Strategic fit revelation with advertising

Abstract

Consumers are often uncertain about how a product fits their individual preferences before purchase. To resolve such uncertainty, firms can use fit-revelation activities such as sampling, product demonstration, and virtual showrooms. Recently, there is an emerging trend of combining product sampling with advertising (e.g., Amazon’s sampling-advertising initiative). Empirical research has shown that fit-revelation may enhance or weaken the effect of advertising. We contribute to the literature by developing an analytical model that links these interactions with the firm’s strategic decisions. We find that, interestingly, when fit-revelation enhances the effect of advertising, these two instruments are not necessarily complementary. Our study further characterizes the firm’s strategy space of whether to conduct fit-revelation alone, advertising alone, or both. We show that advertising may reverse the firm’s decision on whether to facilitate fit-revelation. Moreover, how complementarity/substitutability affects the optimal strategy depends on the types of ads. While substitutability denies the optimality of the joint strategy under informative ads, it fails to do so under persuasive ads. On the other hand, complementarity is necessary for the joint strategy to be optimal under informative ads, which is not the case under persuasive ads. Finally, we extend our analysis to targeted fit-revelation/advertising with heterogeneous consumers ex ante, in which case the firm may find it optimal to target low-valuation consumers. Given the latest trends and growing interest in the deployment of joint advertising and sampling, our study offers timely insights for practitioners.