Comparative Advertising and In-Store Displays

Abstract

Manufacturers often have a choice of whether to advertise something positive about their own products without mentioning their rivals' products (a noncomparative ad) or whether to portray their rivals negatively in addition to promoting their own products (a comparative ad). In this paper we ask: First, if a manufacturer in a distribution channel can choose between a comparative ad and a noncomparative ad, all else being equal, which should it choose? Second, under what conditions would a manufacturer want to reinforce its advertising message at the point of sale with in-store displays, and when should the retailer allow the displays? Third, how does the possibility of in-store displays influence the manufacturer's choice of ad content? We find that a manufacturer will prefer to run comparative ads over noncomparative ads for advertising that is untargeted or that appeals primarily to the manufacturer's core consumers, and run noncomparative ads over comparative ads for advertising that appeals primarily to the rival's core consumers. We also find that in-store displays will be optimal for the manufacturer and its retailers if and only if they increase the overall joint profit of the retailer, the manufacturer, and its rival. Finally, we find that the possibility of offering in-store displays increases a manufacturer's incentive to run noncomparative ads. However, some comparative ads may be so attractive to the manufacturer that it will run them with or without retailer help. Our paper is the first to introduce a channel-based explanation for why manufacturers may or may not want to engage in comparative advertising.