International Journal of Advertising

The Quarterly Review of Marketing Communications

ISSN: 0265-0487 (Print) 1759-3948 (Online) Journal homepage: http://www.tandfonline.com/loi/rina20

The Effects of Advertising on Fast-Moving

Consumer Goods Markets

J. Yasin

To cite this article: J. Yasin (1995) The Effects of Advertising on Fast-Moving

Consumer Goods Markets, International Journal of Advertising, 14:2, 133-147, DOI:
10.1080/02650487.1995.11104605

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International Journal of Advertising, 1995, 14, 133-147

The Effects of Advertising on

Fost-Moving Consumer Goods
Markets
J. Yasin
The Planning Business, London, UK

We have carried out a cross-sectional study of forty-two fast-moving consumer goods

markets to see if we could identify factors which might correlate with weight of advertising
spend. Data were collected from a widely used marketing information source and by an
eighteen-shop price survey of major supermarkets. Five factors were examined - market
growth rate, share of market held by the leading manufacturer, own label share, the price
premium held by the leading brand over own label, and the size of the market. The extent
of the price premium was found to be highly correlated with weight of advertising spend,
and several other factors were also correlated with advertising weights. Rate of market
growth showed no significant correlation with advertising weights.

BACKGROUND

While much analysis effort has been devoted to examining and quantifying the
effects of advertising on brands, much less has been spent on looking at its effects
on markets. What work that has been done has almost always been carried out
with a view to estimating the influence of advertising on markets such as drink
and tobacco, which have been the subject of considerable health debate.
Many analyses of these markets have suggested that advertising has no effect
on market growth rates or market size, and in this context it is reasonable to ask:
Are there any market related benefits of advertising to manufacturers?
The brand share argument is the most common reason expressed for the need
for advertising, and many studies support this contention. It is not the objective
of this study to focus on brand shares (the bi-annual IPA Advertising Works 1 series
alone now describes over a hundred quantified case histories).
It is the purpose of this project to examine what general effects there might be
on markets due to advertising, including an investigation of the growth effect. If
brand share is the major reason for advertising, it should be noted that one should
not expect too high a correlation with any market related effect, so any significant
effects discovered will be of interest.

©Advertising Association 1995. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1)F, UK
and 238 Main Street, MA 02142, USA 133
134 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

METHODOLOGY

The methodology of this study has been to carry out a cross-sectional analysis to
enable a number of markets to be compared simultaneously, rather than the
longitudinal method of studying a single market or brand through time.
Data were gathered on a sample of markets that included their weight of
advertising, their growth rate over time, and various other quantified measures
that would enable other factors that might reasonably correlate with advertising
spend levels to be explored.
The data were then analysed using a two-stage methodology: first, partial
correlation analysis to see how the various factors correlated with levels of
advertising spend, and second, a multiple regression analysis.

FACTORS THAT MIGHT CORRELATE WITH ADVERTISING

It is only logical for manufacturers to advertise if they thereby increase their

income by more than the costs of advertising.
While a great proportion of the variation in advertising from market to market
is likely to be explained by the brand battle, there are a number of other effects
that could correlate with (and be the result of) advertising spend. The measure
used for weight of advertising in a market is usually the advertising to sales ratio
(A/S ratio) which, confusingly, is often expressed not as a ratio, but as the
percentage of market value spent on advertising.
We decided to investigate the following factors for correlation with the A/S
ratio:
1. The rate of growth of the market (if advertising affects market growth, even if
only to hold a particular market static against other pressures- a multi-market
analysis should show that heavier advertising weights should result in growth
rather than decline).
2. The size of the market (if positively correlated, it would suggest that larger
markets attract fiercer competition; if negatively, it would perhaps suggest that
there are economies of scale in advertising).
3. The largest manufacturer's share of the market (if correlated positively with
advertising weight, this would suggest that weight can buy dominant share
levels; if negatively, it would suggest advertising is associated with more
fragmented competitive markets and/ or that economies of scale may exist).
4. The market share held by own label products (if negatively correlated with
advertising weight this would suggest that advertising helps manufacturers'
branded products to compete effectively against own label. Such an effect has
indeed been found in previous work by Buck/ where own label share was
found to be inversely correlated both with A/S ratio and weight of lTV
viewing).
5. The price premium held by the leading brand in a market over own label as a
measure of branded added value (we have made what we believe is the
reasonable assumption that in most fast-moving consumer goods (FMCG)

©Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 135

markets total market advertising weights will be highly co-linear with the
leading brands' advertising weights; and that the leading brand's price pre-
mium will to some extent indicate the general value attached to all manufac-
turers' branded products vs. own label, and is thus a characteristic of the
market created by the sum total of branded activity. Thus a high correlation of
market advertising with the leading brand's price premium would suggest
advertising adds value to branded products).

MEASURES OF DATA

The measures we have taken to detect whether any of the five reasons postulated
above may be associated with levels of market A/S ratio are (taken in the same
order as above):
1. Percentage rate of market growth.
2. The consumer sales of the market in£ million.
3. Market share held by leading manufacturer.
4. Market share held by retailers' own label products.
5. Percentage price premium of the most popular manufacturer's brand over own
label.

DATA COLLECTION

In order to collect a large enough sample of markets, we extracted information on

markets that sell through supermarkets from Mintel, a UK market research
company providing syndicated data on markets, working consecutively back-
wards in time from June 1993 until we had initially collected data on a large
number of markets. For each market we extracted volume sales and value sales,
and advertising expenditure (in constant £s), the market share held by the largest
manufacturer and by retailers' own label products for a six-year period, varying
from 1986 to 1991 (inclusive) to 1988 to 1993 (inclusive), according to when the
market was reported on by Mintel. Growth rates were calculated over the five-
year period from the first to the last year, and other data were averaged over the
six years (see Table 4).
We then examined the data, and rejected markets where either there was no
clear branded advertised segment or no clear own label segment, which reduced
the number of markets to forty-nine.
For the markets that remained we carried out a field collection exercise, sending
researchers into branches of the six leading supermarkets in London, Bristol and
Sheffield. The researchers were bona fide shoppers, as well as collecting the
relevant data for the prices of the leading branded product and the equivalent
own label. Where possible, prices were collected for the same pack size for each
product type. This was not possible in all cases, so we calculated prices per kg.,
litre or unit, depending on what was appropriate. We also rejected the markets
for chilled salads, cream, matches, sugar, health drinks and video tapes on the

© Advertising Association 1995.

136 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

grounds that either or both had too small a sample of shops with branded-own
label price differc~ ·es (one to two only) or were not typically FMCG.
On examining t :c markets, the market for mouthwash was found to be totally
out of proportio11 to the other markets. Dominated by a single brand- 'Plax' -its
statistics for growth and advertising spend (growth of 274 per cent over five years
and average A/S ratio of nearly 30 per cent) indicated the transformation of a
market by a highly successful new brand. None of the other markets examined
exhibited such an extreme growth rate or advertising weight, so it was excluded
from the analysis as atypical. This finally left forty-two markets (see Table 5).

ANALYSIS

Partial correlation analysis

The partial correlation coefficients of the variables investigated with the A/S ratio
were calculated.
a) No significant correlation was found between advertising weights and rates of
market growth (1) or the shares held by leading manufacturers (3).
b) For two other variables significant correlations were found at better than the
90 per cent level of probability:

Correlation coefficients Significance

with advertising level
weight
Own label percentage (4) -0.31 p = 0.058
Size of market (2) -0.30 p = 0.071

c) A highly significant correlation was found for the price premium held by the
leading brand and own label:

Correlation coefficients Significance

with advertising level
weight
Percentage price premium (5) +0.44 p = 0.006

Multiple regression analysis

Multiple regression is often used to investigate a hypothesis for a causative
model, with the individual effects of the variables that 'cause' the so-called
'dependent' variable being estimated.
In this case we did not use it in that manner. As we knew that the usual primary
reason for manufacturers' advertising is to promote their own brands, one would
not expect to 'explain' the majority of the variation in weight of advertising
expenditure by market variables of the sort we have investigated.
Indeed, we were not seeking to 'explain' our 'dependent' variable, but just
using the ability of multiple regression to estimate the correlations between

©Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 137

Table 1 Details of regression of A/S ratio on various variables

The statistics of this regression were as follows:

Multiple R 0.575
R-squared 0.331
Adjusted R-squared 0.238

F statistic 3.56

Significance level of total model = 0.01

Coefficient Standard error T-statistic Significance

level (p=)

Premium +0.051 0.017 2.93 0.007

Size of market -0.00077 0.00041 1.88 0.069
%own label -0.073 0.038 1.95 0.059
% leading manufacturer -0.020 0.037 0.52 0.604
Growth rate +0.0075. 0.019 0.41 0.687
Constant +4.271 2.193 1.95 0.059

Table 2 Effect of dropping growth rate and leading

manufacturers' market share from variables

This improves the adjusted R-squared and F

value considerably

Adjusted R-squared 0.268

F statistic 6.01

Significance level of total model = 0.0018

Table 3 Details of regression of price premium on A/S ratio

The statistics of this regression were as follows:

Multiple R 0.472
R-squared 0.222
Adjusted R-squared 0.203

F statistic 11.43

Significance level of total model = 0.0015%

Coefficient Standard Error T-statistic Significance level

A/S ratio 3.85 1.14 3.38 0.0016

Constant 26.22 5.84 4.49 0.0001

several variables taken simultaneously and the weight of advertising variable.

Not surprisingly, we achieved results virtually identical to the results achieved
through partial correlation. The price premium emerged as most statistically
significantly correlated with weight of advertising, and market growth had no
significant correlation with weight of advertising.
An interesting fact to arise from this analysis is .that while several of the
individual variables were correlated with weight of advertising at a statistical

©Advertising Association 1995.

138 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

Table 4 Summary of data

Market A/S ratio 1 Growth' % lead'g 1 Premium2

(%) (%) (%)

Ales and stout 0.64 -20.00 20 52.0

Batteries 2.06 23.08 30 60.3
Biscuits 1.57 17.27 28 8.8
Brandy 1.35 -9.41 18 46.1
Breakfast cereals 10.62 20.35 45 23.9
Butter 2.49 -40.00 28 5.0
Canned fruit 0.75 -13.44 17 16.4
Chilled desserts 3.58 92.17 31 15.5
Chocolate confectionery 3.17 5.16 31 9.7
Cider 1.76 14.10 22 8.4
Cigarettes 0.62 4.31 41 21.4
Clothes washing products 9.54 40.32 42 35.9
Concentrated soft drinks 1.53 0.35 31 19.2
Conditioner 16.21 -7.14 12 131.1
Crisps 1.64 15.90 33 16.9
Dark rum 0.28 2.00 30 30.7
Flour 0.66 -2.06 30 60.2
Frozen desserts 0.84 14.86 19 -4.7
Frozen ready meals 4.24 26.67 31 16.8
Fruit juice 0.37 7.05 14 18.6
Gin 0.46 -20.00 49 19.9
Ice-cream 3.42 22.38 32 23.9
Instant coffee 7.63 -28.99 55 23.5
Lager 2.35 4.95 25 59.9
Margarine 3.50 -22.77 25 38.3
Nuts 1.27 -2.65 58 27.3
Photographic film 2.45 17.48 43 39.5
Rice 2.07 24.42 23 119.2
Sanitary protection 3.76 8.73 28 18.8
Shampoo 11.74 15.49 35 63.7
Sherry 1.87 -19.59 28 61.9
Snacks 2.62 76.45 37 37.1
Suncare preparations 3.82 38.36 20 93.8
Tea 3.90 -20.33 28 73.4
Toilet soap 8.48 -3.49 23 88.8
Toothbrushes 7.94 54.06 26 80.3
Toothpaste 11.39 4.24 31 63.3
Vermouth 2.54 -9.95 54 44.6
Vodka 0.16 20.98 51 36.6
Whisky 0.81 -19.68 21 28.5
White rum 0.47 21.76 90 32.6
Yoghurts 2.74 73.89 25 8.6

Sources 1 Calculated from Mintel data

2 The Planning Business 1993
Own label shares and size of market data can be obtained from Mintel by subscribers. At the time of
data compilation and analysis the author was working for The Lowe Group.

significance level of over 90 per cent, the proportion of the variation in advertising
weight 'explained' was quite small (only 27.0 per cent in the model with 'growth'
and 'leading manufacturers' share' excluded). This supports what one would
expect: that it must be other factors (such as brand competition!) that account for
the majority of variations in advertising weights (see Tables 1 and 2).

© Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 139

Table 5 Prices of advertised brand and own label

Market No. shops in Average premium among

sample 1 all supermarkets (%) 1

Ales and stout 11 52.0

Batteries 3 60.3
Biscuits 18 8.8
Brandy 13 46.1
Breakfast cereals 17 23.9
Butter 17 5.0
Canned fruit 14 16.4
Chilled desserts 11 15.5
Chocolate confectionery 5 9.7
Cider 13 8.4
Cigarettes 4 21.4
Clothes washing products 18 35.9
Concentrated soft drinks 16 19.2
Conditioner 14 131.1
Crisps 12 16.9
Dark rum 12 30.7
Flour 16 60.2
Frozen desserts 7 -4.7
Frozen ready meals 11 16.8
Fruit juice 16 18.6
Gin 15. 19.9
Ice-cream 16 23.9
Instant coffee 17 23.5
Lager 13 59.9
Margarine 17 38.3
Nuts 15 27.3
Photographic film 9 39.5
Rice 17 119.2
Sanitary protection 11 18.8
Shampoo 16 63.7
Sherry 15 61.9
Snacks 9 37.1
Suncare preparations 4 93.8
Tea 17 73.4
Toilet soap 17 88.8
Toothbrushes 14 80.3
Toothpaste 16 63.3
Vermouth 12 44.6
Vodka 15 36.6
Whisky 16 28.5
White rum 15 32.6
Yoghurts 15 8.6

Source: 1 The Planning Business 1993

Regression of price premium on A/S ratio

Logically on an a priori basis one would expect the causative chain to operate
more in the direction of A/S ratio to price premium rather than the reverse (i.e.
advertising money is spent to have an effect, not simply when there is enough
spare cash to advertise- although no doubt this sometimes occurs!). Making this
assumption, we regressed price premium on A/S ratio to obtain a coefficient of
elasticity for the increase sustainable in the price premium from a given A/S ratio.

© Advertising Association 1995.

140 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

We obtained an elasticity of about 3.9, with a standard error of+ I - 1.1, implying
that on average an increase of 1 per cent in the market A/S ratio is correlated with
a 3.9 per cent increase in the price premium that can be charged for the leading
brand (see Table 3).
Obviously, while this elasticity has statistical significance, the size of the stand-
ard error suggests that there is considerable scope for variation from market to
market, from brand to brand and from advertising campaign to campaign.

IMPLICATIONS OF FINDINGS

The relationship between A/S ratio and ...

a) Market growth
It seems unlikely that advertising would fail to grow any market, but what the
analysis suggests is that taken overall, advertising will not grow the average (by
necessity, mature) market. Simple observation of the chart of A/S ratios plotted
against growth suggests that there is little obvious relationship between them (see
Figure 1). There certainly seems little correlation between A/S ratios and the
growth (or decline) of the markets for various alcoholic drinks or cigarettes (see
Figure 2).
The fact that the averages for A/S ratio and growth for the forty-two markets
is not zero (A/S ratio of 3.6 per cent and growth of 10 per cent over five years)
does not in itself demonstrate that advertising causes growth. For this we would
need to see that higher weights of advertising were correlated with higher growth
rates and vice versa - which is not seen.

b) Size of market
The negative correlation observed between advertising and size of market could
have a variety of explanations. It could be that the larger advertising budgets
resulting from larger markets have economies of scale; it could be that there are
limits beyond which it is not effective to increase advertising budgets.

c) Own label share

The results of our analysis support the reasonable supposition that advertising
branded products defends their share against own label products.

d) Price premiums for branded products

The one factor that is highly significantly associated with weight of advertising
appears to be the price premium that manufacturers' branded products can
command over the store's own label products. While the standard error in the
estimate of the regression is very large-/+ -27 per cent of the price premium-
if the price premium is regressed on the A/S ratio it produces a value of 3.9 per
cent of extra premium being associated with every 1 per cent extra A/S ratio. The
implication of this is that advertising weight has an important positive effect on
the price premium that branded products can command.

©Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 141

Chilled desserts

•
Snacks,
Y'liurts
•
j Toothbrushes
Oi
>
ii
-!!: 0.5
•
1"1
E
.1"1
Suncare preparations

•
Clothea washing producta

•
~
'0
.fi ~
j Wh.
Rice
~~cream
rum
•Frozen ready --:reakfaat cereals
I• Market!
l8 Vod ~~~Photographic film • Shampoo

-~F~~ •i~RAGE •
Fruit · ce ~ Sanitary protection
L Toothpaste
• ager
!!! Ciga • • • Chocolate confectionery •
.a • um
0
I!! • • Concentrated 80ft drinks
~ A~ ~~ •
>-
.~ BrllndY • •
Verm
oulh
Toilet soap
•
Conditioner
u.. 1. • Canned fruit
q111 Sheny
• • • Tea
Whia~ Ales and •
, stout Margarine

•Instant coffee

•
Butter

-0.5
0 0.05 0.1 0.15 0.2
AJS ratios

Figure 1 A/5 ratios vs. growth for forty-two FMCG markets

The plot of price premium against A/S ratio has considerable scatter. Never-
theless, statistically the relationship is real and significant, and suggests that for
this reason alone 'it pays to advertise'. On average, in a market with an A/S ratio
of 5 per cent the leading brand would expect (on average) to command a 19.5 per
cent price premium over own label - which should pay for the advertising and
leave 14.5 per cent to increase profitability over own label price (see Figure 3).
The considerable scatter seen on the graph shows clearly that the effects of
advertising may vary considerably from market to market, and from individual
situation to situation; and of course at the extremes of the range considered, the
elasticity could be much more or less than 3.9. But on average, the relationship
is statistically significant and strongly positive.
© Advertising Association 1995.
142 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

0.3

v~• rum
0.2 • • Cider
;:::-
i
>- 0.1
•
'5 Ciganltte& Lager
•
~ • • •
Dwk rum Drinks and cig-
0
arette markets
E.

1"' .Q.1 r-
Ennct,t
•
Vorrnclth
•
iii
Gl
=l" Gin beer Whisky 9wry
"' .0.2
••• •
.Q.3 L------~-----.L.--------'
0 Q01 QIIZ QIJ3
NSrlllloll
Figure 2 A/5 ratios vs. growth for drinks and cigarette markets

1.5

Conditioner
0
Rice
0
i
1i Suncare preparations
.!! 0 Toilet soap
0
0 Tea 0 Toothbrushes
a 0

E Flour
o
Sherry
Batterie~o Lager
Toothpaste liD Shampoo

! 0.5
Ales and stout
0
Brandy Vermouth
Photogra~ic film;;._ Margarine Clothes washing products
I
0..
Vodka
D
Dark rum 0
.
White rum
0 Whisky Nuts Snacks
o
-u 0
Ice creamtnstan~o
0

! 0
oc· -~soft drinksO Senita ,;eakfast cereals
E 0 8ll1~ pa Cbcns·
B,orro::'Xn meals
·e:J Fru~ juice canned fru~
. itsoo
Chilled deSIMirlli
o OChocotale conleclionery
I!! BISCU Cidef.. a-yogurts
D.. a r----~----~~~~~~~~~~~M-~~~~~~~~~~~~~~~~

-~ 0
D.. Frozen desserts

.0.5
0.00 0.01 0.10 1.00
Log 10 of NS Ratio (expressed as ratio)

Note: A log 10 scale wu used for the A/S ratio for reasons of clarity in graphing only.
Modelling wu canried out with untransformed NS values

Figure 3 Price premium vs. A/5 ratio

© Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 143

DISCUSSION

No relationship between advertising and the average market's growth

The fact that no relationship was found between levels of advertising and market
growth does not prove that no relationship exists. However, according to
Mc0onald, 3 writing in a general context, most of the limited evidence on the
relationship between advertising and market growth supports the results of this
study: that there is no consistent correlation between advertising levels and total
market growth. Henry4 analysed changes in advertising and market sales for
eighteen 'mature' food product markets and found no relationship between them.
According to McDonald, other authors support this conclusion (Lambin5 and
Simon6). Indeed, the belief that advertising must automatically increase market
sales seems to be based on the patronising myth of the passive consumer: that the
masses 'out there' (excluding sharply critical, well-educated middle classes of
course!) can be manipulated by the expert advertiser. The facts are that in
developing economies consumer goods markets have been increasingly stagnat-
ing as consumers become satiated. 7

Key finding is relationship with price premium

The most interesting finding from this analysis is that the level of market adver-
tising is associated with higher price premiums for the brand leader (and presum-
ably other advertised brands - whose prices will generally be fixed along a
spectrum from that of the brand leader to own label).
It should be noted that price premiums for the brand leader can also be
expressed as price discounts for own label. Thus higher weights for advertising
could equally be said to require bigger discounts by usually unadvertised own
label to be competitive. (Many retailers do advertise, but not so much for specific
products unless it is for a price offer or promotion. Also the variation in and level
of retailers' A/5 ratios across product fields is probably lower than the variation
in manufacturers' A/5 ratios).
This price premium (or discount) effect implies nothing about any effect of
advertising weight on the average market price. Various studies have been carried
out on the effects of advertising on markets which suggest that advertising may
reduce average market prices8•910•13 through various mechanisms. Jones 3•12 identi-
fies five factors that relate advertising to price; two, the cost of advertising and
the price premium commanded by branded products tend to increase price, and
two, economies of scale induced by the higher brand sales volumes possible
through advertising and the Steiner effect tend to reduce price. The fifth, adver-
tising's subsidy to the media, indirectly reduces consumer prices (advertising
may contribute as much or more than the cover price to press media and com-
pletely subsidises broadcast commercial television).
For the average of the markets studied, the value of elasticity of 3.9 between A/
S ratios and price premiums suggests that on average the extra premium gained
by the leading brand has probably made the extra advertising profitable for the
manufacturer of that brand. (Of course the chart also shows that there is consid-
erable room for variation between markets.)

©Advertising Association 1995.

144 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

It cannot be taken from this of course that substantial increases in advertising

would have similarly scaled positive effects on sales. It says nothing about
whether the sales response to advertising is linear or curvilinear in some fashion
(a common supposition is that there are diminishing returns above a certain level).
The other aspect of this finding is that the A/5 ratios were calculated from a
five-year average, and price premiums tend to be long-term characteristics of a
brand. Thus the effect that has been found may have the very interesting charac-
teristic of being a genuinely long-term advertising effect, to be added to the shorter-
term effects detected by single brand or single market econometric models. (It
would be interesting if this could be confirmed in a larger study with panel data
which could track these premiums over time.)
The demand curve for a product is commonly shown as a curve that slopes
downwards to the right on a graph (see Figure 4). The effect of advertising which
is most commonly detected is to increase the volume sold at a given price. This
is illustrated by a shift of the demand curve for the advertised brand leader
upwards (and within the same market may have the effect of moving the demand
curves of unadvertised own label downwards).
The price premium effect which we have detected involves selling the same
quantity but at a higher price, which would be illustrated by shifting the demand
curve of the advertised brand leader to the right (and possibly of moving that for
unadvertised own label to the left) (see Figure 5).

Price

Demand curve

Sales
Figure 4 Demand curve

Other factors
The negative correlation seen between advertising weights and own label share
of market, although only significant at the 90 per cent level, is what would
reasonably be expected.
On balance, we believe that the negative correlation between size of market and
advertising weight may be due to the bias induced by the high tax markets that
make up 80 per cent of the very large markets in the sample, and is probably not
a real effect.

© Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 145

Price
' '
' '
''
' ......... ' '
'0
'',' ', ~Advertised brand
............... ..............
i _,/< . . . .
' ' 'Q/ ' '
' ... ' '0' ' ...
' .... ,, I
';(
! -...:'-...,
....... ......
'
Unadvertised--=:::-'"' ', ',
own label '-A ' , ' ....
'' ' ' ' ....
''
' '
' '

Sales
Figure 5 Price premium effect

What has not been taken into account

We have taken a basket of markets and assumed that they have common charac-
teristics. In fact they may quite reasonably be very different in their responses to
advertising and the other factors we have considered. Even within one market the
sales effectiveness of advertising campaigns can vary quite substantially (from the
unmeasurable to the dramatic). It seems reasonable to expect the effectiveness of
campaigns to vary across markets. Product quality differences between own label
and manufacturers' brands will vary from market to market. Retailers' advertis-
ing and promotion levels will vary from market to market. Consumers' respon-
siveness to advertising, their desire for variety vs. desire for monolithic security,
their trust in retailers' products and their willingness to pay for advertised
benefits will vary across product fields. Let alone the aspect of brand focus:
manufacturers advertise for brands, not for markets. It is not therefore surprising
that we have not found firmer relationships.
The important point is that we have found one statistically significant and
commercially important fact: that higher weights of advertising are associated
with higher price differences (premium/ discounts) between manufacturers' and
own label brands. As far as the other factors are concerned, negative correlation
with own label share makes intuitive and commercial sense from the standpoint
of branded goods advertisers in a fiercely competitive marketplace.

CONCLUSIONS

1. Advertising enables a greater price premium to be sustained by advertised

brands over unadvertised brands in the same market.

© Advertising Association 1995.

146 INTERNATIONAL JOURNAL OF ADVERTISING, 1995, 14

2. Apart from issues of brand share, this price premium alone would be a
commercially sound rationale for manufacturers spending money on con-
sumer advertising.
3. This aspect of supporting brand strength is confirmed by higher advertising
weights being associated with lower own label shares of market.
4. Market growth was not found to be significantly correlated with weights of
advertising.

LIMITATIONS OF THE DATA

There are some limitations in the data which will have affected the sensitivity of
the results. These fall into two categories:

Distortion
1. Media Expenditure Analysis Ltd (MEAL) advertising data are stated at rate
card prices, and not at the actual prices at which the media was bought.
2. MEAL data excludes advertising expenditure on posters.

Sources of possible error

1. It was not always possible to collect consistent sizes of product for the price
measurements, so all prices were compared on a price per kilo, per litre or per
unit basis.
2. The lower number of stores for some pricing data may make this less reliable.
However, the national pricing policies of chains will tend to reduce this error.
3. The price data was unweighted for turnover of the chain, so although the big
six were selected, the averaged pricing data will not be in line with the sales
weighted national average price across the retail trade.

Overall, as we are comparing relative advertising weights, and all advertisers

with competent advertising agencies get media discounts, and as poster adver-
tising expenditure is only about 5 per cent of the total, the MEAL distortions
should not alter our findings to an important degree.
The various sources of error have no reason to bias the results except in the case
of price premiums, which may have a different error pattern. Errors in the
collection of price data seem likely to introduce more 'noise' into the price data,
and this is likely to make the results about price appear less significant and less
important than in reality. However, if the correlation between advertising and
price premium were higher there is no reason to suppose that this would produce
a higher correlation between advertising weight and any other variable, e.g.
market growth.

NOTES

1 Papers from the IPA Advertising Effectiveness Awards (1980-90), Advertising Works, 1-6. Holt,
Rinehart & Winston, Cassell & NTC Publications Ltd.

© Advertising Association 1995.

EFFECTS OF ADVERTISING ON CONSUMER MARKETS 147

2 Buck, S. (December 1992), Own label and branded goods. AGB Information for Decision Makers, No.4.
3 McDonald, C. (1992), How Advertising Works. The Advertising Association, NTC Publishing.
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American Elsevier, Oxford, North Holland Publishing Co.
6 Simon, J.L. (1970), The effect of advertising on the propensity to consume. Issues in the Economics of
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7 Jones, J.P. (1990), The double jeopardy of sales promotion. Harvard Business Review, 68(5),
pp.145-152.
8 Benham, L. (1972), The effect of advertising on the price of eyeglasses. Journal of Law and Economics,
15(2), pp.337-352.
9 King, S. (1980), Study showing that between 1964 and 1977 price index of 67 heavily advertised
brands only rose 211% v. 308% for food R.P.I. Advertising as a Barrier to Market Entry. Advertising
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10 Steiner, R.L. (1973), Does advertising lower consumer prices? Journal of Marketing, 37(4), pp.19-27.
11 Jones, J.P. (1990), The double jeopardy of sales promotion. Harvard Business Review, 68(5),
pp.145-152.
12 Jones, J.P. (1992), Advertising and the economic system, in How Much is Enough? Getting the Most from
Your Advertising Dollar. Appendix A. New York: Lexington Books/Macmillan.
13 Reekie, W.D. (1979), Advertising and Price. Advertising Association.

© Advertising Association 1995.