Advertising and Price

This paper considers three separate advertising issues relating to price. First, that short-term price promotions are taken up only by the brand’s existing customers. Such promotions appear to have no longer-term brand maintenance effects and are therefore no substitute for media advertising. Secondly, that any consumer habitually pays a range of prices for a product. One can therefore use advertising to sustain the brand’s competitive “salience,” (e.g., versus private labels) rather than always trying to compete directly on price. Thirdly, that advertising is unlikely to make a brand less price sensitive (brands seem to differ little in their elasticities except with market share). But advertising can again maintain the sheer number of people to whom the brand is salient and who therefore buy it, even against a price differential.