Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy

An important role of informative advertising is to inform consumers of the simple fact that the shop that advertises sells a particular product. This information may help consumers to save on their search activities: instead of wandering around, a consumer can simply visit the shop that has advertised, knowing that there he can find the commodity he is looking for. The implications of this simple fact have not been studied before. Using game theoretic reasoning in a model that combines consumer search and firms' advertising we show that firms may find it optimal to advertise prices that are higher than nonadvertised prices. The important mechanism underlying this result is that advertising lowers the expected search cost for consumers. Through this analysis we provide a new insight into the role of informative advertising.consumer search, informative advertising, pricing strategy

Advertising and consumer search in a duopoly model

We consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices. Information can come through two different channels: advertising and sequential consumer search. We arrive at the following results. First, there is no monotone relationship between prices and the degree of advertising. Second, advertising and search are "substitutes" for a large range of parameters. Third, when the cost of either search or advertising vanishes, the competitive outcome arises. Finally., both expected advertised and non-advertised prices are non-monotonic in search cost. One of the implications is that firms actually may benefit from consumers having low (rather than high) search costs. (C) 2007 Elsevier B.V. All rights reserved

Going where the Ad leads you: On High Advertised Prices and Search where to buy

The search literature assumes that consumers know which firms sell products they are looking for, but are unaware of the particular variety and the prices at which each firm sells. In this paper, we consider the situation where consumers are uncertain whether a firm carries the product at all by proposing a model where in the first stage firms decide on whether or not to carry the product. Firms may advertise, informing consumers not only of the price they charge, but also of the basic fact that they sell the product. In this way, advertising lowers the expected search cost. We show that this role of advertising can lead to a situation where advertised prices are higher than non—advertised prices in equilibrium.consumer search; informative advertising

The impact of instant reward programs and bonus premiums on consumer purchase behavior

This study examines the impact of an instant reward program (IRP) with bonus premiums on consumer purchase behavior. An IRP is a rapidly growing form of short-term program that rewards consumers instantly with small premiums per fixed spending, where these premiums are part of a larger set of collectibles. A supplementary element in many IRPs promotes specific brands with an extra premium, labeled bonus premiums. Bonus premiums are the extra premiums consumers can earn by buying a specific promoted brand, which is a non-price promotion tied to the IRP. Therefore, consumers can earn premiums in two ways: based on total spending and on purchases of promoted brands. To test the effects of these marketing instruments, this study uses Dutch household panel data related to purchases of 23 product categories spanning four supermarket chains. We decompose consumer purchase behavior by modeling the number of shopping trips, category-level purchase incidence, brand choice, and purchase quantity. The results show that an IRP results in incremental shopping trips. Promoting a brand with a bonus premium and price discount compared to just a price discount results in higher choice probabilities for the promoted brand. Finally, the IRP and bonus premium are especially effective for households that collect the premiums, but we also find positive albeit smaller effects for non-collecting households. (C) 2016 Elsevier B.V. All rights reserved