A review on paper by Linli Xu, Kenneth C. Wilbur, S. Siddharth, Jorge M. Silva-Risso,2014 Paper Link: https://kennethcwilbur.github.io/website//xwss%20mns%202014%20price%20ads%20by%20manufacturers%20and%20dealers.pdf

1. Price Advertising by Manufacturers
and Dealers
Linli Xu, Kenneth C. Wilbur, S. Siddharth,
Jorge M. Silva-Risso,2014
Paper review by : Girish Upadhyay
https://kennethcwilbur.github.io/website//xwss%20mns%202014%20price%20ads%20by%20manufacturers
%20and%20dealers.pdf

2. Different forms of advertising
• Brand advertising – Commercial messages that
primarily communicate brand positioning and
unique brand attributes
• Price advertising – “Commercial messages that
primarily communicate product price” (Mela et al.
1997, Jedidi et al.)
• MBA - Manufacturer Brand Advertising
• MPA - Manufacturer Price Advertising
• DBA – Dealer Brand Advertising
• DPA - Dealer Price Advertising
Advertisements were inspected within each of the 22
product categories studied by papers cited in Kaul and
Wittink’s (1995) meta-analysis of price advertising

3. Illustration
Manufacturer Brand Ad Dealer Price Ad
Source : Tata Motors Website
Not included in the paper

4. Abstract
• Central Prediction : “ Manufacturer Price advertising may be a less
effective tool for influencing demand than retailer price advertising”
• Both increase the responsiveness of demand to price but MPA leads to a
lower indicators of potential demand than DPA
• Although DPA is more effective than MPA, but MPA may still be useful to
reduce channel conflict
Source : economicdiscussions.net

5. Theory Development
“… most phenomena are driven by a very few central forces. What a good theory does
is to simplify, it pulls out the central forces and gets rid of the rest.” - No
“… the right kind of a theory is one that makes predictions that are capable of being
contradicted.” - Yes
Milton Friedman, in Snowdon and Vane (1996)

6. “theory is a statement of concepts and their interrelationships that shows
how and/or why a phenomenon occurs” (Corley and Gioia, 2011)
1. Do price advertisements from the manufacturer have the same influence
on demand as price ads from the distribution channel?
2. If not, how do their effects differ?
3. Which type of price advertising is more effective in influencing consumer
demand?
4. Price discounts lower perceived product quality in many diff contexts
5. Do consumers attribute the advertised discount offer to inferior product
quality? – Stay Away
6. Motivation of price advertising is to push out excess inventory? –
Favourable timing
Rao & Monroe (1989),
Lichetenstien et al, Buron et.al (1994)
Raghubir et. Al (2004

7. Hypothesis
• “Consumers inferences might depend on which channel member
communicates the price advertisement”
• MPA : Responsible for product’s quality - Negative Quality perception
• DPA : Manage Inventory, indicating a favourable time - Generate Sales
Construct Measurement : MPA is less effective than DPA
Experimental
Studies
Manipulate the
source of price
ad in an
experiment run
Econometric
Analysis
Analysis of
market data on
sales &
advertising
Category : Automobile Heavily advertised by both

8. Current Gaps identified by the paper
1. No previous study showing that price ads effect depends on which
channel members sent the ad (Celebrity studies there)
2. Adds to literature on estimating consumer demand for automobiles –
How sales respond to differentially to diff types of ad
• Redesigns effect on sales last longer than advertising ( Kowoka, 1993)
• Auto quality & advertising interact +vely to increase stock prices while price promo
reduce ( Srinivasan et. Al 2009)
3. Paper has implications for research on manufacturer-retailer interactions
• Channel coordination
• Advertising budgets : Not explained, ideal budget scenario
• Design of messages : Not explained
• Channel design : Not explained

9. Experimental Study
• Hypothesis 1 (H1) : Subjects exposed to DPA should indicate greater
potential demand than subjects exposed to MPA
• Effect of exposure on demand – Random assignment within an experimental design
• Hypothesis 2 (H2) : Subjects who perceive the retailer as the source of the
price ad should indicate greater potential demand than subjects who
perceive the manufacturer as the source of the price ad
• Effect of source perception – Consumers self reported source perceptions

10. Methodology
• MPA modified : Ford or Ford Dealers Association
• Changes : Subjects referring to the sender modified, geographic market modified,
Onscreen logo & Call to action modified (these changes are a fair representation of
the communication b/w the two)
• Pretest – 147 respondents, Randomly assignment to watch one & asked who paid
for the ad- Effective (74% chose rightly)
• Subject pool – Link posted on 8 internet forums, FB targeting, 337 respondents

11. Experimental Design
• Respondents exposed to:
• Brand ad (minimal knowledge about Ford’s positioning)
• Randomly assigned with equal probability to see either MPA or DPA
• Verification – 94% stayed on the page for 90 secs or clicked atleast twice
• 1st Que : Rate their agreement on a 1 to 10 scale to gauge “indicators of
potential demand”
• “Ford trucks have high quality.” (quality perception)
• “Ford trucks are a good value.” (quality & price perception)
• “Ford trucks are tough.” (quality perception)
• “I would test drive a Ford truck.” (behavioral perception)
• “I would consider buying a Ford truck.” (behavioral perception)
• 2nd Que : Asked who they thought paid for brand advertisement and who
for price advertisement “Source Identification”
• 3rd Que : Finally, asked to indicate all truck brands he or she had owned

12. Experimental Findings
• Subjects exposed to DPA gave
higher ratings on all 5 indicators
of potential demand than those
who were exposed to MPA
• Subjects who perceived the
source to be dealers reported
higher indicators of potential
demand than subjects who
perceived the source to be
manufacturers

13. Hypothesis Confirmation
• The experiment confirmed the central prediction that MPA leads to lower
indicators of potential demand than DPA
• Earlier study by Lichtenstei et.al (1989) & Burton et. Al (1994) can be used
to better understand the mechanism producing the experimental results
• Dealers are more responsible for using price to manage inventory, more +ve
economic effect
• Manufacturer is more responsible for the product quality, so MPA may lead to more -
ve economic effect
• Note – The experiment doesn’t offer any statement about the efficacy of
MPA.

14. Robustness Check : To test alternative explanations for these experimental
findings
• Geographic frame of reference – since DPA use a local frame & MPA uses
a national frame, will that effect – The third stimulus(modified the MPA ad
to reflect the same market) showed NO CHANGE
• Prior Ford Ownership – Ford owners and non owners showed no
significant differences in source perception
• The experimental findings show:
• Consumers are able to correctly identify the sender of a price ad
• MPA leads to lower indicators of potential demand than DPA even among
experienced consumers

15. Stage 2 : Investigate whether these
effects can be detected in market data
External Validity check - Econometric Evidence

16. Transaction data
• First data set – Sales of full size pick up trucks in the LA
metro area (Source : JD Power)
• Transaction date, type – lease,finance,cash, pricing terms,
vehicle characteristics – make, model, year, anonymous
dealership no, customer gender, zip code, 6 truck types (87%
of cat. Sales)
• To model advertising effectiveness – Purchases Vs Non
purchases both looked at
• Second data set – Est. ad expenditure for
manufacturers, dealers (Source : Kantar database)
• TV & Newspaper accounted for 81% of adex
• Video of 130 truck ads were analysed (17% of the total ad
creatives)
• Content analysis to identify the type of msg by manufacturer
& dealer
• Rated on a scale of 0-100 (all brand & no price – no brand &
all price) Enough variation in the adex data to separately identify
the effects of MBA, MPA, DPA

17. Analysis
• All 3 are +vely correlated – Weak
tendency for brand & price
advertising to be pulsed together
in the same time period
• MS & ad variables are +vely
correlated
• MS & Price are –vely correlated
(small absolute value)
• Price is +vely correlated with all
though correlation b/w it & price
ad are small
* Counterintuitive as we believe that price advertising indicates low
price. Beyond car price there are many levers like down payment,
interest rate which are hidden, hence an impression of low price
can be created when prices are not low

18. Model
• Derived consumer demand from the direct utility function –
“The direct utility is derived from the consumption of goods. Said it simply,
money, on its own, is almost worthless in terms of utility (setting aside cases
where people simply like having money). Goods, on the other hand,
generate utility because they can be used or consumed directly. Now,
Goods can be obtained only with money, and based on their prices (how
much you can buy).”
• Hence, its assumed that consumers react to perceived price
• Price perceptions depend on price advertising otherwise the spends wont
have happened in the auto category

19. Fitting model to available data
• Mean of all Consumer Valuations of a truck. Model takes into account –
• Zip level heterogeneity
• Advertising lag
• Gas prices, holiday week, new model year release
• They have looked at how price advertising may influence consumers price
perception
• Combined the 2 and factored in certain assumptions which were not built
in the demand model – Advertising doesn’t create awareness, all
consumers know of all trucks, All trucks are available in all zip codes.

20. Results
• The econometric results confirm the
experimental findings:
• All 3 MBA,MPA,DPA increase perceived
quality
• Both MPA & DPA increase the sensitivity of
demand to price.
• DPA is more effective at influencing
consumer demand than MPA
• Model predicts that advertising prices has
a larger net effect when truck price is
relatively low
• Predicts cumulative sales elasticity – Price
reduces demand, Gas prices also reduce
demand, Effect of holidays, Release of
new model year unit increases mean
monthly demand

21. Robustness Check : Alternate explanations for estimated advertising effects
• Advertising targeting : Little difference in how
each type of ad is distributed across program
genres, time band & networks b/w
manufacturers & dealers – Not sure
• Transaction characteristics : MPA & DPA
appeal to diff customer types - No clear
patterns of movement in transaction types or
pricing terms across advertising conditions
• Trade promotions : No +ve correlations b/w
dealer cash & dealer price advertising
• Price ad content : Not much content diff,
hence price ad content will not create
alternate explanation – Not sure
Econometric analysis showed that MPA is less
effective than DPA consistent with the
experimental findings

22. Discussion : How advertising works to influence market outcomes
• Both an experiment & econometric model established that MPA reduces indicators of
potential demand relative to DPA
• Suggested that both manufacturers and dealers may gain by increasing coordination of
price ad expenditure & message
• Almost tempts to say that manufacturers should leave the price to dealers
• Implications:
• Manufacturers might profit by framing price message that dampens price/quality interface (e.g. free
service vs amount). Also a future research area on ideal creative
• Manufacturers might profit by deemphasizing their role as the sender of price ads (use
celeb/customer testimonials)
• Both can alter ad copy to optimise ROI – Future research area
• Study extension:
• Exposures rather than expenditure
• Purchase timing
• Other factors – Brand strength, store traffic patterns, retailer bargaining power, category
management strategy
• How content of ad helps determine the effect of advertising

23. Discussion : Other factors while theory building
• Factors beyond price advertising
which contribute to sales
• The difference in price has reduced to
large extent post the introduction of
GST
• Manufacturers have separate budgets
for advertising – Brand Vs Tactical
(done along with the dealer), ideal
ratio is imp
• Dependent on the life cycle of the
product – New (Brand) Vs Old (Price)
• Dependent on car segment ( Entry
level hatch Vs high end luxury cars)
Source : Google Auto Gear Study
Source : Cardekho

24. • Role of ad content & media dependent
on the path to purchase stage
• Biggest influencer : The role of digital
in car purchase
Brand
Price
27 touchpoints are digital
Discussion : Other factors while theory building
Source : Google Auto Gear Study
Source : Mckinsey Report

25. Thank You