The Effect of Advertising on Consumer Price Sensitivity

The authors investigate how increased advertising affects consumer price sensitivity. First, a conceptual framework integrating the role of advertising content is presented. Next, a methodology for studying the impact of advertising on consumer price sensitivity to brand purchase quantity and consumption is developed. Analyses of diary panel data for an established, frequently purchased brand from an ADTEL advertising field experiment clearly demonstrate that increased advertising lowers price sensitivity. Further, this effect is strong in the high price sensitivity segment for purchase quantity and consumption. In the low price sensitivity segment the effect is marginal. Additional support for these results was obtained by choosing different cutoff points for high sensitivity segmentation.