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Does advertising overcome brand loyalty? Evidence from the breakfast-cereals market

Shum, Matthew (2004) Does advertising overcome brand loyalty? Evidence from the breakfast-cereals market. Journal of Economics and Management Strategy, 13 (2). pp. 241-272. ISSN 1058-6407. 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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Shum, Matthew0000-0002-6262-915X
Additional Information:© 2004 Blackwell Publishing. I am grateful to James Lattin (Stanford GSB) and Ronald Cotterill (University of Connecticut Food Marketing Policy Center) for providing me with the data used in this paper. I thank the editor, Dan Spulber, as well as a coeditor and two referees, for their careful reading and suggestions on previous drafts. I also thank Anand Bodapati, Tim Bresnahan, Andrea Coscelli, Greg Crawford, Nancy Gallini, Amil Petrin, Rob Porter, Peter Reiss, Frank Wolak, and participants in the NBER Summer Institute 1999 for their comments and advice.
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Record Number:CaltechAUTHORS:SHUjems04
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:12303
Deposited By: Lindsay Cleary
Deposited On:12 Nov 2008 22:07
Last Modified:08 Nov 2021 22:27

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