Quality Uncertainty, Brand Reliance, and Dissipative Advertising

Abstract

Consumers may have learned to generalize from usage experiences that nationally advertised, name-brand items tend to be higher in quality than unadvertised brands. Such generalization may have prompted the substitution of brand-name evaluations for search in quality assessments of nondurable experience goods. This paper offers theoretical arguments which suggest that if some consumers do not search, all firms in nondurable, experience goods markets can increase their profits if some substitute dissipative advertising (i.e., advertising which ignores information about product performance characteristics) of brand names for product quality enhancements. Undersearching by consumers invites firms to downgrade value in nondurable, experience goods markets. In support of the hypothesized substitution by consumers of brand-name evaluations for search in nondurable, experience goods markets, this paper reports results of a field experiment in which the influences on quality assessments of brand name and product composition were studied in two categories where dissipative advertising is heavily relied upon. Results suggest that branding is relied upon more heavily than search to assess quality, even when brand cues are inconsistent with actual quality levels and search is costless, suggesting that dissipative advertising can be extremely effective.