The Effectiveness of Generic versus Brand Advertising: The Case of U.S. Dairy Promotion

Abstract

This article compares the effectiveness of generic versus. brand advertising for fluid milk and cheese. The analysis is based on estimated fluid milk and cheese demand equations and on an analysis of optimal reallocations between generic and brand advertising expenditures. The issue of generic versus brand advertising effectiveness is examined in two ways. First, the advertising elasticities of demand for fluid milk and cheese are computed and compared. Second, optimal reallocation levels between generic and brand advertising expenditures are simulated. From the elasticity point of view, in two of the three estimated demand equations, the generic advertising elasticity is larger than its brand counterpart. However, it is erroneous to just look at advertising elasticities. The optimality condition must also be considered. The optimal results suggest that dairy farmers could achieve increases in sale volumes and revenues by reallocating some of the generic dollars to brand fluid advertising. The increases in the sale volume and revenues from doing so are about 3% for volume and 1% for revenues. However, the simulation results should be interpreted with care because as one moves away from the historical advertising levels, the estimated equations used in the simulation become less reliable. This is relevant because the optimal solutions call for large percentage reallocations. Finally, the results also suggest that dairy farmers should not divert generic dollars to brand cheese advertising. A strategic implication is that dairy farmers should consider establishing some type of fund matching relationship with brand fluid companies.