Advertising Spillover Effects on Private Labels

Abstract

Although brand advertising increases demand for the originating brand, manufacturer advertising spillover effects on the demand for private label brands are positive, increasing consumers’ demand on private label brands. Given a positive correlation among in-store products, this study shows that national advertising benefits store brands of retailers. While consumers infer product quality by observing the prices and advertising, a higher correlation among in-store products leads to a larger spillover effect of national advertising on private labels. Although retailers free ride on manufacturer’s efforts, a rational expectations model shows that coordinated marketing activities initiated by retailers can reduce consumers’ perceptive risk, thus benefit advertised brands.