.1464
SEQ
66.48437500
15
0.86
0.6081
AD*SEQ
38.35937500
15
0.50
0.9240
SS/AD,SEQ
164.50000000
32


144
APPENDIX IA-2
continued
5)
BRAND NAME:
Caramilk
WEIGHT:
2.0 oz.
CONTAINS:
Bigger bites of soft
caramel
6)
BRAND NAME:
Gold
WEIGHT:
1.6 oz.
CONTAINS:
Crisps and a kiss of
honey
7)
BRAND NAME:
Eat-more
WEIGHT:
1.4 oz.
CONTAINS:
Peanuts in chocolatey
coating
8)
BRAND NAME:
Mr. Big
WEIGHT: 2.2 oz.
CONTAINS:
Wafers, caramel and rice
crisps


179
Feldman, J. M., & J. G. Lynch (1988), "Self-Generated
Validity and Other Effects of Measurement on Belief,
Attitudes, Intentions and Behavior," Journal of Applied
Psychology, 73, 421-435.
Gardner, M. P. (1983), "Advertising Effects on Attributes
Recalled and Criteria Used for Brand Evaluations," Journal of
Consumer Research, 10, 310-318.
Hauser, J. R., & B. Wernerfelt (1990), "An Evaluation Cost
Model of Evoked Sets," Journal of Consumer Research, 16, 393-
408 .
Hoch, S. J. & Deighton, J. (1989), "Managing What Consumers
Learn from Experience," Journal of Marketing, 53, 1-20.
Hoch, S. J. & Y. Ha (1986), "Consumer learning, Advertising
and the Ambiguity of Product Experience," Journal of Consumer
Research, 13, 221-233.
Howard, J. A., & J. N. Sheth (1969), The Theory of Buyer
Behavior. New York: John Wiley.
Hoyer, W. D. (1984), "An Examination of Consumer Decision
Making for a Common Repeat Purchase Product," Journal of
Consumer Research. 11, 822-829.
Huber, J., Holbrook, M. B., & B. Kahn (1986), "The Effects of
Competitive Context and Additional Information on Price
Sensitivity," Journal of Marketing Research. 23, 250-260.
Hutchinson, J. W. (1986), "Discrete Attribute Models of Brand
Switching," Marketing Science. 5, 350-371.
Johnson, E. J., & R. J. Meyer (1984), "Compensatory Choice
Models of Noncompensatory Processes: The Effect of Varying
Context, Journal of Consumer Research, 11, 528-541.
Kaldor, N. (1950), "The Economic Aspects of Advertising,"
Review of Economic Studies. 18, 1-27.
Keller, K. L. (1987), "Memory in Advertising: The Effect of
Advertising Memory Cues on Brand Evaluations," Journal of
Consumer Research. 14, 316-333.
Keppel, G. (1982), Design and Analysis: A Researcher's
Handbook, Englewood Cliffs, NJ: Prentice-Hall, Inc.


165
APPENDIX IIB-4
ORDER OF PRESENTATION OF ADVERTISING INFORMATION
DURING SESSION 1
POSITION
1 2 3 4
ORDER 1
ORDER 2
ORDER 3
ORDER 4


67
Since these were real candy bar names, many of these provided
some insight about the different attributes possessed by the
brands (e.g., Crispy Crunch, Caramilk). Therefore it is
likely that even in the no advertising condition, subjects
perceived brands to be quite dissimilar apriori, simply on
the basis of their names. In comparison, brands were not
perceived to be more different when they were advertised,
thus resulting in no significant differences across
advertising conditions. Also, response language effects,
(whereby subjects anchored high and low ends of the
similarity scale with stimuli that seemed to be most and
least similar) could have been the reason for the inability
to detect significant effects empirically.
Conclusions
The results of the first pretest were encouraging. On
the basis of the findings it was clear that the ads that were
being used were leading to results in the predicted
direction. It is likely that the small sample size in the
pretest resulted in the lack of sufficient power to detect
hypothesized effects. In spite of this, it was clear that
the advertising manipulation was quite effective in terms of
bringing about expected changes in the number of brands
recalled and the distribution of preferences. This was
further explored in the next pretest.


101
Effects of differentiating advertising. An MANOVA
analysis was conducted on the data for the four preference
measures to test for effects of differentiating advertising
on measures of interbrand variance in utilities. Results
showed that there were significant differences between the no
advertising condition and the differentiating advertising
condition, F.(4,29) = 2.95, p < .03. This supports the
prediction that differentiating advertising did have an
effect on variance of interbrand preferences.
Univariate tests also show that differentiating
advertising did have an effect on preferences. It is evident
that differentiating advertising did have a significant
effect on the dispersion in choice frequencies. Table VI-9
presents the results from the analysis of variance which
indicates that the difference in the dispersion of choice
frequencies between the no advertising condition (M = 4.25)
and the differentiating advertising condition (M = 4.99)
approached significance, F(l, 62) = 2.78, p < .10 (CO2 = .03) .
This finding supports the prediction that differentiating
advertising will increase the standard deviation of choice
frequencies.
The results presented in Table VI-10 also support the
prediction that differentiating advertising leads to a
significant increase in the dispersion of proportions,
Z(l,62) = 4.31, p < .04, (CO2 = .04) The standard deviation
in the percentage of budget allocated to the various brands


84
that was used for Experiment 2. When they had completed this
task they were thanked and told to come back for the next
session.
Session 2
The introduction and preliminary instructions for the
second session are detailed in Appendix IIC-1 and IIC-2.
Shopping trips. Subjects were first told that they would
be going on 16 different shopping trips for the Canadian
candy bars which they had seen the day before. They were
told that they had $3.00 to spend on each shopping trip.
They were also told that they would actually receive the
candy bars that they purchased on one of these shopping
trips. They did not know in advance which of these shopping
trips would be involved in their actual purchasethis was to
be randomly determined.
Subjects were informed that prices of the candy bars
would be varying from one shopping trip to another, so that a
brand that was at a low price on one of the shopping trips
would not necessarily be at that price on the next trip.
They were told that on any particular shopping trip they
could ask for price information on as many or as few brands
as they wanted.
Practice trips. Before shopping for candy bars, subjects
went on four practice shopping trips. The purpose of these
practice trips was to familiarize subjects with shopping on
the computer and to ensure that they knew how to search for


110
based choice situations than under memory-based choice
situations.
Price elasticity in stimulus-based decision
environments. Analyses of planned contrasts were carried out
to test for the effects of advertising on price elasticity in
the stimulus-based choice environment. Results (presented
in Tables VI-20 and VI-21) show that there was a significant
simple effect of advertising on price elasticity, £(2,95) =
6.90, p. < .01, (CO2 = .04) lending support to H2 Because
there were no significant differences in the average size of
the consideration set across the three advertising
conditions, it is possible to conclude that these effects on
price elasticity in the stimulus-based environment are
mediated by changes in the variance in brand-utilities as a
result of advertising.
The difference in price elasticity differentiating
advertising condition (M = -1.24) and the control condition
(M = -2.02) was significant, £(1, 95) = 13.53, p. < .001. This
finding supports H2a that differentiating advertising will
result in lower price elasticity. This parallels the results
obtained for preferences, where it was found that advertising
that seeks to differentiate brands resulted in increased
variance in the perceived utilities of the brands.
H2a predicted that there will be no difference in price
elasticity between the reminder advertising condition and the
control condition. However, results showed that price


176
APPENDIX HE
ERROR TERMS USED TO TEST HYPOTHESIZED EFFECTS
BRANDS ARE TREATED AS RANDOM
QUASI F RATIOS
MAIN EFFECT OF ADVERTISING:
p, = ^AD
MSADXBRAND + MSSUB/ENVXADXSEQ MSBRANDXSUB/ENVXADXSEQ
MAIN EFFECT OF DECISION ENVIRONMENT:
MSeNV
MSENVXBRAND + MSSUB/ENVXADXSEQ MSBRANDXSUB/ENVXADXSEQ
INTERACTION OF ENVIRONMENT AND ADVERTISING:
, mSenvxad
MSADXENVXBR + MSSUB/ENVXADXBR MSBRXSUB/ENVXADXSEQ


52
3. the effects of advertising on interbrand differences in
preference;
4. the effects of advertising on price perceptions;
5. the effects of advertising on interbrand differences in
perceptions.
Experiment 1
This sections details the above mentioned issues and the
predictions that were tested in the first experiment. The
subjects, the methodology and the stimuli are discussed. The
results of the pretest are also presented.
Key Issues Investigated
The issues that were investigated in these pretests are
presented below.
Effects of advertising on the number of brands recalled.
It has been suggested in this paper that one of the major
roles of advertising is to remind, i.e., to provide recall
cues in order to ensure that the brand is retrieved for
evaluation. The reminder function of advertising becomes
especially important in situations in which the brand has to
be remembered to be considered. Advertising is expected to
have a significant effect on the number of brand names
recalled in the memory-based decision environment. In the
absence of advertising, subjects have to rely on memory to
recall brand names for consideration. Advertising (both
reminder and differentiating) can therefore be expected to


128
Combined Effects of Consideration Set Size and Brand-Utility
Dispersion on Price Elasticity
The effects of advertising on price elasticity was
postulated to be mediated by two key constructs: the size of
the consideration set and the variance of interbrand
preference. The results on these theoretical constructs
discussed in the preceding sections enable a better
understanding and interpretation of advertising-induced
changes in price elasticity.
In the memory-based decision environment, both reminder
and differentiating advertising resulted in an increase in
price elasticity. This is consistent with the finding that
advertising
(both reminder
and
differentiating)
increases the
size
of the
consideration
set
in
memory-based
environments.
When
brand
names have
to
be
retrieved
from memory,
advertising (both reminder and differentiating) increases the
number of brands considered by making brand names more
accessible in memory. Given the assumption that price
elasticity is a positive function of consideration set size,
this implies that price elasticity might increase even with
differentiating advertising.
It was noted earlier that differentiating advertising
resulted in smaller consideration sets compared to reminder
advertising. This finding is consistent with the result that
differentiating advertising led to a greater variance in
interbrand preferences. The differences in price elasticity


CHAPTER I
INTRODUCTION
In today's competitive environment, consumers are
exposed to a significant amount of mass media advertising on
a regular basis Each day brings with it new exposures to
this powerful method of marketer-controlled communication.
Because advertising is such an inescapable part of a
consumer's life, consumer researchers have paid considerable
attention to the study of consumer responses to this element
of the marketing mix. The marketing practitioner, too, is
interested in consumer responses to advertising, which
represents a strategic management tool that the firm can
employ to achieve its goals of maximizing profits or market
share. Advertising expenditures comprise a substantial
portion of the firm's promotion budget; hence the marketer is
interested in the long-term consequences of advertising
versus other methods of building customer loyalty (Moran
1978) .
Aside from the firms and the consumers who are directly
involved with its consequences, economists and regulators
also study the effects of advertising. The economist,
primarily interested in the interactions between the behavior
of the firm and the behavior of the consumer, mainly focuses
on the determination of the equilibrium level of advertising,
its effect on total consumption, industry profits, industrial
1


62
Similarity rating task. Subjects were asked to give
similarity ratings for the twelve brands on a seven-point
(highly similar--highly dissimilar) scale. The instructions
for this task are detailed in Appendix IB-6.
Results and Discussion
The results of Experiment 1 are presented below.
Effects of advertising on the number of brands recalled.
It was predicted that since advertising increases the ability
to recall brand names, subjects who were exposed to ads would
perform better on the brand name recall task than those who
did not see any ads. An analysis of variance on the total
number of brand names correctly recalled across the three ad
conditions approached significance, £(2,21) = 2.49, p < .10,
* 2
(00 = .11) Moreover, there were significant differences
between the control condition (M = 4.87) and the two
advertising conditions (M = 7.31), £(2,22) = 4.90, p < .05.
There were no significant differences between the reminder (M
= 7.12) and differentiating (M. = 7.50) advertising
conditions, £(1,21) <1. Thus the results were in the
predicted direction, indicating that there was a positive
effect of advertising on the ability to recall brand names.
Effects of advertising on the number of attributes
recalled It was predicted that if differentiating
advertising did indeed convey attribute information about the
brands, then subjects in this condition should perform better
on an attribute recall task compared to subjects who were not


61
reminder ads would have produced irritation among subjects
that would have confounded the interpretation of the results.
After this, all subjects completed two questionnaires.
The first questionnaire required subjects to perform the
following tasks:
Brand name recall task. Subjects were asked to recall
and list the target brands of candy bars. The instructions
for this task are detailed in Appendix IB-1.
Attribute recall task. Subjects were provided with a
list of candy bar names for which they had been exposed to
information (product and package, and in some cases,
advertising) on candy bars. They were asked to recall and
list the attributes that describe the candy bars. The
instructions for this task are detailed in Appendix IB-2.
Preference rating task. The instructions for this task
are detailed in Appendix IB-3. Subjects were required to
indicate their preferences for the target brands of candy
bars on a seven point (Extremely highExtremely low) scale.
Price perception task. The instructions for this task
are detailed in Appendices IB-4 and IB-5. Subjects were
given the list of target brand names and were asked to
estimate the most likely, lowest likely and highest likely
price for each brand. They were told that Skor' a brand
with which they were familiar was currently available on the
market for $0.55.


142
APPENDIX IA-1 continued
The Company is attempting to assess consumer responses
to the new brands of chocolate candy bars before the test
market. Some information on these candy bars, namely, the
brand name, the weight and what it contains, will now appear
on the screen. Please pay attention to the information.
Press to continue....


9
rational and chooses quantities of various goods to consume
in an attempt to maximize utility. In such a model, prices
are determined through the market equilibrium of demand for
goods by consumers and their supply by firms.
Economic price theory did not include advertising until
the seminal work of Chamberlain (1933). Since that time, it
has been theorized in normative models that there is an
optimal level of advertising, which is inversely related to
price elasticity (Dorfman & Steiner 1954; Nerlove & Arrow
1962) However, there does not exist a generally accepted
theoretical view about the economic consequences of
advertising. Given this lack of any generally accepted
theoretical formulation, divergent streams of research have
appeared in the literature. Thus, at the risk of
oversimplifying the subtleties of individual economist's
positions, we can broadly characterize these as falling into
one of two schools of thought,which have been labelled as the
'Advertising = Market Power' view and the 'Advertising =
Information' view (Albion & Farris 1981). These two research
traditions differ markedly with respect to their assumptions
about the way advertising affects consumer behavior.
The market power perspective considers advertising a
means of persuasion. In other words, advertising can change
consumer tastes and artificially differentiate the product
from close substitutes thereby insulating the firm from price
competition. Thus, advertising enables the individual firm


114
TABLE VI-23
PRICE ELASTICITY IN MEMORY-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
31.96538463
1
3.70
0.102
SEQ
131.04664046
15
1.56
0.144
AD*SEQ
85.60967106
15
1.02
0.463
SS/ENV,AD,SEQ
820.53705672
95
TABLE VI-24
PRICE ELASTICITY IN MEMORY-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
216.49080913
1
25.07
0.001
SEQ
118.40784879
15
0.91
0.797
AD*SEQ
130.87140122
15
1.23
0.251
SS/ENV,AD,SEQ
820.53705672
95
TABLE VI-25
PRICE ELASTICITY IN MEMORY-BASED ENVIRONMENT
REMINDER VERSUS DIFFERENTIATING ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
78.06047822
1
9.03
0.015
SEQ
184.48337550
15
1.42
0.158
AD*SEQ
210.02896638
15
1.62
0.109
SS/ENV,AD,SEQ
820.53705672
95


123
a positive effect on the recall of brand names. With respect
to the second objective, the results suggest that
advertising-induced differentiation is a matter of degree.
Hence, the more the utility connoting information in an ad,
the more is its differentiating function over and above its
reminder function. Therefore in this experiment,
differentiating advertising led to an increased variance of
utilities, compared to reminder ads. These findings are
likely to have implications for price elasticity.
Effects of Advertising on the Size of the Consideration Set
It was proposed that the effects of advertising on price
elasticity could be better understood by examining its
effects on the size of the consideration set. The pattern of
results provide interesting insights on how advertising might
affect the size of the consideration set by influencing the
ability and the motivation to retrieve brand names for
consideration. The findings suggest that the effects of
advertising on the consideration set could differ, depending
on the type of advertising and the decision environment.
Advertising effects on knowledge and remembrance of
substitutes versus perceived substitutability of brands.
Price elasticity is a function of perceived substitutability
(Nelson 1974a, 1978). Economists of the information school
have assumed that advertising provides information about
brands and increases the number of known substitutes. This
implies that if advertising has made consumers 'aware' of a


23
brands that are already included in the consideration set.
Advertising for a brand might also inhibit the inclusion of
potential competitors in the consideration set and thereby
result in reduced sensitivity to changes in its own price.
These changes in consumer price sensitivity caused by
advertising are mediated by the size of the consideration
set. In this study, all brands are advertised and therefore
the institution of advertising results in an increase in the
size of the consideration set.
From the preceding discussion it is clear that the
consideration set is an important construct for examining the
effect of advertising on consumer choice. One possible way
in which advertising could influence consumer price
sensitivity for the advertised brand is simply by changing
the size of the consideration set in which this brand is
included. The effects just described are purely the result
of memory factors. The next section discusses changes in
price elasticity that result from advertising-induced changes
in preference.
Advertising-induced Changes in Preference given Inclusion in
the Consideration Set
Economic analysis generally treats advertising as a
homogeneous activity that is evaluated independently of why
it might increase demand (Leffler 1982). Yet, the effect of
advertising need not be the same in different markets or in
different situations within a market. For example, price


43
Differentiating advertising will lead to an increase in
the variance of interbrand preferences. This is likely to
lead to a reduction in the size of the consideration set if
consumers concentrate on the highly preferred alternatives in
order to gain efficiency in shopping.
Advertisers use differentiating advertising to alter
preferences for the various brands. Consumers might use the
criteria provided in the ad for the purpose of evaluation and
choice (Bettman & Sujan 1987; Gardner 1983, Hoch & Deighton
1989) Such 'framing' effects are likely to limit the size
of the consideration set. Thus, in stimulus-based
situations, a differentiating advertising strategy might lead
to greater attention being devoted to certain attributes,
thereby changing the composition of the consideration set.
For example, the consumer might use a particular attribute in
order to eliminate alternatives, and the members of the final
consideration set might be similar on that particular
attribute.
The greater the number of brands in the consideration
set, the greater is the price sensitivity, because the
existence of a greater number of substitutes decreases the
utility gap between the most preferred brand and its
competitors thereby increasing the elasticity of demand to
price cuts by the latter (Lynch & Bloom 1987) The positive
effect of advertising on price sensitivity will be larger if
consideration set sizes in the absence of advertising were


49
trip. Their task was to allocate the amount among candy bars
of their choice. They were told that the prices of the
various brands would change from one shopping trip to
another. Subjects were also told that they would actually
receive the candy bars purchased on one of these sixteen
shopping trips. These aspects of the design and procedure
were the same for all subjects.
Experimental Factors
Advertising condition. The type of advertising was
manipulated at three levels. Subjects in the differentiating
advertising condition saw ads for all twelve candy bars.
These ads provided information on brand attributes and were
predicted to change subjects' relative preference for the
brands compared to a situation where none of the brands were
advertised. Subjects in the reminder ad condition saw ads
that provided information on the package and brand name,
similar to some print or billboard advertising. These ads
were predicted to increase the likelihood of inclusion of the
advertised brand in the consideration set but to have minimal
effect on preferences. Subjects in the no advertising
condition served as a control group, and were not exposed to
any ads for the candy bars prior to going on the 16 shopping
trips.
Decision environment. The decision environment was
manipulated at two levels. Subjects in the stimulus-based
choice condition were provided with a list of all twelve


136
Implications for Public Policy
This study has considered the economic effect of
different types of advertising strategies which are likely to
be adopted by marketers. The results of the study have
implications for public policy. It suggests that it is
difficult to theorize about the economic effect of
advertising in terms of general statements about whether
advertising increases or decreases price elasticity of
demand.
The study supports the view of the information school
that advertising does have some economic value; it provides
information on the existence of substitutes. In addition, it
demonstrates that advertising provides recall cues and
thereby increases the number of effective substitutes that
are considered at the time of choice. Price elasticity is a
function of perceived substitutability, therefore advertising
by increasing the number of brands considered, can increase
price elasticity.
The market power view of advertising postulates
advertising to reduce price sensitivity by artificially
differentiating brands. This study demonstrated that even
when advertisers pursue a differentiating strategy, the
resulting effects on price sensitivity need not always be
negative. The net effects of advertising on price elasticity
depend on the strength its effect on the two mediator
variables postulated in this dissertation.


11
Thus, advertising simply serves to announce a product's
existence and/or attributes. This view holds that
advertising is a means of market competition; its function is
to provide information to consumers, thereby increasing the
number of known substitutes. This results in lower prices
and reduces monopoly power (Nelson 1970,1974b; Telser 1963).
Proponents of the information view of advertising
distinguish between 'search' goods, whose quality can be
evaluated prior to purchase, and 'experience' goods, whose
quality can only be evaluated through experience after
purchase (Nelson 1974a, 1974b, 1975). Advertising for search
goods provides direct information about product quality.
There is no incentive on the part of the advertiser to
provide inaccurate information about search goods, as
consumers are able to recognize the difference between
advertised and actual quality prior to purchase. Nelson has
argued that the only information contained in advertising for
experience goods is the fact that the brand is advertised and
is therefore likely to provide more utility per dollar. The
rationale for this is that producers of high quality brands
have a greater incentive to advertise, as there is a greater
likelihood of repeat purchases for such brands compared to
low quality brands. Thus consumers may rationally treat the
firms' advertising expenditures as a signal of product
quality (Kirmani & Wright 1989; Milgrom & Roberts 1986;
Nelson 1974) Thus for both search and experience goods,


152
APPENDIX IB-5
INSTRUCTIONS FOR HIGHEST (LOWEST) LIKELY PRICE ESTIMATES
"SKOR" is a brand of candy currently available in the
Gainesville market. It is priced at 55 cents in most stores.
If the new brands were available in the market and you were
to visit several stores, try to estimate the highest (lowest)
likely price for these brands across stores. Your task is to
estimate the highest (lowest) likely price for each brand
listed below.
BRAND NAME HIGHEST LIKELY LOWEST LIKELY
PRICE PRICE
Crispy Crunch
Caramilk
Gold
Smarties
Breakaway
Mirage
Eat-more
Mr. Big
Crunchie
Coffee Crisp
Dairy Milk
Sweet Marie


CHAPTER V
AN EMPIRICAL INVESTIGATION OF THE IMPACT OF ADVERTISING
ON PRICE ELASTICITY: RESEARCH METHODOLOGY
Chapter Overview
The propositions developed in Chapter III concerned how
advertising could influence consumer price sensitivity. The
relationship between these two variables was conceptualized
as being mediated by two key constructs--the size of the
consideration set and the dispersion of brand-utilities. It
was argued that advertising could have either a positive or a
negative effect on the number of brands considered at the
time of choice. Hence, by increasing or decreasing the size
of the consideration set, advertising could have a positive
or negative effect on price sensitivity. Besides affecting
the size of the consideration set, advertising could also
increase the spread of utilities of brands and result in some
brands being perceived as being clearly superior to others.
This would lead to a decrease in price sensitivity.
In this study on the economic effects of advertising,
the content of advertising (whether reminder or
differentiating) and the decision environment (whether
stimulus-based or memory-based) were hypothesized to moderate
the relationship between advertising and price sensitivity.
It was predicted that in memory-based decision environments,
73


54
of advertising, subjects will have to rely on the initial
(product and package) information on the various brands in
order to retrieve attribute information from memory.
Differentiating advertising, if it provides brand attribute
information should increase the ability to recall brand
attribute information and thereby have a positive effect on
the number of attributes recalled correctly. Therefore the
following predictions were made:
P2a. Differentiating advertising will result in a greater
number of attributes recalled compared to a situation of
no advertising.
P2b.There will be no significant effect of reminder
advertising on the number of attributes recalled
correctly.
Thus this prediction tests for differences in the salience of
brand attribute information across the three advertising
conditions. It was expected that such information was likely
to form the basis of perceived utility differences across the
brands.
It was postulated in this paper that differentiating
advertising will lead to an increase in the dispersion of
brand-utilities. As stated earlier, perceived utilities for
various brands are likely to be a function of the information
that is available at the time of choice. Subjects in this
experiment had access to two sources of brand-attribute
information.


3
has received considerable attention in industrial
organization and social welfare economics. Although the
research on the economic effects of advertising originated in
the field of economics, its conclusions have been the subject
of a long-standing controversy. Economic theory does not
make any reliable predictions regarding the effects of
advertising. The pragmatic implication of this lack of
theoretical foundation is that none of these controversial
issues can be settled by a priori reasoning. This has
resulted in unresolved disputes about whether advertising
raises or lowers profits, leads to increases or decreases in
prices paid, increases or decreases industry competition, and
the like, with sweeping generalizations made on particular
samples of data (Albion & Farris 1981) .
Effects of Advertising on Price Elasticity
Although much of the prior research in this area has
discussed this issue in the context of industry competition,
this dissertation will examine the effect of advertising on
consumer price sensitivity. Economists have provided
divergent theoretical accounts and have made conflicting
predictions about the economic effects of advertising based
on implicit assumptions about consumer responses to the
information provided by advertising. The empirical research
that has appeared in the economics and marketing literature
has only tested deductions from these theories and has not


28
The preceding paragraphs have discussed the role of
advertising on consumer price sensitivity mediated by altered
preferences as a result of advertising. It has been pointed
out that advertising could lead to decreased price
sensitivity for the advertised brand either by enhancing the
importance of non-price attributes in consumer choice or by
changing the perceived overall utility for that brand and the
difference in utility between that brand and the consumer's
most preferred brand. Some authors suggest that this would
be less true for consumers with higher levels of expertise
(Alba & Hutchinson 1990; Lynch & Bloom 1987)
Interplay between Advertising-induced Preference and the
Consideration Set
The framework so far has conceptualized the impact of
advertising on price sensitivity as being mediated by changes
in either the size of the consumer's consideration set or the
perceived utilities of various brands. From this perspective
of the choice process and the role advertising plays in it,
it might seem as if the size of the consideration set is
independent of consumer preferences for the competing
alternatives. However, the perceived utilities of the
different product offerings, aside from having a direct
effect on price sensitivity, might also limit the size of the
consumer's consideration set.
Through the direct effect on preferences, advertising
might also have an indirect effect on the size of the


103
TABLE VI-9
DISPERSION IN CHOICE FREQUENCIES
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
8.83382541
1
2.78
0.1053
SEQ
26.26884830
15
0.55
0.8899
AD*SEQ
40.24464510
15
0.84
0.62 63
SS/Ad,SEQ
101.76058461
32
TABLE VI-10
DISPERSION IN PROPORTION OF BUDGET
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.00499094
1
4.31
0.0460
SEQ
0.01234201
15
0.71
0.7555
AD*SEQ
0.02090818
15
1.20
0.3180
SS/AD,SEQ
0.03703894
32
TABLE VI-11
SHARE OF BUDGET ALLOCATED TO TOP BRAND
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
0.01854948
1
1.34
0.2552
SEQ
0.13948513
15
0.67
0.7907
AD*SEQ
0.24968350
15
1.20
0.3180
SS/AD,SEQ
0.44225911
32


132
The more that the consideration set has to be generated
from memory, the greater will be the reminder effects of
advertising on the size of the consideration set. The larger
the effects of advertising on the consideration set size, the
greater is the price elasticity for the other brands in the
consideration set. For example, consumer try to recall the
stores at which they could shop, and all such stores are not
arrayed in front of them, they have to rely on memory to
retrieve names of the stores. To the extent that some stores
advertise, they are likely to be recalled and as a result get
included in the consideration set In such a case,
advertising performs an important reminder function and its
effect on price elasticity is greatly influenced by its
effect on the size of the consideration set.
Environmental factors mediating the role of dispersion
of brand-utilities. In this research, the brands were
unfamiliar to the subjects. Therefore it was relatively easy
to change the distribution of preferences through
advertising. But in situations in which consumers have prior
familiarity with the product, the effects of advertising on
the dispersion of utilities is likely to be smaller.
Therefore advertising induced differentiation will have a
lesser effect on price elasticity. In such a case, if the
recall-facilitating aspect of advertising is important in
determining the size of the consideration set, then even


40
noted earlier, the pure stimulus-based choice decision is a
rare phenomenon.
In this context, it would be useful to distinguish
between memory-based versus stimulus-based specification of
attributes and brands. The few studies (Alba & Marmorstein
1987; Biehal & Chakravarti 1983,1986; Lynch et al. 1988)
which have considered memory-based decision making have
assumed that brand names are given and that relevant
information on attributes must be accessed from memory. This
is representative of situations in which consumers are
shopping from store to store, where not all the attribute
information is available in front of them, and they have to
retrieve relevant information about the brands from memory in
order to make a judgment or choice. But there are other
situations in which even the brand name has to be generated
from memory, irrespective of whether the attribute
information is readily available or not. As noted above, the
consumer might be faced with a variety of choice environments
which offer different types of information at the time of
decision making.
Implications
Whether the choice is stimulus-based or memory-based has
implications for the alternatives considered and the
informational inputs that are used in decision making
(Nedungadi 1987) When the choice is memory-based, the size
of the consideration set will depend on the consumers'


131
Implications
This research has demonstrated that it is possible to
make predictions about the potential effects of advertising
on price elasticity by examining its effects on the two key
constructs. They are the size of the consideration set and
the dispersion of brand-utilities. Price elasticity is
positively related to the size of the consideration set and
negatively related to the dispersion of utilities across the
various brands. These two variables mediate the relationship
between advertising and price elasticity, and the net effect
depends on the strength of the parameters. Different kinds
of advertising and the decision environment have different
effects on these parameters.
Environmental factors affecting the mediating role of
consideration set size. In cases in which brand name recall
is not important for the consumer to generate the
consideration set, the effects of advertising on the memory
for brand names is not likely to be the major determinant of
the size of the consideration set. For example, if a
customer relies on the salesperson's recommendations for
purchasing a durable good, then the reminder function of
advertising has a lesser role. Here, advertising's effects
on price sensitivity will be primarily based on ad-induced
dispersion of preferences. The greater the variance in
preference for the brands caused by advertising, the lesser
will be the price sensitivity.


147
APPENDIX IA-4
LIST OF BRANDS USED AS DISTRACTORS IN RECOGNITION TASK
Wunderbar
Aero
Coconut
Bounty
Glossettes
Five Star
Gems
Jersey Milk
Big Turk
Nutties
Snack
Grand Slam


75
Stimuli
The product category used for this study was candy bars.
Since the experiment used real products and real ads for
these products it was necessary that the existing advertising
for the products had certain desirable properties. First,
for the purpose of this experiment it was necessary to have a
product category with which subjects were relatively familiar
so that they could make trade-offs between prices and other
attributes relatively easily. Second, it was necessary that
it be a category in which there exists attribute-based
differentiation among brands so that it is likely that the
advertising could highlight such differences. In both these
respects the product class of candy bars was considered
appropriate for the study.
The study attempted to examine the effect of advertising
on price sensitivity mediated by preferences and the size of
the consumers' consideration set. In order to be able to
draw unambiguous conclusions about the effect of advertising
on these mediating variables it was also crucial that the
subject population not have prior familiarity with the brands
and the ads that were to be used in the experiment .
Therefore the stimuli for the study were twelve Canadian
candy bars.


I would like to thank Nielsen-Cadbury Canada, Rowntree
Macintosh Canada and Hershey Canada for making available the
television commercials and also for generously providing
samples of the candy bars that were used for the experiment.
Very special thanks go out to Eric Olson, for writing
the computer program that was used for the study. In spite
of his busy schedule, he has made himself available and
forgave all the impositions that I made on his time. I
shudder to think of how much longer the data collection and
analysis would have taken, had it not been for him. Eric
entertained all my request s small and big, and as a poor
graduate student I could not offer any monetary incentive
suitable for the amount and quality of effort that he put in.
Although in such instances words are quite inadequate to
express the depth of feeling, for the lack of a better
option, it is with words that I must offer my sincerest
thanks to him for making this dissertation possible within a
reasonable length of time.
The past few years have been hard, but I was also lucky
to have a few good friends whose faith in me has been a
reservoir of strength that I could draw on when everything
else seemed hopeless. I wish to express heartfelt thanks and
gratitude to Malay and Dola Ghosh, Sudip and Sarmila, and all
my friends in the Marketing Department, who in their
respective ways, have helped me through the rough times.
Finally, I would like to express my sincere thanks to my
family for their constant support and unquestioning faith in
iv


47
H2a. When choice is stimulus-based, differentiating
advertising will result in decreased price sensitivity
compared to a situation of no advertising.
H2b. When choice is stimulus-based, there will be no
significant effect of reminder advertising on price
sensitivity compared to a situation of no advertising.
H3. When choice is memory-based, there will be a significant
effect of advertising on price sensitivity.
H3a. When choice is memory-based, advertising that seeks to
differentiate the brand from competing brands will
result in decreased price sensitivity compared to a
situation of no advertising.
H3b. When choice is memory-based, reminder advertising of all
brands will result in greater price sensitivity compared
to a situation of no advertising.
Overview of Research Methodology
Three experiments were designed to test the hypotheses
concerning advertising and price elasticity, mediated by the
two constructs of interest, namely, size of the consideration
set and the dispersion in preferences for the various brands.
The first two experiments served as pretests for Experiment 3
which examined the effect of advertising on price
elasticities. In order to help the reader understand the
issues in the design of Experiment 3 that Experiments 1 and 2


APPENDIX II
DETAILED LISTING OF STIMULI AND TASKS FOR EXPERIMENT 3


15
attempt to answer questions regarding the implications of
advertising for market competition versus monopoly power.
Empirical Evidence
There have been few empirical studies that directly test
the relationship between advertising and price elasticity
(Ornstein 1977). Some researchers in economics have found
support for the monopoly view of advertising, using data at
the brand-level (Lambin 1976) and at the industry-level
(Comanor & Wilson 1974). Thus, both aggregated and
disaggregated econometric studies have shown advertising to
reduce the price elasticity of demand. Some marketing
researchers who have specifically tested for the effect of
advertising on elasticities have also found support for the
view that advertising decreases price elasticity of demand
(Krishnamurthi & Raj 1985).
However, it becomes more difficult to make general
statements about the impact of advertising on price
elasticity when we examine the work done by other researchers
in marketing. Using cross-sectional and time-series data,
Wittink (1977) found a positive relationship between
advertising and price elasticity, consistent with the
information approach. Other researchers who have also drawn
similar conclusions, i.e., that advertising increases price
sensitivity, have not measured price elasticity in response
to advertising, but have examined price sensitivity through
price advertising interactions (Eskin 1975; Eskin & Baron


113
TABLE VI-22
PRICE ELASTICITY IN STIMULUS-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
16.45361206
1
1.90
0.155
SEQ
103.76050235
15
0.80
0.788
AD*SEQ
100.72778704
15
0.77
0.769
SS/ENV,AD,SEQ
820.53705672
95
Price elasticity in memory-based decision environments.
Under the memory-based condition there were significant
differences in price elasticity across advertising
conditions, F(2,95) = 12.72, ^ < .001, (CO2 = .04). Thus the
evidence supports H3, that there will be a significant simple
effect of advertising on price elasticity in the memory-based
condition. Tables VI-23 to VI-25 present the results of the
analyses of planned comparisons to test for the effects of
reminder and differentiating advertising on price
sensitivity.
Compared to the no advertising condition, price
elasticity was greater in the differentiating advertising
condition (M = -0.94), but this difference was not
significant, £1(1, 95) = 3.70, p. < .10. Thus there was no
support for H3a that differentiating advertising would reduce
price elasticity.


38
set, differentiating advertising is likely to reduce the
consumer's motivation to retrieve brands for consideration at
the time of choice.
The Decision Environment
The environment in which the choice is made has a
potential role in moderating the effects of advertising on
the consideration set and the dispersion of brand-utilities.
Decision environments differ in terms of the degree to which
the consideration set is driven by external factors such as
salesperson's recommendations or point-of-purchase display,
or by the information that the consumer has to access from
memory.
Consider the case of the consumer who is deciding on the
store at which to shop. Decisions such as this are
necessarily memory-based. Consumers do not have all the
alternatives available to them at the time of choice, and
therefore must retrieve the information from memory. This is
the pure 'memory-based' choice situation, in which the
environment does not provide any of the relevant information
(on brand names or attributes) at the time of choice, and the
consumer has to retrieve the information from memory.
There are other situations in which the consumer could
rely on external cues (in whole or in part) for the
generation of alternatives. For example, consider the
consumer walking down a supermarket aisle. In this
situation, the consumer has brand and attribute information


148
APPENDIX IB-1
INSTRUCTIONS FOR BRAND NAME RECALL TASK
Earlier you saw information on several brands of candy
bars Your task is to recall as many brand names as
possible. Please list them in the space provided below.


55
All subjects were exposed to some basic product and
package information about the various brands before they saw
any ads. This was intended to stimulate real-world
situations in which subjects typically have access to
information sources other than advertising. Therefore the
purpose of providing the initial information was to give
subjects a preliminary basis for forming relative preferences
among brands. This was considered to be especially important
for subjects who were not to be exposed to advertising.
Otherwise, these subjects would have no basis for choice
(from novel brands) other than price. Afterward, subjects in
the two advertising conditions were exposed to advertising,
which was the second source of information about the brands.
However, if subjects in the no-advertising condition had
perfect recall of the initial attribute information that they
were exposed to, they were more likely to have a well-defined
preference ordering for the brands. In such a situation,
advertising would be less likely to result in significant
increases in the dispersion of brand-utilities. In short, for
advertising to have the desired effects on the size of the
consideration set and preferences, it was considered
important that there should be differences among the three
advertising conditions in terms of the information that is
accessible.
Effects of advertising on interbrand differences in
preference. Advertising conveying information that produces


REFERENCES
Alba, J. W., & A. Chattyopadhyay (1985), "The Effects of
Part-List Cuing on Attribute Recall: Problem Framing at the
Point of Retrieval," in Advances in Consumer Research. 12,
eds. E. C. Hirschman & M. B. Holbrook, Provo, UT: Association
for Consumer Research, 410-413.
Alba, J. W., & A. Chattyopadhyay (1986), "Salience Effects in
Brand Recall," Journal of Marketing Research, 23, 363-369.
Alba, J. W., & J. W. Hutchinson (1990), "Public Policy
Implications of Consumer Knowledge," in Advances in Marketing
and Public Policy, 2, ed. P. N. Bloom, Greenwich, CT: JAI
Press, Inc, forthcoming.
Alba, J. W., Hutchinson, J. W. & J. G. Lynch (1990),"Memory
and Decision Making," in Handbook of Consumer Theory and
Research, eds. T. S. Robertson & H. K. Kassarjian, Prentice-
Hall, Inc, forthcoming.
Alba, J. W., & H. M. Marmorstein (1987), "The Effects of
Frequency Knowledge on Consumer Decision Making," Journal of
Consumer Research, 14, 14-25.
Albion, M. S., & P. W. Farris (1981), The Advertising
Controversy, Boston, MA: Auburn House Publishing Company.
Albion, M. S., & P. W. Farris (1983), Advertising's Hidden
Effects: Manufacturers' Advertising and Retail Pricing.
Boston, MA: Auburn House Publishing Company.
Bain, J. S. (1956), Barriers to New Competition. Cambridge,
MA: Harvard University Press.
Benham, L.(1972), "The Effect of Advertising on the Price of
Eyeglasses," Journal of Law and Economics, 15, 337-351.
Bettman, J. R., & P. Kakkar (1977), "Effects of Information
Presentation Format on Consumer Information Acquisition
Strategies," Journal of Consumer Research, 3, 233-240.
Bettman, J. R., & M. Sujan (1987), "The Effects of Framing on
Evaluation of Comparable and Noncomparable Alternatives by
Expert and Novice Consumers," Journal of Consumer Research,
14, 141-154.
177


87
typed brand names for which they wanted price information.
The instructions for this condition are detailed in Appendix
IID-2. Subjects in the memory-based choice condition did not
have such a list available to them, and had to retrieve brand
names from memory. The introduction and instructions for the
memory-based condition are detailed in Appendix IID-3.
Subjects could search for price information on as few or
as many brands as they wished. When subjects requested
information by typing in the brand name, the computer
responded with the price for that particular brand. The
prices at which a subject saw a particular brand on a
particular trip depended on the sequence number that s/he was
assigned at the beginning of the experimental session. As
noted earlier, across the sixteen shopping trips a subject
saw brand-price profiles in one of sixteen possible
sequences.
After they had finished searching for information on
prices, they were instructed to allocate their budget of
$3.00 among candy bars of their choice. After each purchase,
the computer computed the remainder of the budget that was
still available. After completing one particular trip,
subjects went on to the next trip.
Advertising Exposure #2. Since the shopping trips were
very similar to each other, it was felt that the positive
effects of advertising on consideration set size would not be
as strong with only one exposure to advertising. Thus there


88
would be a tendency for only a few brands to be included in
the consideration set. In order to increase the power to
detect significant effects, subjects in the two advertising
conditions were exposed to ads for the candy bars once more
after completing eight shopping trips. The sequence in which
they saw the ads for the brands during the second exposure
was the same as in the first exposure.
After this, subjects went on the remaining shopping
trips for candy bars, with prices varying from one trip to
another. In all these trips, subjects allocated $3.00 among
candy of their choice. Subjects who had finished earlier
than the others were instructed to wait quietly for the other
participants to complete the experiment.
After they had completed the sixteen shopping trips,
subjects were asked what strategies they had used in making
their choices. They were also told that the computer would
randomly select one of the 16 shopping trips for each of
them and that they would get the candy bars that they had
purchased on that shopping occasion. They were thanked for
their participation and informed that they could collect
their candy bars at the end of the semester.
The results of this study are presented in the next
chapter.


95
TABLE VI-5
CONSIDERATION SET IN MEMORY-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
142.87719727
1
36.78
0.001
SEQ
37.16577148
15
0.63
0.717
AD*SEQ
47.53295898
15
0.81
0.514
SS/ENV,AD,SEQ 369.49648233
95
TABLE VI-6
CONSIDERATION SET IN MEMORY-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
26.20667614
1
6.99
0.010
SEQ
49.62470911
15
0.84
0.750
AD*SEQ
29.13850565
15
0.49
0.909
SS/ENV,AD,SEQ 369.49648233
95
TABLE VT-7
CONSIDERATION SET IN MEMORY-BASED ENVIRONMENT
DIFFERENTIATING VERSUS REMINDER ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
42.96306818
1
11.06
0.010
SEQ
53.16983876
15
0.91
0.698
AD*SEQ
52.12819980
15
0.92
0.684
SS/ENV,AD,SEQ 369.49648233
95


163
APPENDIX IIB-2
GROUPING OF SEQUENCE FACTOR FOR COUNTERBALANCING ORDER
OF PRESENTATION OF BRAND TRIPLES
STIMULUS-BASED
MEMORY-BASED
NO-AD
R
D
NO-AD
R
D
ORDER 1
SEQ 1,8, 9, 16
ORDER 2
SEQ 3,6,11,14
ORDER 3
SEQ 2,7,10,15
ORDER 4
SEQ 4,5,12,13


22
consideration set. Empirical research has also shown that
advertising for a brand can substantially inhibit the recall
of competing brands (Alba & Chattyopadhyay 1986) This has
important implications for situations in which an alternative
has to be remembered to be considered. For example, when
consumers decide which stores they want to patronize, all the
alternatives are not arrayed in front of them. Thus, they
have to retrieve relevant information from memory. In this
case, if advertising for a few stores dominates the media,
these stores are likely to be salient in the consumer's mind
relative to unadvertised stores. In this way, advertising
might ensure inclusion of the advertised brand for
consideration and thus influence the choice decision by
altering the size of the consideration set (Silk & Urban
1978) .
The effects of advertising on consumer decisions allow
us to derive its implications for revealed price sensitivity.
If price is considered to be an argument in a multi-attribute
utility function (Huber et al. 1986), then all other things
being equal, the greater the number of brands in their final
consideration set, the more price sensitive consumers are
likely to be (Lynch & Bloom 1987) Thus, if advertising
increases the size of the consideration set by ensuring
inclusion of advertised brands, it leads to increased price
sensitivity. This implies that advertising for a particular
brand leads to increased price sensitivity for competing


98
range, on an average there should not be any significant
differences in the percentage of budget allocated to the 12
brands. Therefore, the variance in the percentage of budget
allocated to the various brands was expected to be small in
the absence of advertising. When differentiating advertising
provides attribute information that leads to some brands
being perceived to be clearly superior to others, the
variance is expected to increase. Reminder advertising is
not expected to increase the dispersion in the proportion of
budget allocated to the various brands.
Share of budget allocated to top brand. For the
individual subject, the percentage of budget allocated to the
top brand was computed. It was expected that under the no
advertising condition where there were no clearly superior
alternatives, the share of the budget allocated to the top
brand would be lower compared to the differentiating
advertising condition. In the latter case, it was predicted
that the share of the top brand would be higher because there
would be a greater tendency on the part of subjects to buy a
favored brand irrespective of the price.
Number of brands ever chosen. For each subject, the
number of brands ever purchased across the 16 shopping trips
was computed. It was expected that in the absence of
differentiating information on attributes of the brands,
consumers would be relatively indifferent between options.
Therefore it could be expected that in the no advertising


63
exposed to such ads. The attributes considered were those
that were initially presented to all subjects. An analysis
of variance conducted on the total number of brand-attributes
correctly recalled in the differentiating advertising
condition (M = 6.50) and the no advertising condition (M =
4.75) approached significance, £(1,21) = 2.95, p. < .10, (CO2 =
.04) As expected, subjects in the reminder advertising
condition (M = 5.00) did not differ significantly from those
in the control condition (M = 4.75) on the number of
attributes correctly recalled, £(1,21) < 1. Thus the results
were in the predicted direction, indicating that there was a
simple effect of differentiating advertising on attribute
recall scores.
Effects of advertising on interbrand differences in
preference. It was predicted that advertising that results
in real or image-based differentiation will change the
utilities and the variance in utilities for the various brand
alternatives. Thus we would expect the mean preference
ratings and the variance in ratings to be higher when
subjects are exposed to differentiating advertising compared
to the no advertising condition. An analysis of variance
conducted on the mean preference ratings across the
advertising conditions was significant, £(2,21) = 3.38, p. <
/v 2
.05, (CO = .17) There were no significant differences in
mean ratings between the differentiating advertising
condition (M =4.8) and the no advertising condition (M =


182
Consumer Research, 6, ed. W. W. Wilkie, Ann Arbor, MI:
Association of Consumer Research, 227-231.
Prasad V. K., & L. W. Ring (1976), "Measuring Sales Effects
of Some Marketing Mix Variables and their Interactions,"
Journal of Marketing Research. 13, 391-396.
Shugan, S. M. (1980), "The Cost of Thinking," Journal of
Consumer Research, 7, 99-111.
Satterthwaite, F. E. (1946), "An Approximate Distribution of
Estimates of Variance Components," Biometrics Bulletin, 2,
110-114.
Silk, A. J., & G. L. Urban (1978), "Pre-Test Market
Evaluation of New Packaged Goods: A Model and Measurement
Methodology," Journal of Marketing Research, 15, 171-191.
Steiner, R. L. (1978), "A Dual Stage Approach to the Effects
of Advertising on Competition and Prices, in Marketing and
the Public Interest. Report No. 78-105, ed. J. Cady, Boston,
MA: Marketing Science Institute, 127-150.
Stigler, G. (1961), "The Economics of Information," Journal
of Political Economy, 69, 213-225.
Telser, L. G. (1963), "Advertising and Competition," Journal
of Political Economy, 72, 537-562.
Upshaw, H. S. (1962), "Own Attitude as an Anchor in Equal
Appearing Intervals," Journal of abnormal and Social
Psychology. 64, 85-96.
Wyer, R. S. (1974), Cognitive Organization and Change : An
Information Processing Approach, Potomac, MD: Lawrence
Earlbaum Associates.
Wilkie, W. W., & P. W. Farris (1976), Consumer Information
Processing: Perspectives and Implications for Advertising.
Report No. 76-113, Cambridge, MA: Marketing Science
Institute.
Wilkie, W. W., & E. A. Pessemier (1973), "Issues in
Marketing's use of Multi-Attribute Models," Journal of
Marketing Research. 10, 428-441.
Wittink, D. R. (1977), "Advertising Increases Sensitivity to
Price," Journal of Advertising Research, 17, 39-42.


1
2
3
4
5
6
7
8
9
10
11
12
159
APPENDIX IIA-1 continued
PRICE PROFILES FOR THE TWELVE BRANDS
ACROSS LAST 8 SHOPPING TRIPS
SHOPPING TRTPS
9 10 11 12 13 14 15 16
H H
L L
H H
L L
L H
H H
H L
H L
H L
H L
L H
H H
H H
L L
H H
H H
L H
L L
L H
L H
H L
H L
H L
L L
H
H
L
L
L
H
L
H
L
H
H
L
H
H
L
L
H
H
H
L
H
L
L
L
H H
H H
L L
H H
L H
L L
H L
L H
L H
H L
L H
H H


171
APPENDIX IID-1
INSTRUCTIONS BEFORE EXPOSURE TO ADVERTISING
You will now be seeing ads for the candy bars before you
resume shopping. The experimenter will show the ads only
when all of you are done with your shopping. So if you have
finished before the others, please wait quietly for the other
participants to finish also. DO NOT PRESS NOW.
Only after you have watched the ads should you press
to continue....


10
and the industry as a whole to charge higher prices and
obtain higher profits (Comanor & Wilson 1979). Central to
this thesis is the concept of product differentiation.
Proponents of the monopoly view (Steiner 1978) often cite the
example of national brands of aspirin which dominate the
market, in spite of the fact that private-label products are
physically identical and sell for less than half the price.
The market power view also postulates that advertising by
incumbents also creates barriers to entry for new firms in an
industry and leads to increased concentration (Bain 1956;
Kaldor 1950) This model, though founded on assumptions
about consumer reactions to advertising, mainly focuses on
the nature of competition within the industry. That is, the
focus is on supplier rather than consumer behavior.
An alternative to the change-of-tastes approach has
developed from the economics of information theories,
beginning with the work of Stigler (1961). According to this
view, advertising acts to change the information upon which
consumer decisions are based, but not the criteria for
judgment. For example, advertising might succeed in
convincing a consumer that a certain product has a lower
price, is more durable and is easier to use than another
product, but it does not alter the consumer's beliefs about
the relative importance of the attributes. In other words,
it is assumed that consumers have well-defined rankings of
desired attributes which are unaffected by advertising.


109
TABLE VI-18
ANALYSIS OF VARIANCE
UNIVARIATE TESTS OF HYPOTHESES FOR WITHIN SUBJECTS EFFECTS
SOURCE
TYPE III SS
DF
F VALUE
P > F
BRAND
152.29064736
11
4.03
0.0001
BRAND*ENV
23.66011338
11
0.63
0.8075
BRAND*AD
56.13321359
22
0.74
0.7971
BRAND*ENV*AD
124.03344868
22
1.64
0.0316
BR*SEQ
504.17150129
165
0.89
0.8275
BR*ENV*SEQ
615.79173623
165
1.09
0.2309
BR*AD*SEQ
1274.17431349
330
1.12
0.0905
BR*ENV*AD*SEQ
950.01510608
330
0.84
0.9732
BR*SS/ENV,AD,SQ
3589.46828
1045
TABLE VT-19
MEAN PRICE ELASTICITY
ENVIRONMENT
STIMULUS
MEMORY
BASED
BASED
ADVERTISING
NONE
-2.02
-0.53
REMINDER AD
-1.54
-1.59
DIFFERENTIATING
-1.24
-0.94
In the absence of advertising, price elasticity was
greater in the stimulus-based environment (M = -2.02) than in
the memory-based environment (M = -0.53), F(l, 95) =36.44, jg <
2
.001, (0) = .08) This finding lends strong support to HI
that the price elasticity will be greater under stimulus-


45
2. Price elasticity is a positive function of consideration
set size.
3a. Differentiating advertising conveys more utility
relevant information than reminder advertising. Thus,
it can be expected to have greater effects on interbrand
variance in utilities than reminder advertising.
3b. Reminder advertising will have minimal effects on the
interbrand dispersion of utilities compared to a
situation of no advertising.
4. The size of the consideration set is a function of
certain voluntary and involuntary factors It is
positively related to the ability and motivation of the
consumer to retrieve a certain number of brands from
memory. Anything that increases (decreases) the ability
or the motivation to retrieve brands for consideration
will increase (decrease) the size of the consideration
set.
5. Both reminder and differentiating advertising can
facilitate retrieval of brands.
6. When the environment provides the names of all relevant
brands (stimulus-based environment), the primary effect
of advertising on the consideration set will be through
its effect on the dispersion of preferences.
Specifically,
6a. Reminder advertising of all brands will not have a
significant effect on the size of the consideration set


105
frequencies (M = 4.93) compared to the no advertising
condition (M_ = 4.25), and this effect approached
significance, F.(l,62) = 2.67, p. < .11, (CO2 = .02) The
results are presented in Table VI-13.
The dispersion in the proportion of budget allocated to
the various brands were lower in the reminder advertising
condition (M = .09) than in the no advertising condition (M =
.08), and this difference approached significance F.(l,62) =
3.16, p. < .08, (co2 = .02) These results are presented in
Table VI-14.
An analysis of variance on the share of budget allocated
to the top brand across these two advertising conditions was
not significant, F(1.62) = 2.12, p < .15, (CO2 = .01). These
results are presented in Table VI-15. Results (presented in
Table VI-16) show that the average number of brands ever
chosen did not significantly differ between the reminder
advertising condition and the no advertising condition,
F(1,62) = 2.22, p < .15.
TABLE VI-13
DISPERSION IN CHOICE FREQUENCIES
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ADVERTISING
7.51580254
1
2.67
0.1118
SEQ
39.84124419
15
0.94
0.5259
AD*SEQ
29.03591569
15
0.69
0.7763
SS/AD,SEQ
89.95440461
32




Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
THE IMPACT OF ADVERTISING ON CONSUMER PRICE SENSITIVITY:
A BEHAVIORAL ANALYSIS
By
Anusree Mitra
August 1990
Chairman: John G. Lynch, Jr.
Major Department: Marketing
The dissertation investigates the impact of advertising
on consumer price sensitivity. Two opposing schools of
economic thought, the information school and the market power
school, have postulated divergent theoretical accounts about
the way advertising influences consumer behavior and have
made conflicting predictions about the direction of change in
price sensitivity. The fragmentary empirical evidence does
not provide clear support for either theory.
This dissertation postulates that two basic theoretical
constructs 'mediate the effect of advertising on price
sensitivity: size of the consideration set and the dispersion
of brand utilities. It is suggested that advertising content
and the decision environment have a potentially different
effects on these two constructs.
viii


130
The significant differences in price elasticity between
the differentiating advertising condition and the control
condition strongly support the prediction that
differentiating advertising increases the interbrand
variance in preferences and thereby decreases price
elasticity. As compared to the control condition, even
reminder advertising reduced price elasticity in the
stimulus-based environment. This is consistent with the
finding that reminder advertising influenced the dispersion
of utilities, although the effect was not as large as in the
case of differentiating advertising. The results as a whole
suggest that when brand names are readily available and
consumers rely on this information to generate the
consideration set, the effects of advertising on price
elasticity are primarily mediated by its effect on the
distribution of perceived utilities for the various brands.
From these results, it is possible to conclude that when
brand names have to be recalled from memory, price elasticity
is a function of both the size of the consideration set and
the dispersion of brand-utilities. Advertising has a
potential effect on both these constructs. The net impact of
advertising on price elasticity therefore depends on the
strength of its effects on these two variables. In the
stimulus-based environment, the effect of advertising on
price elasticity is a function of its effect on interbrand
variance in preference.


90
across the 16 shopping trips. The data were analyzed to test
for the effects of Decision Environment, Advertising
Condition and Sequence of Presentation on the number of
brands considered per shopping trip. The results from an
analysis of variance are presented in Tables VI-1 and VI-2.
TABLE VI-1
ANALYSIS OF VARIANCE
SOURCE TYPE III SS DF F VALUE P > F
ENVIRONMENT
61.
.45314514
1
15 ,
.82
0.
.0001
ADVERTISING
52 .
. 50655754
2
6.
.76
0.
.0018
ENVIRON*AD
98,
. 99685669
2
12 .
.74
0.
.0001
SEQ
42 ,
,59451248
15
0 .
, 73
0.
.7476
ENV*SEQ
57 ,
, 52642877
15
0 .
, 99
0 .
.4748
AD*SEQ
50 .
, 40397701
30
0.
.43
0 .
. 9947
ENV*AD*SEQ
113 ,
, 16476440
30
0.
, 97
0.
.5197
SS/ENV,AD,SEQ
369.
,49648233
95
TABLE VI-2
MEAN CONSIDERATION SET SIZE
ENVIRONMENT
STIMULUS
MEMORY
BASED
BASED
ADVERTISING
NONE
5.24
2.26
REMINDER AD
4.72
5.25
DIFFERENTIATING
4.56
3.59


48
were intended to resolve, a brief overview of Experiment 3 is
provided first.
Pesian
This section presents the overall methodology employed
in the Experiment 3, which utilized a computer-based shopping
simulation. Three factors were manipulated in the
experiment. A 2X3X12 design was used, with Decision
Environment (Stimulus-based / Memory-based) and Advertising
Condition (Differentiating / Reminder / No Ads) as between-
subjects factors. Prices of twelve brands were manipulated
(High / Low) within-subjects, independently of each other,
allowing independent estimation of the price elasticities of
the 12 brands. These price elasticities served as the
primary dependent measures. Subjects participated in groups
of one to four, with each group being randomly assigned to
one of the six cells of a 2X3 between-subjects design.
Procedure
Subjects were initially exposed to attribute information
on twelve brands of Canadian candy bars that were previously
unfamiliar to them. After demonstrating by a recognition
task that they were 'aware' of the brands, they were
dismissed. They came back to the laboratory at a later point
in time, when they were required to go on 16 shopping trips
for candy bars.
The subjects' objective on each of the 16 shopping trips
was to maximize satisfaction given a budget of $3.00 per


120
and Albion 1980) Yet research in this area has not
explicitly examined the effects of variations in advertising
themes on consumer behavior. This study postulated that it
is the content and not simply the volume of advertising as
has been traditionally studied, that determines consumer
responses.
It has been suggested (Lynch & Bloom 1987) that the
effect of advertising on consumer price sensitivity can be
better understood by an examination of the role of
advertising in the choice decision. This dissertation has
empirically examined the framework offered by these authors
and investigated the basic causal mechanisms underlying the
effect of advertising on consumer price sensitivity in an
attempt to understand and predict the direction of change.
Two key theoretical constructs were postulated to mediate the
relationship. The first is the size of the consideration
set, which consists of brands that the consumer actively
considers at the time of choice. The second is the
distribution of preferences for brands in the consideration
set.
It was proposed that different types of advertising
affect both constructs, but have potentially different
effects on the relative importance of these two mediating
variables. For example, differentiating advertising has
stronger effects than reminder advertising on the
distribution of brand-utilities, but reminder advertising has


137
Future Research
Effects of urior experience. This study considered the
effects of advertising on price elasticity for brands which
are unfamiliar. It is likely that, in the case of familiar
brands, the effects of advertising-induced dispersion of
interbrand utilities on price elasticity will be smaller.
Future research can examine how prior knowledge moderates the
effects of advertising on the two key constructs.
Framing effects on the weights of price and non-price
attributes. This study has considered how advertising might
influence price elasticity by altering the distribution of
interbrand preference. Another way in which advertising
might potentially reduce price sensitivity is by increasing
the salience of non-price attributes and thereby decreasing
the importance of price. Thus, advertising can cause
consumers to 'frame' their choices in terms of the evaluative
criteria suggested by advertisers (Bettman & Sujan 1987; Alba
& Hutchinson 1990). It has been reported that increasing the
salience of product attributes suppresses the ability to
recall unmentioned attributes (Alba & Chattyopadhyay 1985).
Also, by increasing the salience of a particular attribute,
advertising might ensure that this attribute is used in
subsequent evaluations, and thereby increase the effective
weight given to that attribute (Feldman & Lynch 1988). Taken
together, this suggests that advertising, by increasing the
salience of non-price attributes, could lead to decreased


168
APPENDIX IIC-3
INTRODUCTION TO THE PRACTICE SHOPPING TRIPS
Before shopping for candy bars, you will go on four
practice shopping trips to familiarize yourself with the
shopping task on the computer. For the practice shopping
trips, the product category will be soaps. Remember, the
prices of the different brands will be varying from one
shopping occasion to the next.
The objective of the practice trips is to give you an
idea of shopping on the computer. You can spend the $3.00 on
one or more brands, in any combination you like.
Press to continue....


BIOGRAPHICAL SKETCH
Anusree was born January 10,1961, in Calcutta, India.
From 1965 to 1976 she attended Modern High School at Calcutta
and completed the Higher Secondary Examination in 1979. For
the next three years she pursued an undergraduate degree in
economics at the Presidency College at Calcutta. She
graduated in 1982 with honors in economics and a minor in
mathematics.
She then entered the Post-graduate Program in Management
at the Indian Institute of Management (I.I.M.) Calcutta in
July 1982. In April 1984, she received her master's degree
in Management from I.I.M., having specialized in marketing
and finance.
In 1984 Anusree joined Lintas India Limited, a member of
the SSC&B:LINTAS Worldwide Advertising Network. She worked
as account executive and worked on advertising campaigns for
Lever Brothers, Union Carbide, among other accounts.
She gave up the job in advertising in order to pursue
doctoral studies in the United States. In Fall 1985, she was
admitted to the Ph.D. program in marketing at the University
of Florida and has worked towards her degree since that time.
During her term in the doctoral program, Anusree
acquired teaching experience as an instructor for the
183


96
consideration set was significantly smaller under the
differentiating advertising condition (M = 3.59) compared to
the reminder advertising condition (M = 5.25), £.(1,95)
= 11.06, p < .01. This suggests differentiating advertising,
which provided more information on the relative utilities of
the brands, resulted in reduced motivation to consider less
favored options. The significant differences in
consideration set size across these two advertising
conditions suggest that the motivation to recall brand names
did have a role in determining the size of the consideration
set. Thus, though both types of advertising increased the
ability to recall brand names from memory, they
differentially affected the motivation to retrieve brand
names in a prepurchase situation under which the objective
was to search for prices. In the latter case, only the
preferred brands were likely to be retrieved. An analysis of
the effects of the two types of advertising on the preference
lends further support for this prediction.
Measures of Interbrand Variance in Preference
Four behavioral measures of preference were used for the
purposes of examining the effect of differentiating
advertising on the dispersion of brand-utilities. These were
determined from subjects' purchases of various brands under
the different price conditions that they faced. For the
individual subject, the following measures of preference (as
revealed by their purchases) were computed.


138
price sensitivity. Conversely, price advertising, typical of
supermarket advertising for packaged goods, can increase the
salience of price and suppress the salience of non-price
attributes. Bettman and Sujan's (1987) work suggests that
these effects will be stronger for consumers low in prior
knowledge. Future research could study the effect of
advertising price versus non-price attributes on price
elasticity.
Effects of interbrand variance in the amount of
advertising. In this experiment, all brands were advertised,
and therefore advertising had a significant positive effect
on recall and consideration set size. This led to an
increase in price elasticity. In the real world, some brands
are advertised, and marketers' tactics can increase recall
deficits of consumers (Alba & Hutchinson 1990). Research has
shown that presenting a subset of brands is likely to inhibit
the recall of competing brands (Alba & Chattyapadhyay 1985).
Thus if some big advertisers get a large share of exposures,
unadvertised brands have a lower chance of being considered
and therefore of being chosen. Future research can examine
the effect of unequal levels of advertising by competitors on
the resulting price elasticity. This would be of interest to
managers and public policy makers.


108
ANOVA effects treating brands as fixed. The data were
analyzed in a mixed ANOVA design with between-subjects
factors of Advertising Condition, Decision Environment and
Sequence, with Brands as a repeated factor (3 X 2 X 16 X 12).
Results are first presented treating all factors, (including
Brands) as fixed. This would imply that statistical
generalizations from this experiment are limited to effects
observed with the specific brands that were used in the
study. The results are presented in Table VI-17 to VI-19.
Results indicate that there was a significant effect of
decision environment, advertising condition and the
Advertising X Environment interaction. Analyses of planned
contrasts were conducted to better understand the locus of
these effects on price elasticity.
TABLE VI-17
TESTS OF HYPOTHESES FOR BETWEEN SUBJECTS EFFECTS
SOURCE
TYPE III SS
DF
F VALUE
P > F
ENVIRONMENT
190.80058080
1
22.09
0.0001
ADVERTISING
85.14927157
2
4.93
0.0092
ENV*AD
252.53599766
2
14.62
0.0001
SEQ
92.52268851
15
0.71
0.7646
ENV*SEQ
136.42643032
15
1.05
0.4102
AD*SEQ
248.41869797
30
0.96
0.5357
ENV*AD*SEQ
310.57843835
30
1.20
0.2515
SS/ENV,AD,SEQ
820.53705672
95


24
comparison ads of standardized products might increase price
sensitivity both by providing more information as suggested
by economic analysis and by the behavioral mechanism of
increasing salience of price and inhibiting the salience of
non-price attributes (Bettman & Sujan 1987; Feldman & Lynch
1988; Lynch & Bloom 1987) Image' advertising of
heterogeneous, differentiated products might reduce price
sensitivity by increasing the importance of non-price
attributes in the consumer's utility function. Hence, an
examination of this relationship should be prefaced by the
particulars of the products advertised and the message
delivered by the ad. If advertising is a multifaceted,
heterogeneous activity, general statements as to the economic
effects of advertising might not be possible or
interpretable. Rather, it would be more reasonable to
examine systematically conditions under which advertising can
be expected to have a positive or negative effect on price
sensitivity.
In the economic literature (and even in the marketing
literature which has attempted to examine price-advertising
interactions), the content of advertising has never been
considered. Rather, the amount of advertising has been
emphasized. However, perhaps the content of advertising is
what is important in terms of its potential effect on price
sensitivity, and this is an important factor to be considered
in the examination of this relationship (Albion & Farris


59
Session 1. All the task instructions for the first
session were administered using the computer. Subjects were
first given an overview and preliminary instructions for the
experiment (detailed in Appendix IA-1). They were told that
the study involved Canadian candy bars which were being
considered for introduction into the local market. They were
then exposed to product and package information (name, weight
and contents) on twelve brands of Canadian candy bars one at
a time. The information on each brand was flashed on the
screen for 15 seconds. The brand description protocols are
detailed in Appendix IA-2.
After being exposed to the brand information, subjects
performed a recognition task, the instructions for which are
detailed in Appendix IA-3. The purpose of this task was to
test whether the brand names were accessible in memory. The
task involved correctly identifying the twelve target brands
from a larger list of twenty four brands (which included 12
distractor brands). The distractor brands (listed in
Appendix IA-4) consisted of Canadian candy bars and were
randomly intermixed with the target brands. Subjects were
judged to have performed satisfactorily on the recognition
task if they were able to correctly identify all the target
brands and had less than 75% failure rate with the
distractors.
Subjects who failed to satisfy the criteria for the
recognition task were exposed to the product and package


APPENDIX IA-1
INTRODUCTION AND PRELIMINARY INSTRUCTIONS
We appreciate your participation in this study which is
concerned with consumer responses to new brands of candy.
During this experiment, you will be required to use the
keyboard to type your responses when prompted by messages on
the screen. After you have finished typing in your response,
press the key (marked with the orange sticker) so
that your responses may be "received" by the computer. In
case of a typing error, you may use the key to
erase the typed letters and retype the correct letters. This
key is located to the right of the number keys at the top row
of the keyboard (just above the key).
Press to continue
140


Three experiments are conducted to examine the role of
such factors in determining the relationship between
\y advertising and price elasticity. The first two studies
examine the effects of advertising on the mediating
constructs, and provide evidence that advertising could have
an effect on the memory for brand names and on the relative
preference for the brand alternatives.
The third experiment uses a computer based shopping
simulation to test 'the relationship between advertising and
price elasticity, mediated by the two key constructs.
Subjects went on shopping trips under two types of decision
environments and three advertising conditions. The effects
on the size of the consideration set, the dispersion of brand
preferences and price elasticity were examined.
The results indicate a very strong interaction effect of
advertising and decision environment on the size of the
consideration set. The content of advertising also had a
significant impact on revealed preference for the various
brands. The direction of change in price elasticity was as
predicted on the basis of the hypothesized mediating roles of
the basic theoretical constructs.
The experiments provide an improved understanding of the
relationship between advertising and price elasticity, by
isolating the underlying causal mechanisms The results
highlight the important mediating influence of consideration
set size and dispersion of brand-utilities in predicting when
advertising will have a particular effect.
ix


160
APPENDIX IIA-2
HIGHEST AND LOWEST PRICES FOR TWELVE BRANDS
IN
THE NO ADVERTISING
CONDITION a
BRAND
HIGHEST LIKELY
PRICE
LOWEST LIKELY
PRICE
Crispy Crunch
64.25
41.75
Caramilk
63.63
42.38
Gold
64.25
41.13
Smarties
60.50
37.38
Breakaway
61.76
39.88
Mirage
66.13
43.00
Eat-more
60.50
39.25
Mr. Big
72.37
47.38
Crunchie
64.25
44.25
Coffee Crisp
62.38
41.75
Dairy Milk
64.88
44.25
Sweet Marie
66.75
46.12
Mean
64.30
42.42
a: Prices are in cents


7
Chapter VII provides a general discussion of the various
findings and the implications of these results for research
on the effects of advertising on consumer behavior.
Managerial and public policy implications of these findings
and directions for future research are also highlighted.


36
As stated in the earlier section, this study will
consider the effects of advertising when all brands are
advertised. If all firms pursue this strategy, there should
not be any inhibition effects resulting from the salience of
a few brands in memory as has been observed by some
researchers (Alba & Chattyopadhyay 1986) In such a case,
reminder advertising of all brands will increase the salience
of brands in memory and thereby increase the size of the
consideration set.
Differentiating advertising. Marketers might also try
to use advertising to differentiate their brands from
competitive offerings and thereby reduce the number of
perceived substitutes. In the real-world, advertising is
often used to position a parity product away from substitutes
with the objective of insulating the brand from competition.
This type of advertising leads to an increase in the
dispersion of brand-utilities among the alternatives in the
consideration set. In other words, differentiating
advertising will result in some brands being perceived to be
clearly superior to others and thereby increase the
probability of these brands being chosen (Hauser & Wernerfelt
1990).
If the focus was on the variations in a single brand's
advertising, this could either increase or decrease
interbrand variance of interbrand utilities. For example, if
the top brand advertises, then this increases variance of


26
attitudes are construed as a linear combination of brand
beliefs and importance-weights on certain attributes.
Marketers often attempt to use advertising to increase
the perceived utility for the sponsored brand. One of the
key benefits of the multi-attribute approach is that it
offers useful guidance in this regard. Consumer researchers
suggest several advertising strategies which can improve
consumer attitudes toward the advertised brand relative to
competitors (Boyd et al. 1972; Lutz 1975). In line with the
theoretical formulation stated above, all these strategies
attempt to improve consumer preferences for the advertised
brand in one of the following ways: (a) by changing existing
beliefs about the brand or competing brands, (b) by
increasing the importance of an attribute on which the brand
is strong, (c) by decreasing the importance of a weak
attribute, and (d) by adding an entirely new attribute (Boyd
et al. 1972) .
In the preceding paragraphs, the various possible ways
in which advertising might change consumer preferences for
the sponsored brand have been outlined. This leads to an
increased likelihood of it being chosen, if it is already
included in the consideration set. This is likely to have
implications for price sensitivity. The mechanisms by which
they could occur are discussed below.
First, advertising for the sponsored brand could change
the distribution of preferences and create a situation in


19
conditions. This approach will consider the possible ways in
which different kinds of advertising (primarily varying in
content) affect consumer responses to advertising and the
resulting price sensitivity.
It is suggested that if the objective is to better
understand the causal relationship between advertising and
price sensitivity, an appropriate focus of study could be
consumer choice as a function of price sensitivity. Hence
the question, properly framed, is: how does advertising
affect consumer choice? Various choice models and mechanisms
have been suggested in the literature (Corstjens & Gautschi
1983; Hutchinson 1986) One particular theoretical
formulation of the choice process (Nedungadi 1987) is very
insightful in this context, where the primary focus is on how
advertising influences price sensitivity through its effect
on consumer choice. In this model, brand choice is
conceptualized as a two-stage process. In order to be
selected, a brand must (a) first be included in the
consumer's consideration set and (b) be preferred to others
in the set. In other words, an alternative must first be
brought to mind and actively considered and must also be
perceived to offer the maximum utility among all members of
the set. It follows that the probability of a brand being
finally chosen can be changed by influencing its inclusion in
the consumer's consideration set or by altering the perceived
utility of that brand relative to others in the set.


30
advertising, by changing preference structure, reduces the
size of the consideration set. This leads to decreased price
elasticity. In this case, it might also affect the
composition of the set, such that the variance in utilities
for brands in the consideration set is less than the variance
for all brands in general. This might imply higher cross
price sensitivity for brands included in the consideration
set.
In this section, the interdependence between preference
and the size of the consideration set was discussed.
Advertising, by changing the relative utilities for the
various product offerings, is likely to alter the size and
composition of the consideration set, which in turn has
implications for price sensitivity.
Summary
Prior conceptualizations regarding the relationship
between advertising and consumer price sensitivity have been
too simplistic in that they have looked for main effects of
advertising. Thus the literature remains confusing and the
disputes unresolved. It is proposed that we can arrive at a
better understanding of the phenomenon by looking at higher-
order interactions involving many other factors and a more
sophisticated treatment of consumer choice behavior.
The proposed framework discussed above attempts to
isolate various possible causal mechanisms by which
advertising affects consumer price sensitivity by affecting


81
in two experimental sessions held on two consecutive days.
All experimental instructions were administered using the
computer, thus limiting the experimenter's role during the
experiment to exposing the subjects to advertising, answering
questions and handling minor administrative details. This
reduced experimenter-induced biases and ensured that all
subjects received the same task instructions. All data were
collected by the computer eliminating the chances of
transcription or keypunching errors.
Subjects participated in batches of one to four each,
Upon entering the room, each subject was randomly assigned to
one of the four sequences nested in an Order. Eight subjects
completed the experiment for each of the 24 between-subjects
cells (described in Appendix IIB-2).
Session 1
Subjects were first given an overview and preliminary
instructions for the experiment. They were told that the
study involved Canadian candy bars which were being
considered for introduction into the local market. They were
then exposed to product and package information on twelve
brands of Canadian candy bars one at a time. The information
on each brand was flashed on the screen for 15 seconds.
The sequence in which this information was presented to
subjects was counterbalanced. The twelve brands were divided
into four triples of three brands each. These are detailed
in Appendix IIB-1. Thus the order of presentation of


79
Stimulus Design for Price Manipulation
The prices of the twelve brands were manipulated within-
subjects at two levels (high or low) independent of each
other. It was determined that sixteen shopping trips were
required in order for prices to vary orthogonally for the
twelve brands. Whether a particular brand was at its high or
low price was varied within subjects in a l/256th fraction of
a 212th within-subjects design. Sixteen brand-price profiles
were constructed such that across these profiles each brand
was at its high price in eight brand price profiles, and at
its low price for the other eight with the prices of the
brands uncorrelated with each other across trials. The
brand-price profiles used for the experiment are detailed in
Appendix IIA-1. The order in which subjects saw these brand
price profiles for the sixteen shopping trips was
counterbalanced across subjects in a 16X16 diagram-balanced
Latin Square design. Thus each subject saw the brand-price
profiles in a particular sequence. There were sixteen such
between-subjects sequences to which subjects were assigned.
The sixteen level sequence factor described above
simultaneously counterbalanced order of presentation of the
sixteen price profiles and the order of presentation of
brand-triples in advertising. The latter will be explained
later.
Subjects were told that the prices of the twelve brands
were to vary from one shopping trip to another. At a


172
APPENDIX IID-2
INSTRUCTIONS FOR SHOPPING TRIPS
STIMULUS-BASED CONDITION
After these practice shopping trips, now you will be
shopping for candy bars. These shopping trips will be
essentially similar to the practice trips. You are given a
list of candy bars that are available and you have to type in
the names of the candy bars on which you want to see price
information.
Remember, prices for these candy bars will be varying
across purchase occasions, so that the best buys(s) on any
particular trip need not be the same on another purchase
occasion. Thus, if you are to get the best value for money,
it is important that you make reasoned choices. Also, you
are required to spend as much of your budget of $3.00 as you
possible can.
Press to continue....


This dissertation was submitted to the Graduate Faculty
of the Department of Marketing in the College of Business
Administration and to the Graduate School and was accepted as
partial fulfillment of the requirements for the degree of
Doctor of Philosophy.
August 1990
Dean, Graduate School


37
utilities. If a less attractive brand advertises, this will
decrease the variance. In this study, all brands advertise.
Under such a scenario, information contained in
differentiating advertising will result in an increase in the
dispersion of utilities compared to the situation when none
of the brands advertise.
Besides affecting preferences for the brands in the
consideration set, differentiating advertising can affect the
size of the consideration set itself. As noted earlier,
consideration set size is a function of not only the ability,
but also the motivation of the consumer to retrieve brands
from memory. Differentiating advertising might be expected
to positively affect the ability to retrieve brands by
keeping brand names salient in memory. Thus, compared to the
situation in which none of the brands are advertised,
differentiating advertising, by increasing the ability to
recall brand names, is expected to increase the size of the
consideration set.
However, by directly affecting the distribution of
perceived utilities for the various brands, differentiating
advertising is also likely to have an indirect negative
effect on the motivation to retrieve brands for
consideration. The higher the utility from the best brand in
the evoked set, the less likely is the consumer to consider a
new brand (Hauser 1989). Thus, by increasing the utilities
and the variation in utilities of brands in the consideration


65
This result provided insight on the preference measure
that was to be used in Experiment 3. Measures of revealed
preference, which are not likely to be susceptible to
response language effects were used rather than rating scale
measures of preference.
Effects of advertising on price perceptions. It was
expected that differentiating advertising would lead to
higher expected prices on the average compared to the control
condition. Mean price estimates for the various brands were
examined as a function of advertising condition.
An analysis of variance on mean price estimates showed
that there were no significant differences between the
differentiating advertising condition (M = 57.34) and the no
advertising condition (M = 53.58), F(l,21) < 1, (co2 < 0).
The dispersion of estimated prices were also predicted to be
higher in the differentiating advertising condition in
comparison to the no advertising condition. An analysis of
the standard deviation of price estimates showed that the
price dispersion was higher in the differentiating
advertising condition (M = 8.66) than in the control
condition (M = 5.50) But although the means were in the
predicted direction, the differences were not significant,
£(1,21) = 1.66 p < .25, (cb2 = .03) .
Although the mean price estimates and the variance in
price estimates showed trend in the predicted direction, the
differences were not significant. Since there were only


175
APPENDIX IID-3continued
In the previous session you were exposed to several
brand names (as well as weight and contents) of candy bars
which are currently available in Canada, and which are now
being considered for introduction into the Gainesville
market. Please type in the name of the brand (s) of candy
bars for which you want price information. You may make a
note of any information that the computer makes available.
TYPE IN THE BRAND NAME AND PRESS RETURN


155
APPENDIX IC-2
INTRODUCTION TO MEMORIZATION TASK
You will now be given a list consisting of brand names
of candy bars available in Gainesville. You are required to
memorize these names.


53
increase the ability of the consumer to recall brand names by
making them more accessible. Both differentiating and
reminder advertising are likely to have similar effects on
free recall of brand names. On the basis of the above
discussion the following prediction was made:
PI. There will be a significant effect of advertising on the
number of brand names recalled correctly.
Thus the proposition tests for significant differences in
memory for brand names when subjects are exposed to
advertising compared to the situation in which none of the
brands are advertised.
In the last chapter it was hypothesized that under
memory-based decision environments, reminder advertising will
increase the size of the consideration set. For such an
effect to hold, it was important to ensure that even though
subjects were aware of the brands, the names were not readily
accessible in memory. If the above proposition is supported,
it implies that advertising could be expected to enhance the
ability to recall and thereby influence the size of the
consideration set.
Effects of advertising on the number of attributes
recalled. It is often suggested that advertising is a source
of valuable information on brand attributes. If this is
true, then differentiating advertising, besides providing
cues for brand name recall, will also result in making
attribute information more salient in memory. In the absence


124
particular brand when it was first introduced, this should be
sufficient for it to be considered at the time of choice.
Consumer researchers (Alba and Chattyopadhyay 1985; Nedungadi
1987) have suggested that mere awareness of a brand does not
necessarily ensure that the brand is retrieved at the time of
choice the brand has to be retrieved from long-term memory.
It is unlikely that all brands in a product category are
effective substitutes in a particular choice decision.
Consumers faced with an assortment of brands attempt to focus
on a subset of alternatives in order to gain efficiency in
shopping. As this experiment has demonstrated, mere
awareness of a brand is not sufficient for it to be included
in the consideration set. Advertising was shown to increase
the number of effective substitutes by increasing the
knowledge and remembrance of brand alternatives.
Advertising that emphasizes real or image-based
differentiating attributes provides information about the
product on the basis of which overall evaluations are made.
In this experiment, it was shown that such advertising makes
some brands perceived to be superior to others and therefore
reduces perceived substitutability among brands. This
implies that the number of effective substitutes from which
consumers makes a choice is reduced, and therefore a larger
price discount will be required in order to get them to
switch from their most preferred brands.


74
advertising is likely to influence the ability to recall
brands and also the spread of brand-utilities. This was
postulated to have implications for the number of brands
considered for choice, the direction being determined by the
relative strength of these two factors. In stimulus-based
choice environments, where the ability to recall a brand is
not an important factor for it to be a candidate in the
consideration set, the effect of advertising is primarily
mediated by the dispersion of brand-utilities.
This chapter details the methodology employed in
Experiment 3 to test these hypotheses. The remainder of this
chapter is divided into three main sections which describe
(1) the subjects and stimuli used for the study, (2) the
rationale for the factors employed, (3) the dependent
variables, (4) the stimulus design, and (5) the experimental
procedure that was employed.
Subjects
One hundred and ninety-eight students enrolled in the
Introductory Marketing course at the University of Florida
participated in the experiment. Subjects received two extra
credits in their class and $3.00 in candy of their choice for
participating in the study. Subjects had to participate in
both sessions in order to successfully complete the
experiment. Seven subjects failed to complete the study and
their data were not used for the analysis.


92
findings are presented in Table VI-3 and VI-4. Results
showed that there were no significant differences in the size
of the consideration set between the reminder advertising
condition (M = 4.72) and the no advertising condition (M =
5.25), F.(l,95) < 1. This finding lends support for the
prediction that reminder advertising will not have an effect
on the number of brands considered when the environment
provides the brand names. This is because the recall cues
provided by such ads are not crucial for the retrieval of
brand names for consideration. However, even though the mean
number of brands considered was less in the differentiating
advertising condition (M = 4.56) than in the no advertising
condition (M = 5.24), this contrast was not significant,
F_(l,95) = 1.10. Therefore there is no support for the
prediction that differentiating advertising will lead to a
reduction in the size of the consideration set.
TABLE VI-3
CONSIDERATION SET IN STIMULUS-BASED ENVIRONMENT
REMINDER VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
4.28619385
1
1.10
0.251
SEQ
56.14105225
15
0.96
0.687
AD*SEQ
39.95892334
15
0.68
0.885
SS/ENV,AD,SEQ 369.49648233
95


93
TABLE VI-4
CONSIDERATION SET IN STIMULUS-BASED ENVIRONMENT
DIFFERENTIATING VERSUS NO ADVERTISING CONDITIONS
SOURCE
TYPE III SS
DF
F VALUE
P>F
ADVERTISING
7.43414307
1
1.91
0.103
SEQ
50.42962646
15
0.86
0.750
AD*SEQ
55.20159912
15
0.94
0.909
SS/ENV,AD,SEQ 369.49648233
95
Consideration sets in memorv-based decision
environment s It was predicted that in memory-based
environments, there will be a significant simple effect of
advertising on the size of the consideration set. The
evidence provides strong support for this prediction of
significant differences across advertising conditions,
F(2,95) = 18.47, p < .001, (CO2 = .05) In order to examine
more closely the nature of effects, analyses of planned
contrasts were carried out. Results (presented in Table VI-
5) showed that there was a significant positive effect of
reminder advertising on consideration set size, F(l,95) =
36.78, p < .001. The mean size of the consideration set was
5.25 in the reminder advertising condition compared to 2.26
in the no advertising condition. This lent support to the
prediction that in an environment where brand names have to
be retrieved from memory, the average size of the


107
It is interesting to note that although reminder
advertising was not postulated to significantly influence the
perceived utilities offered by the various brands, the
results indicate that it did have a minor effect. Ananalysis
of debriefing protocols suggest that the picture of the
package provided some information about the relative worth of
the various brands, which in the absence of other information
was used as a means of differentiation. Thus, it is likely
that the reminder ads used for the study served more than
just the reminder function.
Price Elasticity
Price elasticity was calculated for each of the 12
brands at the individual subject level by looking at
quantities purchased across 16 shopping trips. Prices were
varied over the trips, and the quantities purchased for each
brand at their respective high and low prices were aggregated
to compute price elasticity. The arc elasticity measure that
was used is defined as
AQ/Mean Q
Arc Elasticity =
AP/Mean P
For each subject, the twelve brand-level elasticities
were analyzed with brands as a within-subjects factor. It
was expected that the 12 brands should show similar patterns
of these manipulations, although main effects of brands might
be based upon differential popularity of the brands.


100
In the memory-based decision environment where the size
of the consideration set itself is determined by recall
factors, conclusions about preferences are more difficult.
For example, a subject might be unable to recall brand names
in the no advertising condition and this would prevent
him/her from purchasing those brands. In such a case, the
variance in the share of the budget allocated to the 12
brands would be high, not because of preference for the
brands bought but rather because of the inability to recall
other brands for consideration and purchase.
The means for the four measures of interbrand dispersion
in preference are presented in Table VI-8 below.
TABLE VI-8
MEAN DISPERSION OF BRAND-UTILITIES
NONE
REM
DIFF
DISPERSION IN
FREQUENCY
CHOICE
4.2480
4.9334
4.9981
DISPERSION OF
OF BUDGET
SHARE
0.0809
0.0940
0.0986
SHARE OF BUDGET TO TOP
BRAND
0.2605
0.2953
0.2946
NUMBER OF BRANDS EVER
CHOSEN
9.7812
8.9375
8.4062


33
The concept of a consideration set is important for the
understanding of consumer choice. First, it emphasizes that
mere awareness of a brand is not sufficient for it to be a
candidate in the consumer's final choice set. The brand has
to be actively considered at the time of decision making.
The brands that consumers consider at the time of choice form
a small subset of the total number of alternatives of which
they are aware (Silk & Urban 1978) Second, the
consideration set is not a static entity. Of course,
research in consumer behavior has often implicitly assumed
that the consumer chooses from a fixed set of brands.
Typically, consumers are presented with a set of brands and
information about them, and are asked to make a choice or to
indicate their preferences (Lynch & Srull 1982) But in
practice, the size and composition of the consumer's
consideration set is determined by certain voluntary and
involuntary factors. The size of the consideration set is a
positive function of the consumer's ability and motivation to
retrieve and consider a certain number of brands for
evaluation at the time of choice. Thus anything that
positively affects the ability of the consumer to retrieve
brands from memory will increase the size of the
consideration set, and factors that negatively affect this
ability will tend to reduce the size of the consideration
set. Similarly, factors that alter the motivation of the
consumer to retrieve information from memory will have an


156
APPENDIX IC-3
INSTRUCTIONS AND STIMULI FOR THE MEMORIZATION TASK
Please take the next three minutes to memorize the
following list of candy bar names:
1.Celias
2.Crunch
3.Whatchmacallit
4.Cote d'Or
5.Pastilles Almond
6.Marabou
7.Mars
8.Twix
9.Krackel
10.Kitkat
11.Tobler
11.Skor
13.Almond Joy
12.100 Grand
15.Barnone
16.Solitaires
17.Suvretti
18.M & M's
19.Capers
20.Ferrara
21.Mr. Goodbar
22.Chocoletti
23.Chocolat Lindt
24.Alpin Milch


164
APPENDIX IIB-3
ORDER OF PRESENTATION OF PRODUCT AND PACKAGE INFORMATION
1
POSITION
2
3
4
ORDER 1
3
1
4
2
ORDER 2
1
2
3
4
ORDER 3
4
3
2
1
ORDER 4
2
4
1
3


Ill
elasticity was significantly lower in the reminder
advertising condition (M = 1.54) compared to the control
condition (M = 2.02), F(l,95) = 5.28, p < .025. Thus there
was no support for H2b. These results are consistent with
the findings that reminder advertising did have some effect
on the variance in utilities in the stimulus-based
environment, discussed in the previous section. It is
possible that there was an element of differentiation even in
the reminder ads. An analysis of debriefing protocols
suggest that they did provide some information about the
brand, which, in the absence of any other information became
a basis for elimination and choice. Moreover, to the extent
package information cued the recall of information learned
during the first session, it is perhaps expected that
reminder ads would lead to some changes in preferences.
Results presented in Table VI-22 showed that price
elasticity was marginally less in the differentiating
advertising condition (M = 1.24) compared to the reminder
condition,(M = 1,54), F(l,95) = 1.90, p < .15.
In the stimulus-based condition, there were no
significant effects of advertising on the size of the
consideration set. Thus, when the brand names were readily
available, the presence or absence of advertising or the
information provided by advertising did not have an effect on
the number of brands searched. However, there were
significant effects of advertising on preferences. Since


178
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