Journal
JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Volume 13, Issue 2, Pages 241-272Publisher
WILEY
DOI: 10.1111/j.1530-9134.2004.00010.x
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In differentiated product markets where consumer preferences are characterized by brand loyalty, an important role for advertising may be to overcome brand loyalty by encouraging consumers to switch to less familiar brands. Using a scanner panel dataset of breakfast-cereal purchases, I find evidence consistent with the hypothesis that advertising counteracts the tendencies of brand loyalty toward repeat purchasing. Equivalently, advertising reduces switching costs in this market. Furthermore, counterfactual experiments demonstrate that in markets with brand loyalty, advertising is an attractive and effective option - relative to alternative promotional activities, such as price discounts - of stimulating demand for a brand.
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