Advertising in a competitive market: The role of product standards, customer learning,and switching costs

Eric T. Anderson, Duncan Simester

Research output: Contribution to journalArticlepeer-review

57 Scopus citations

Abstract

Standard models of competition predict that firms will sell less when competitors target their customers with advertising. This is particularly true In mature markets with many competitors that sell relatively undifferentiated products. However, the authors present findings from a large-scale randomized field experiment that contrast sharply with this prediction. The field experiment measures the impact of competitors' advertising on sales at a private label apparel retailer. Surprisingly, for a substantial segment of customers, the competitors' advertisements increased sales at this retailer. This robust effect was obtained through experimental manipulation and by measuring actual purchases from large samples of randomly assigned customers. The effect size is also large, with customers ordering more than 4% more items in some categories in the treatment condition (vs. the control). The authors examine how these positive spillovers vary across product categories to illustrate the importance of product standards, customer learning, and switching costs. The findings have the potential to change our understanding of competition in mature markets.

Original languageEnglish (US)
Pages (from-to)489-504
Number of pages16
JournalJournal of Marketing Research
Volume50
Issue number4
DOIs
StatePublished - Aug 2013

Keywords

  • Advertising
  • Customer learning
  • Product standards
  • Switching costs

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Marketing

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