Advertising Impact

Quant Mark Econ (2009) 7:207–236 DOI 10.1007/s11129-009-9066-z

The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data
C. Robert Clark · Ulrich Doraszelski · Michaela Draganska

Received: 11 December 2007 / Accepted: 2 April 2009 / Published online: 8 May 2009 © Springer Science + Business Media, LLC 2009

Abstract We use a panel data set that combines annual brand-level advertising expenditures for over three hundred brands with measures of brand awareness and perceived quality from a large-scale consumer survey to study the effect of advertising. Advertising is modeled as a dynamic investment in a brand’s stocks of awareness and perceived quality and we ask how such an investment changes brand awareness and quality perceptions. Our panel data allow us to control for unobserved heterogeneity across brands and to identify the effect of advertising from the time-series variation within brands. They also allow us to account for the endogeneity of advertising through recently developed dynamic panel data estimation techniques. We find that advertising has consistently a significant positive effect on brand awareness but no significant effect on perceived quality. Keywords Advertising · Brand awareness · Perceived quality · Dynamic panel data methods JEL Classification L15 · C23 · H37
C. R. Clark Institute of Applied Economics, HEC Montreal and CIRPEE, 3000 Chemin de la Cote-Sainte-Catherine, Montreal, Quebec H3T 2A7, Canada e-mail: [e-mail] U. Doraszelski Department of Economics, Harvard University, 1805 Cambridge Street, Cambridge, MA 02138, USA e-mail: [e-mail] ) M. Draganska (B Graduate School of Business, Stanford University, Stanford, CA 94305-5015, USA e-mail: [e-mail]

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1 Introduction In 2006 more than $280 billion were spent on advertising in the U.S., well above 2% of GDP. By investing in advertising, marketers aim to

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