The intensity of advertising and other selling expenses in food and tobacco manufacturing: Measurement, determinants, and impacts

Abstract

The measurement of selling effort in the food processing industries has improved in several ways. An FTC data set on both advertising and promotional expenses is used to estimate some determinants of variations in the intensity of selling effort. They are found to be related to market sales concentration, the number of brands being sold, elaborateness of packaging, and product perishability. A second analysis finds that the intensity of food-manufacturer selling efforts is nonnegatively associated with grocery wholesalers' or retailers' gross margins. The latter finding challenges the view that manufacturer advertising provides information that ultimately benefits consumem through lower retail prices.The size of selling costs plays a central role in the theory and testing of the basic paradigm of industrial-organization economics.' Advertising-to-sales ratios (advertising intensity) are nearly universally employed in empirical studies as proxies for the degrees of product differentiation across brands within industries,

Does advertising matter? An application to the Greek wine industry

“…It is worth comparing this work with other similar studies. It is important to note that while other studies, in order to summarise and to explain the effect of non advertising promotional expenses, use a wide range of industries, like food and tobacco (Connor and Weimer, 1986), or even all the industries (Weiss et al , 1983), this study focus on a single industry. In this study firm level data are available on an annual basis, which allows us to test cross sectional curved relationships for both the ratio of promotional expenses and for market share variables.…”

“…Connor and Weimer (1986) supported that a construction of far broader and more meaningful than advertising intensity measures of selling costs, across the food and tobacco‐manufacturing industries is necessary. It has been proved that in many industries these other sales efforts, as a percentage of industry sales, are important and in terms of size are much higher than the advertising intensity (Weiss et al , 1983; Martin, 2001).…”

“…Although there is some literature on the effects of non advertising selling expenses (Connor and Weimer, 1986; Weiss et al , 1983) on profitability, none of them use firm level data for a single industry. It has been addressed however (Oustapassidis, 1998; Carlton and Perloff, 1999; Scherer and Ross, 1990) that it is important to focus on a firm level analysis in a single industry in order to study the performance changes over time by using cross sectional data.…”

Studies in Consumer Demand — Econometric Methods Applied to Market Data

“…If distributors and retailers use equiproportional markups across brands, then these are the demand elasticities faced by brand manufacturers. Connor and Weimer (1986) present evidence that the gross margins of food manufacturers are highly correlated with the markups of grocery wholesalers and retailers. Such practices are encouraged by competitive pressures in grocery markets.…”

A Note on Measuring Returns to Generic Advertising in Interrelated Markets

“…Because brand advertising connotes market power, and the model ieveloped in this pa er assumes competitive market clearing, care must be exercised in extending the resuyts to brand advertising cam aigns. Market structure issues, including strategic interactions among oligopolistic iniBdlemen (e. Connor and Weimer, 1986), are beyond the scope of this analysis. Suzuki el al.…”