Why Does Advertising Effectiveness vary by Store Format within a DMA?

32 Pages Posted: 1 Nov 2023

See all articles by Thyagarajan Subramanian

Thyagarajan Subramanian

University of Central Florida; University of Texas at Dallas - Department of Marketing

B. P. S. Murthi

University of Texas at Dallas - Department of Marketing

Date Written: October 3, 2023

Abstract

Business managers target different designated market areas (DMAs) with different levels of advertising and seek to understand how the effectiveness of advertising varies across different areas. One interesting puzzle is that when the advertising spending per week and the associated advertising strategy are fixed for a given DMA, why does advertising effectiveness vary by store type within a DMA? This study is the first to explore reasons for such variation in advertising effectiveness within a DMA. We consider potential factors such as store size, 'draw' of customers for a given store type, store characteristics, and product characteristics to explain spatial variation in advertising elasticity within the Chicago DMA. Using scanner data in the soup category, we find significantly higher advertising effectiveness in grocery stores relative to drug stores and mass merchandizing stores, even after controlling for the above factors. We posit that the notion of ‘destination category’ might explain why ad effects are stronger in one store format. To test the idea, we re-estimate the model in the cough syrup category and find that drug stores have a higher ad effect than the other two formats after controlling for other factors.

Keywords: Advertising effects, hierarchical model, store format, ridge regression

Suggested Citation

Subramanian, Thyagarajan and Murthi, B. P. S., Why Does Advertising Effectiveness vary by Store Format within a DMA? (October 3, 2023). Available at SSRN: https://ssrn.com/abstract=4591223 or http://dx.doi.org/10.2139/ssrn.4591223

Thyagarajan Subramanian (Contact Author)

University of Central Florida ( email )

University of Texas at Dallas - Department of Marketing ( email )

B. P. S. Murthi

University of Texas at Dallas - Department of Marketing ( email )

Dallas, TX
United States
972-883-6355 (Phone)
972-883-2799 (Fax)

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