Current Issue Summary
December 2022 (Vol. 62, Issue 4)
How Advertising Expenditures Affect Consumers’ Perceptions of Quality: A Psychology-Based Assessment of Brand-, Category- and Country-Level Moderators
There’s an abundance of research on signaling effects of ad spending. But a key question remains: Why do advertising expenditures have a stronger impact on perceived quality for some brands and in some product categories but not as much in others? Authors Koushyar Rajavi (Georgia Institute of Technology), Donald R. Lehmann (Columbia University), Kevin Lane Keller (Dartmouth College) and Alireza Golmohammadi (University of North Carolina, Charlotte) tackle this question by examining nearly 900 brands spanning 48 categories.
Ultimately, they discover that factors such as economic conditions, category involvement, brand equity, and advertising channel choice can influence ad effectiveness. “Brand managers can make the case that advertising expenditures, in and of themselves, have potential signaling value,” the researchers suggest, “and can positively shape perceptions about the quality of the brand.” But, the authors warn, managers should consider moderating factors to avoid “’throwing their money down the drain.” For example:
- If on the one hand, “brands are in categories low in involvement, or if new products are frequently introduced in that category … their advertising budget likely will have a stronger impact on customer perceptions regarding the quality of their brand’s offerings.”
- On the other hand, “the more volatile and inconsistent a brand’s advertising pattern is, the less impact its advertising expenditures will have on perceived quality.”
Among other findings:
- “In good economic times, advertising expenditures have a stronger impact on perceived quality and, therefore, brand managers can focus on promoting their brands as much as their budgets allow them.
- “In difficult economic times, however, advertising expenditures have less impact on perceived quality. This could be due to customers’ more careful search for quality-related information to ensure, given limited budgets, that they purchase the right product.”
- As such, in difficult economic times when brand managers are forced to cut their ad spend, “advertisements should be designed strategically to directly communicate quality to consumers.”