Television advertising and consumer price sensitivity: a contingent approach

Abstract

Advertising and pricing are two critical elements of a firm’s marketing strategy after the product design stage. On one hand advertising spending being a cash outflow, reduces profits while realised price on the other hand, being a cash inflow increases profits. Companies spend money in advertising their products in order to inform customers about various benefits of their products and influence their choice behavior. This is expected to result in greater profits through increased volume of sales. However profit potential also depends on whether advertising effects on consumer price sensitivity is positive or negative. Therefore it is important to examine whether there is any systematic relationship between repeated advertising and customer willingness to pay for a particular brand. This study proposes an integrated model of television advertising and customer price sensitivity. The model also includes brand, market and individual specific factors as moderators. The model also includes brand, market and individual specific factors as moderators. The model was tested with data collected through a controlled laboratory experiment using a (4X3X3) factorial design. Results show that consumers’ willingness to pay for the test brands was significantly affected by the number of advertising exposures and the type of advertisements. Advertising affected consumer price sensitivity for non-durable products than for durable products. Categories which had a large number of category level substitute were affected by repeated advertising than those with fewer substitutes. The effect of advertising on consumer willingness to pay was moderated by individual specific variables like choice set size, whether the brand was in the choice set or not and involvement with the product category. The implication is that in order to make the consumers’ less price sensitive, marketers should ensure that consumers include the brand in their choice set. For products that have been in the market for a long time, marketers should look at alternative ways of influencing consumers’ willingness to pay other than advertising. For categories that have a large number of substitutes, a higher level of advertising is required to decrease consumer price sensitivity whereas a lower advertising level is required for categories with fewer substitutes.