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V .9 H) i \a V h.‘ .. I 1.32- . .1 I). I “1 \ . ”Hamrhmn i 1?. bum .1 ..... y s. ; . .. . . . V V A} at 3.3:}: V I)?» .t. .‘7! .9. ya. u. Vnrflficus..sflua:n . itvfionavhi. . gall , , .. :2: 1&1 gmffimffififlx . . ‘ it“... .V‘lap...‘ . V 5-an ‘ A‘Az ti...‘bh.\hit~ . Luigi!- A 1.1. u«\.\~i§ slut #13“ :1...“ A HBVth¢¥~SIVQI N. .. V E5937 . .5. AL 7Qik‘l. .2. V y ll givengfiV '9 t’zi‘i‘i flunwfiixs. . J9 gflhmfisdg 1321:?! Lgizpnifi V c 1901!! ti o. L Iv . V I. I v 35’ r filth“: . 21V!) 71...! OI . i . Ltd . . . A... i K 5- u ‘ Amunwflnu. E;- E gu‘n’bfii L. iii-l fivzclai.‘ 1: king, 5&1 can't-1. . . u . ¢ 53:... V N. MEN“. .1 vvakhhl‘ his: 5.¥s‘.l.0x.\¥.. V 56.? i: {if}?! ~ .6. #9.. V , 1., THE.” ‘ ' IIIIIIIIHII“WWII 3 1293 10 wususwmum This is to certify that the dissertation entitled THE EFFECT OF MASS MEDIA PRICE ADVERTISING ON THE RETAIL PRICE OF A CONVENIENCE PRODUCT presented by ' GARY BURL WILCOX has been accepted towards fulfillment of the requirements for “*4. Ph . D. degree in" Mass Media Maggi 12. Major professor Date 4M 22’; /(/Y2’ MSU is an Affirmative Action/Equal Opportunity Institution 0-12771 RETURNING MATERIALS: 1V1531_] Place in book drop tof remove this checkout rom w your record. FINES will be charged if book is . returned after the date stamped below. ”égé‘afiia 1/ :1le .5; / i, ’ 33*9—91-3“ i“"“i?§§ iv»- =53 THE EFFECT OF MASS MEDIA PRICE ADVERTISING ON THE RETAIL PRICE OF A CONVENIENCE PRODUCT By Gary Burl Wilcox A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Ph.D. Program in the Mass Media 1982 ._w r /7y,p- ABSTRACT THE EFFECT OF MASS MEDIA PRICE ADVERTISING ON THE RETAIL PRICE OF A CONVENIENCE PRODUCT by Gary Burl Wilcox The impact of advertising on the prices of products and ser- vices has long been disputed. Three major theories have emerged con— cerning the effect of advertising on the price of products: (1) the advertising market power theory, (2) the advertising information theory, and (3) the information processing theory of consumer choice. The market power model views advertising as changing consumer tastes and establishing brand loyalties among buyers of advertised products. The results are higher profits for the large advertisers and higher prices for the consumer. An alternative to the advertising market power model developed from information theory maintains that advertising provides information to consumers and thereby increases price sensitivity and lowers price. A theory of consumer choice has emerged based on cognitive information processing. The information processing theory of consumer Choice views products as multiattribute objects. In the case that price is an important attribute, price advertising for the product is likely to increase in importance to the consumer and the use of such advertising is also likely to increase. Gary Burl Wilcox The primary purpose of the dissertation was to examine the effects of price advertising in the mass media on a convenience prod- uct. The study used an ad hoc matched pair design to compare the price of a convenience product in markets that restrict mass media price advertising to the price in markets which allow mass media price advertising. The price and dispersion of price for a conveni- ence product--domestic beer——was unaffected by the presence or absence of price advertising in the mass media within a market. Applying the findings to the relationships presented in the information processing perspective reveals some interesting implica- 9“ tions. First, considering the multiattribute nature of products ex— pressed in the theory, these findings indicate that price appears to be an attribute that has little importance for a convenience item-- domestic beer. Second, the consumer's use of internal memory may be an im- portant reason why price advertising has no effect on the price of convenience products. The consumer may have sufficient information stored in memory without activating his external search process to arrive at a purchase decision. This dissertation is dedicated to JoHannah, my wife, who never once doubted my ability or perseverance to complete my Ph.D. to the memory of my Father: Burl Hunter Wilcox. ACKN OWL EDGMENTS The author wishes to express his gratitude to several individ— uals for their contribution in the preparation of this dissertation. It is a pleasure to express my appreciation to my mother and my wife whose encouragement and understanding made the completion of this work possible. The author wishes to thank Dr. Martin P. Block for the impor- tant role he played in all aspects of this project as well as my entire doctoral program. In addition, special thanks is due to Dr. Keith Adler, my guidance committee chairman and close friend for his support and guidance throughout my doctoral program. Sincere thanks are due also to Dr. John Abel and Dr. Tom Muth for their valuable insight and encouragement throughout my laborious Efforts. In addition, special thanks to Wally Niebauer, compatriot, With whom the terms passed much too quickly. Only the memories now linger . G.B.W. TABLE OF CONTENTS Chapter I. INTRODUCTION . . . . . . . . . . . . . . The Advertising and Price Relationship . Price Advertising for Goods and Services . . Advertising Effects . Empirical Findings of Advertising and Price Classification of Goods . . . . . . . . . . . . . Purpose of the Study . . Organization of the Dissertation . II. BACKGROUND OF THE STUDY I. Information Processing . Alternative Evaluation--The Information Processing Approach . . . . . . . . . . . . . . . . . . . II. Economic Theories . . . . .. . . . . . The Advertising Market Power Theory The Advertising Information Theory . III. Research Questions and Hypotheses III. THE BREWING INDUSTRY . . . . . . . . . . . . . . . The Brewing Industry Since 1947 - National Brewers: Multi— Plant Economies of Scale - IV. METHODOLOGY . . . . . . Overview of the Methodology . . . . . . . . Unit of Analysis . . . . . . . . .- Pretest . . . . . . . . . . . . Selection of the Markets . ' Retail Outlet Selection and Data Collection . . . . V- FINDINGSOFTHESTUDY AVerage Domestic Beer Price Average Domestic Beer Dispersion . Average Budweiser Price . . . Average Miller High Life Prices iv Chapter Average Miller Lite Prices . . Budweiser Retail Price Dispersion Miller High Life Retail Price Dispersion . Miller Lite Retail Price Dispersion . . Supplementary Findings . . . . VI. CONCLUSIONS AND IMPLICATIONS . Conclusions . . . . . . . . . . . . Implications . . . . . . . . Assumptions and Limitations . . Areas for Future Research . . . . . . BIBLIOGRAPHY . . . . . . . . . . a Page 136 140 141 142 144 144 145 147 148 LIST OF TABLES Table Page I. Two Theories of Advertising and Price . . . . . . . 29 II. The Effect of Advertising on Price-—Three Theoretical Viewpoints . . . . . . . . . . . . . . 47 III. Taxpaid Withdrawals and Value of Shipments, for the Total Beer Industry . . . . . . . . . . . . . . 58 IV. Number of Breweries and Brewery Firms . . . . . . . 59 V- National Beer Sales Concentration Ratios . . . . . 60 VI. Weighted Average State Concentration . . . . . . . 63 VII. Percentage Increase in Beer Sales, Population, and Income: 1951-76 . . . . . . . . . . . . . . . . 63 VIII. TV Advertising Expenditures for Ten Major Brewers: 1974—75 . . . . . . . . . IX. Beer Industry Price Indexes: 1956—77 . . . . . . - 73 X. Consumer Price Indexes for Beer Consumed at Home 74 and Away from Home: 1964-77 - - - - . XI. Industry Advertising and Advertising Intensity: 78 1946-7 73 . . . . . . . - - - XII. Advertising Cost Per Barrel, by Company: 1949’76 79 XIII. Total Advertising Expenditures of Leading Brewers . 81 XIV- Shares of National Barrelage, by Brewer: l951-77 ' 85 XV- Quantity and Value of Beer Shipments by All 98 Producers (1977) . . - ' ' ' ' 100 XVI- Demographic Characteristics - 1977 vi Table XVII. XVIII. XIX. XX. XXI. XXII. XXIII. Wholesale Alcohol Dollar Volume . . . Beer Market Shares/State - 1977 . . . . . . . . Average Beer Prices/State/Outlet Miller by State . . . . . . Pabst by State . . . . . . . . . Stroh by State . . . . . . . . . Beer Prices by Treatment/Grocery Stores . Comparisons Between Matched Pairs of Cities . Average Domestic Beer Price by Market (Cans) Average Domestic Beer Price by Market (Bottles) Budweiser Price — 3/80-2/81 . Budweiser Average Price - 3/80—2/81 . . . . . Miller High Life Average Price — 3/80-2/81 Miller High Life Average Price — 3/80—2/81 Miller Lite Average Price — 3/80-2/81 . Miller Lite Average Price - 3/80-2/81 - LIST OF EXHIBITS Exhibit Page 1. States Prohibiting Price Advertising of Alcoholic Beverages in Newspapers and Magazines . . . . . . . 112 2. Market Selection Criteria . . . . . . . . . . . . . 114 3. Market Characteristics . . . . . . . . . . . . . . 115 LIST OF FIGURES Figure Page 1. External Search . 18 2. Consumer's Attitudes Toward Purchasing . . . . . . 18 viii CHAPTER I INTRODUCTION The impact of advertising on the prices of products and ser- vices has long been disputed. On one hand, advertising has been criti- cized as being mainly persuasive in nature thereby creating false wants and raising the price of products to the consumer. On the other hand, by providing consumers with information about products, advertising has given consumers the opportunity to economize on search of salient product characteristics and to locate low-priced sellers more readily. As advertising assumes this informa— tional role, it may tend to lower prices to the consumer, and in turn allow producers to take advantage of economies of scale and economize 0n merchandising costs. Advertising occupies an important informational role in our economy because (1) products are available in such wide varieties, (2) new products are offered in such great numbers, and (3) existing PrOducts must be called to the attention of new consumers who are addEd to the market as a result of expansion in incomes, population, and Changes in taste.1 The informational role of advertising has been concisely sum- mariZed by Stigler: . . . under competition, the main tasks of a seller are to inform potential buyers of his existence, his line of goods, and his prices. Since both sellers and buyers change over time, since people forget information once acquired and since new products appear, the existence of sellers must be continually advertised . . . This informational function of advertising must be empha- sized because of a popular and erroneous belief that advertising consists chiefly of non-rational appeals.2 Stigler continues to point out that ". . . information is a valuable resource," that advertising is "the obvious method of identifying buy- ers and sellers” which "reduces drastically the cost of search.”3 A major critic of advertising, J. K. Galbraith recognizes that: A new consumer product must be introduced with a suit- able advertising campaign to arouse an interest in it. The path for an expansion of output must be paved by a suitable expansion in the advertising budget. Outlays for the manufacturing of a product are not more impor- tant in the strategy of modern business enterprise than outlays for the manufacturing of demand for the prod— uct . The economy of the United States is one that has little re— semblance to the ideal of perfect competition postulated by economists. However, one of the postulates of this ideal economy is perfect knowl- edge- Thus in such an idealized economy, even though advertising may be SOmewhat wasteful, it would still have a role to play. In the WOrld of reality, however, with all its imperfections, advertising ismuCh more important. Advertising is an integral and vital part of mm growing economy and contributes to the launching of the new prod— ucts arni the mass transfer of product information. The Advertising and Price Relationship The effect of advertising on prices is one of the most vigor— ously debated topics in the marketing and economic literature.5 Three major theories have emerged-—two from the economic literature: (1) the advertising market power theory and (2) the advertising infor— mation theory, and one from the marketing literature: the information processing theory of consumer choice. The market power model views advertising as changing consumer tastes and establishing brand loyalties among buyers of advertised v products. \The predicted results are higher profits for the large ad- vertisers, higher prices for the consumer, and less competition in the market. All these stem from the theoretical mainstay of the model: product differentiation. Product differentiation generally refers to the emphasis of a Chosen feature, quality, style, or image by certain firms in the marketplace. In doing so, the differentiated brand tends to attract a Premium value associated with the specific attribute emphasized. An alternative to the advertising market power model has de— veloped from information theory.6 \I‘his alternative model maintains that advertising provides information to consumers, and thereby in— CreaSES price sensitivity, lowers price and reduces monopoly power.\'\ ProPOI-'lents of this theory stress that because advertising serves to annoLlnce a product's existence and/or major attributes, the consumer's . 7 need t30 search for information about the product is reduced. By allowing consumers to economize on search and to locate low priced sellers more readily, advertising may tend to lower prices to consum— ers. It may also lower prices by allowing sellers or producers to economize on other marketing costs and to take advantage of economies of scale. A major theoretical perspective recently emerging from the marketing literature, the information processing theory of consumer -choice views products as multiattribute objects. Each product is evalu- ated on attributes which are salient to the consumer. Generally in- formation about these attributes becomes important in the consumer's decision process. Therefore, communication of information concerning the attributes will be the most useful for the processing of future hfiormation.‘~ln the case that price is an important attribute, price advertising for the product is likely to increase in importance to the conSumer and his use of such advertising also is likely to increase. However;‘where price is not a highly evaluated attribute, the role Price advertising plays in the consumer's choice process is likely to decrease. aThis relationship would imply that price advertising may have a significant effect in reducing the price of the product when 8 Price is a salient attribute. PriCe Advertising for Goods and Services There are instances in which informational advertising may play a. decisive role in a consumer's decision process and lead directly to the purchase of a product. For example, having decided to make a purchase, the consumer may be waiting for a price reduction on one of the several acceptable brands. Inclusion of the offered selling price within an advertisement (price advertising) would allow the consumer to compare the prices for the preferred brands without actually visit- ing the physical locations of sale. In this case, price advertising may trigger a sale. - The purpose of price advertising is to provide consumers with salient information, that is price, upon which they may base decisions. *The provision of such information makes consumers more efficient in their decision making process by lowering the cost_of search that is "approximately proportional to the number of identified sellers ap- proached, for the ghief/cost is time."9 Search costs are reduced when consumers are able to compare product features, components, and prices without physically going from store to store. With lower search costs for individual products, consumers will engage in more searches. "The lower the marginal cost of search, the greater the number of searches will be; thus lowering the cost of search implies a lower average market price and a smaller variance of market prices."10 This suggests that the presence or absence of price advertising within a market could affect the price of the good or service within that market. Advertising Effects To increase the understanding of the impact of advertising on prices, several have examined markets for a product in which advertisfim is allowed and one in which advertising is prohibited, comparing the price structure between the two markets. The level of price may be significantly affected by the presence in a market of a seller who is able to advertise. Furthermore, the full impact on prices of the ex- istence of advertising may be much greater than the price difference observed in a market in which the seller has a choice to advertise or not to advertise. ,If retailers are able to advertise product price, consumers only have to read newspapers or view store signs. If re- tailers are restricted from advertising prices, consumers searching for lower prices must physically go from outlet to outlet. -It is ob— vious, therefore, that the marginal cost of search would be greater where price advertising is restricted. Empirical Findiggs of Advertising and Price Several researchers have examined the effect of advertising on the price of products and services. Steiner by examining the toy industry concluded that in conjunction with mass merchandising, ad— vertising had lowered markups on advertised brands and reduced them on competing nonadvertised products as well as bringing lower prices to the consumer.ll Concerning the relationships between price advertising and the retail price of products and services, three studies have provided mixed results. In each of the cases, advertising for the product or service examined was restricted by some form of state or local law or organizational ruling prohibiting price advertising. Indeed, these restrictions raise fundamental First Amendment questions concerning the right to advertise ”truthful information about legal products" by a retailer.12 Results from empirical investigations certainly may pro- vide increased insight for future public policy decisions. Maurizi compared markets that allowed price advertising for gasoline and markets that prohibited price advertising for gasoline. He found significantly greater variances in prices in cities prohibit- ing price advertising. Although significantly lower prices in cities prohibiting price advertising was also found, because of inconsisten- cies within the study's design, no firm conclusions could be reached regarding the effect of price advertising prohibition on average prices.13 fiBenham examined markets in which advertising for the price of eyeglasses was prohibited and markets in which advertising for price was legal. He reported that eyeglass prices suggested that advertis- ing restrictions in the market increased the prices paid by the con- sumer by 25 percent to more than 100 percent.14 The final empirical study was undertaken byKCady on the retail prescription drug market. Again by examining markets in which price advertising was restricted and markets in which price advertising was allowed, he concluded that (l) consumers pay an average of 4 percent more for the sampled drugs in restricted states than in unrestricted states. (2) With significantly greater dispersion of prices in re— stricted states it becomes(time-consuming and costlyifor consumers to search out low prices. \The net expected benefits of search for price information were outweighed by the cost of acquiring it. The results of the study suggested that advertising can act as a significant stim- ulus to market competition through the provision of salient, useful . . 15 information. Classification of Goods As can be expected, the role advertising plays in the market- ing strategies of differing goods varies considerably. Marketers have suggested that promotional strategies should have some relation to the durability and tangibility of a good. Based on this, one classifica- tion of types of products would be: (1) nondurable goods, (2) durable goods, and (3) services.16 An alternative method used to classify goods on the basis of consumer shopping habits would distinguish be- tween (1) convenience goods, (2) shopping goods, (3) specialty goods, and (4) unsought goods.17 Using the later method, a convenience good is one in which the consumption time is relatively short, the search time is low, and the replacement rate high. In contrast, a shopping or specialty good would have increased consumption time, increased search effort, and relatively less time between replacement. The classification schema, based on consumer purchasing characteristics of the product, could ob— viously not include all consumers of the product. In other words, while a majority of the consumers may exhibit consumption and shopping be- havior associated with a convenience good, there still may exist a segment of the market that exhibits the characteristics associated with a shopping or specialty good. Nevertheless, the classifications have proven to be a useful tool for both strategic marketing and advertis- ing decisions. Whatever method of classification the marketer uses, it is recognized that each classification of goods will likely produce diver- gent marketing strategies. Likewise, the role advertising plays in the promotion of the product is likely to vary depending upon classifi— cation of the product. In the case of convenience goods, for example, advertising would typically be used to build awareness for the product which in turn is hopefully used by the consumer in his purchasing de- cision. Conversely, advertising for specialty goods would tend to emphasize the product's unique characteristics and in some manner differentiate the product from competing brands. As can be implied from this discussion, the role that price advertising plays in the promotion of a product may vary considerably depending upon the classification of the product. In some instances, the price may be influential in triggering a purchase and the use of price in the advertising of the product may be an important element in the promotional mix of the firm. From a review of the empirical literature concerning the ef- fect of price advertising on the retail price of products, it can be summarized that for products related to health, restrictions on the advertising of price have led to certain inequities for the consumer. In the cases of both eyeglasses and pharmaceuticals, the restriction 7:. ’ *— 10 of price advertising has generally led to higher prices in the market place. Restrictions concerning the advertising of price for gasoline via signs on premises basically found no differences between restric— tive and non-restrictive markets for average prices. Using the classification system above, when the product ex— hibits characteristics associated with a shopping or specialty item, the restriction of price advertising in the mass media can significant— ly affect the price? This has been demonstrated empirically in the ) case of both prescription drugs and eyeglasses. However, where the consumer's propensity to search is likely to be low as in the case of convenience goods, the effect of the restriction of price advertising filthe mass media has yet been empirically examined. Purpose of the Study The primary purpose is to examine the effects of price adver- tising on the convenience good category. Using markets that restrict mass media price advertising and markets that allow mass media price advertising, the price for a convenience product in each market will be compared7’ Through this examination, increased understanding of the relationship of price advertising to retail price will be presented. Further investigations concerning the effect of price adver- tising on the retail price of products are desirable for two reasons: to increase (1) the understanding, scope, and dimensions of the thgge theoretical perspectives, and (2) the insight such analysis would /,_g_v,__,, provide for future policy decisions. 11 Organization of the Dissertation The dissertation will be organized into six chapters, the first chapter being an introduction. The general theoretical frame- work within which the study is set and previous empirical work in the area will be discussed in Chapter II. In Chapter III, a detailed structure analysis of the brewing industry will be presented for the purpose of providing insight to pricing and advertising relationships. Chapter IV will describe the research methodology used in conducting the investigation and will consist of market selection procedures, administration, and data analysis procedures. Chapter V will present the findings of the study. In Chapter VI, the conclusions and impli- cations suggested by the study will be discussed. In addition, the concluding chapter will present a discussion of assumptions and limi— tations of the study and areas for future research. 12 ENDNOTES FOR CHAPTER I lJules Backman, "Is Advertising Wasteful?", Journal of Market— ipg, Vol. 32, January, 1968, p. 4. 2George J. Stigler, The Theory of Price, Third Edition (New York: The Macmillan Company, 1966), p. 200. 3George J. Stigler, "The Economics of Information," Journal of Political Economy, June, 1961, pp. 213, 216, 220. 4J. K. Galbraith, The Affluent Society (Boston, Mass.: Houghton Mifflin Company), 1958, p. 156. SRobert L. Steiner, "Does Advertising Lower Consumer Prices?", Journal of Marketing, Vol. 37, October, 1973; John F. Cady, "Advertis- ing Restrictions and Retail Prices," Journal of Advertisigg Research, Vol. 16, No. 5, October 1976; Alex R. Maurizi, "The Effect of Laws Against Price Advertising: The Case of Retail Gasoline," Western Econom— ic Journal, September, 1972; Lee Benham, "The Effect of Advertising on the Price of Eyeglasses,” Journal of Law and Economics, October, 1972; Paul Farris and Mark Albion, "Advertising and Price Competition,” Paper for conference on Advertising in the 1980's, June 26-27, 1980; Paul Farris and Mark Albion, "The Impact of Advertising on the Price of Consumer Products," Journal of Marketing, Vol. 44, No. 3, Summer, 1980. 6Stig1er, 1961. 7P. Nelson, "Advertising as Information," Journal of Political Economy, 81, July/August, 1974, pp. 729-745; P. Nelson, "The Economic Consequences of Advertising," Journal of Business, 48, April, 1975, pp. 213-241. 8James R. Bettman, An Information Processigg Theory on Con— sumer Choice, Addison-Wesley Publishing Company, 1979. 9Stigler, 1961, p. 216. 10Maurizi, pp. 321—329. llMaurizi, pp. 321—329. 12Gary E. Wilcox, "Implications of First Amendment Doctrine on Prohibition of Truthful Price Advertising Concerning Alcoholic Bever- ages," Communication and the Law, Vol. 3, No. 2, Spring, 1981, pp. 49-66. l3Maurizi, pp. 321-329. 13 1['Benham, pp. 337—352. 15Cady, pp. 27-30. l6Philip Kotler, Principles of Marketing (Prentice-Hall, Inc., 1980), p. 370. 17E. Jerome McCarthy, Basic Marketing: A Managerial Approach, Third Edition (Richard D. Irwin, Inc., 1963), PP. 251—258; Louis P. Bucklin, "Retail Strategy and the Classification of Consumer Goods," Journal of Marketing, January, 1963, pp. 50-55. CHAPTER II BACKGROUND OF THE STUDY Mass media advertising plays an important role in society today by providing consumers with information about products and ser- vices. This information role is a vital element of the mass merchan— ’——dising methods employed by major marketers. (By providing relevant product information to consumers, advertising has generally increased the public's knowledge of goods and services in the marketplace)1 Price, often a very important element in the consumer's pur— chase decision, is one type of relevant product information contained in advertising. Generally, it is thought that the inclusion of the selling price of a product or service in an advertisement has benefited the consumer bykreducing associated search costs concerning price;% With price advertising in the mass media, the consumer need only to read newspapers, for example, to gain knowledge of the price of various products or services. .,According to economic perspectives of advertising, this in— clusion of price in advertisements would tend to lower the retail price of the product in the aggregate by reducing the consumer's cost of obtaining this necessary informationfi: Therefore, by economizing on search, the consumers would be able to locate low priced sellers more readily.3 14 15 In recent years, a theory of consumer choice has emerged 1/basedfipp cognitive information processing.4 'The information process— /‘ ing perspective presents a product as a multiattribute object. In short, the product is a total or sum of these many attributes. Arriv- »ing at an attitude about certain products or brands, the consumer will — order the attributes of the product according to their importance. The consumer will then acquire information for the various brands under consideration and evaluate the alternatives presented. When price is an important attribute, the consumer's use of price information contained in an advertisement is likely to increase. ="-In this case, price advertising may be useful in helping the consumer to locate low priced sellers. However, when price is a relatively unimportant attribute, the inclusion of price in an advertisement for the product may be of little value. This notion seems to parallel the classification of goods schema found in the marketing literature.5 Classified as a convenience item, characteristics of the product would indicate that price is like- ly to play a minor role in the consumer decision process. However, as characteristics of the product are those more in line with a shop- ping or specialty good, the importance price plays in the choice pro— cess is likely to increase. From this, then, one could conclude that price comparisons for a convenience item may rarely be made by the 1 consumer. ’However, as price as an attribute increases in importance in the case of shopping and specialty goods, increased comparison on this attribute would be expected. 16 This chapter is divided into three sections. The first sec- tion presents information processing in the consumer research and alternative evaluation stages in the purchase process from cognitive psychology. The second section focuses on the Advertising Market power theory, the Advertising Information theory, and an integrated discussion of relevant relationships crossing theoretical perspectives from economics. The last section concludes with the research ques— tions and hypotheses. I. Information Processing This particular approach to understanding consumer purchase .iebehavior views the decision process from an information processing per— "‘spective. The(consumer is characterized as interacting with his or her choice environment,jseeking and receiving information from various sources, processing this information, and then making a selection among alternatives.6 In making a choice, the consumer examines rele— vant information in memory, and in some cases, may acquire additional information from the external environment if that in memory is not sufficient. Generally, the first step is an internal search within memory to determine whether sufficient information is available. Internal search refers to the acquisition of information that is available in memory. Various degrees of internal search are possible, ranging from virtually automatic responses in habitual choice situations to more extensive searches of what is in memory. 17 In the course of internal search, interruptions may occur. For example, information may be found to be lacking. This deficiency may not be recognized until some processing is done. For example, a consumer may discover that he or she cannot remember a price. Further- more, conflict may be aroused in other ways during internal search. For example, if the consumer's weight for various attributes has changed since the last choice in a product class, and if previously selected brands would not be preferred given these current attribute weightings, perceived conflict might increase. Finally, during the course of in— ternal search, the consumer may be reminded of goals other than those . relevant to the purchase being considered. Although responses to interrupts vary, one major type of response arising during internal search may be formation of a goal for external search.7 -~r External search (Figure l) is the acquisition of information from sources other than memory, such as friends, packages, and adver— tisements. In theory, external search is postulated to follow internal search, but the internal search need not be complete to lead to ex- ternal search. For example, a brief internal search may suffice for the consumer to ascertain what is not known. Periods of external search, followed by internal search, then more external search are typical. In many cases, however, decisions to be made are trivial and habitual, and very little internal or external search may ensue for such choices where there is a great deal of prior knowledge and 8 experience. 18 Figure 1 External Search fegogn ITIOn Stimuli Mass Personal ‘ General Markeler- dominaled lnlormallon and Search 1 - experience Figure 2 Consumer's Attitudes Toward Purchasing Evaluative cnlena ‘7 l Behels V? I Alllludes J. Alternative lntennon I evaluation iv Chouce 19 “ EEEEEEglMsearch can also be of varying degrees as well as different directions. The influences on degree of search are numer- ous, i.e., costs vs. benefits of search, choice environment factors, individual differences, and conflict. External search is also sub- jgegwggyigggrruptions due to novel or surprising events, conflicting information, lack of information, etc. Internal and external search are seen to interact with each oghgr. The most simplistic conception is that internal and external search are compensatory, that the more is done of one, the less done of the other. However, it is also possible that the degrees of search are positively correlated; that is, one tends to do a good deal of internal search, one also tends to do a good deal of external search.9 .’»As the consumer collects and evaluates the information ob— tained by external search, beliefs are formed about the various brands available. These beliefs serve to specify the consequences of purchas- ing a particular make in terms of each criteria the consumer feels to be significant. .Each evaluative criterion, therefore, is accompanied by a belief that states the anticipated outcome of purchasing one brand over another and an evaluation of that outcome. The sum total of these beliefs and evaluations represent the consumer's attitude toward the act of purchasing and using each brand10 (see Figure 2). Empirical work on prepurchase search shows that some consum- ers do much more investigation than others. This finding is to be expected. The idea of differences was central to the classification scheme of convenience, shopping, and specialty goods. Since then 20 1‘ others have elaborated on the theme that(search would occur as long as the prospective buyer felt the benefits would outweigh the costs in terms of money, time, and discomfort.11 ”Two general determinants of degree of internal search are Gl)jthe amount of information stored in memory and (2) the suitability 1/ _. of that information for making the choice. Generally, the greater the amount of stored information and the more suitable that information is, the greater the amount of internal search. “ Amount of Stored Information. The amount of information in memory reflects the degree of prior learning relevant to the problem in question. There are several sources of information in memory about a product class. First, past purchase experiences in a product class may lead directly to learning about criteria and/or alternatives. (Bennett and Mandell\examined search behavior for new car purchases, and found that the number of previous purchases of the same make as that eventually bought was negatively related to the degree of external search. This in effect implied a greater salience on internal search.12 A second source of information in memory is low involvement learning, from information with which the consumer is confronted, rather than from information which is actively sought. Such informa— tion, hypothesizes Krugman, would mainly affect attribute saliences, or whether attributes come to mind during the choice process.13 A third source of information in memory is from previous learning about the environment. Brands available and general price levels for specific retail stores are among the types of information which might be utilized in this situation.14 21 ,1 Finally, a fourth influence on the amount of information ac- tually stored in memory as a result of prior experiences is an indi- vidual difference variable--the degree of reliance upon in-store dis- plays as an external memory.15 In other words, a consumer may not try to remember items of information, but may instead use the informa— tion provided within a store. Therefore, these become an external memory, making efforts to retain data internally less crucial. Suitability of stored information. Another important deter- l minant of degree of internal search is the suitability, appropriate- ness, or usefulness of the stored information for the current deci— sion.16 .One factor influencing suitability is satisfaction with pre~ vious purchases.\ Presumably, the more satisfactory these purchases, the more relevant is stored information based upon past purchases. RNewman and Staeli§>have shown that saEisfied users take less time to make a decision.17 7 A second factor influencing suitability is length of inter- purchase time. The longer the interpurchase time, the greater the likelihood of forgetting relevant information. In addition, the long— er the interpurchase time, the greater the likelihood of changes in the mix of alternatives, such as the appearance of new brands or the occurrence of changes in price or other attributes. Swan found that more external search ensued when different mixes of brands remained the same.18 Also, Krugman hypothesized that under low involvement learning, attributes that are salient can change. The longer the in- terpurchase time, the greater the likelihood of such switches in 22 salience of attributes.19 These switches might lead to the necessity for more external search if different attributes than the consumer had previously considered are of increased salience. [Research has indicated many factors influence the amount of external search performed by the consumerl IGenerally, the degree of external search is influenced by (l) the costs versus the benefits of information, (2) factors affecting choice environment such as avail- ability, difficulty of the choice task and time pressure, and (3) in- dividual differences.20 Costs versus benefits. The cost versus benefit View represents a marked departure from traditional economic theory, which postulated that the rational individual would list all conceivable actions and their consequences, choose the best, and consistently stick to his choice.21 Katona, Bauer, and Howard and Sheth are among the theorists who have viewed shopping as problem solving or decision making under uncertainty.22 To date empirical work on the cost—benefits model has focused on the cost component, the benefits component, and an interaction be- tween the two. Concerning the cost component, Lanzetta and Lanzetta ~and Kanareff found that as cost of information increased, less informa— tion was purchased.23 Lutz and Reilly found that in purchase situa- tions where perceived risk was low, and hence costs of search relative to benefits might be high, the subjects stated preferences were for simply buying and trying a brand rather than seeking information from 24 other sources. 23 ._ Work completed relative to benefits of search found consumers searched more for higher priced products.25 Also, the research has shown that the presence of financial constraints for a consumer implied 2 ’ . . . (more search. 6 {In other words, if finances are tight, presumably cost savings or benefits are more important, and search may be seen as Potentially leading to cost savings. Concerning the interaction effect between cost and benefits, Lanzetta and Driscill and Lanzetta found that search continued until uncer tainty was reduced to a certain level, when a decision was made.27 Hansen found that either conflict will be reduced to a tolerable level, or Search will stop when the conflict generated in choosing search . . . . 2 alterriatives 13 greater than the product ch01ce conflict. 8 These notions imply that there is a point below which it simply is not Worth the effort to further reduce uncertainty or conflict. Choice environment. Since human beings adapt their behavior to achieve goals and goals are sought in particular choice environments, ‘the Characteristics of the choice environment may greatly imfluence the amount of information search. Furthermore, this influence of the Shopping environment is more important for external search than for iI‘iternal search. In general, there are three major properties 0 . f choice env1ronments. "The first major influence, availability, refers not only to w hether the information actually exists, but to whether it is more or 1 . . . . . . e88 access1ble. If there 18 little or no information available r . elevant to the consumer's goals, extended search may not be p0331ble. 24 Even if there is a great deal of information, it may not be the type desired by the consumer.29 — poumuwafiomM ma EOHum>occH .%uflmm=v o>0HQEH was moofium noBOH cu mEuHm no snow Imoua and muoesmcoo poehowcfl ouoz .msoswwaem ma cowumuusoocoo co uoomwo o£u ”wooden mucmuucm 30c .o>moH ucowo Ifluwonw mnu mm pcm .cmemu mauwm unofiUmem .pommouucw ma huHm>fiu o>wuflumaeoo mam >wamo wwcfluommo o>flufluoasoo oumaaoo :mo muoESmcoo .muoeamcoo On mousnfluuum unspoua oumoficoe IEoo :mo uw omnmoon mucous soc HOw oanwwmoa zuuco mome mafimfiuuo>v< .uonpoua co>ww m now >ufioflummao muoowwm zuflamsc pom ooflum Coo3uon mfizmcowumaou osu zaco :.m:Hm>: umma was man o>Hu ransom ooaua ouoe oeooon muoEJmcoo .mousnfiuuum omonu osam> xmnu >m3 ocu mwcmno uos moon new mouanwuuum monocum usonm muoesmcoo mau0mcw wcwmwuum>p< .pouapou on hue cowum>oan .m:0HmcoEflp mofium no wuHHmsv co mumdsoo ou xamxwm mm uonpcoo moxumz uo: mum was mooaud Honmwn owumzo :mo mEuHm .uoBoa mumcowu louomfip once muss mahflm mcfl>moa .mowmouo use coeumuunoosoo mmHm>flu Hmwucouom pom :OflufiuodEoo uwxume Eouw poumHSmcH mum mauflh nozom moxumz pom menuosuum zuumnch mcflmfluum>pm so once >Ho>Hum~ou madam pom zuamzoa pcmum suucm cu muofluumm pozmflanmumo oEouum>o umse mucmuuco Hmwucouom mpcmun pomfluuo>pm HOW mwusuflumnzw umzow o>woouoa pom .o>Huflm:om wowed mood was Hmon pcmun osoomn unmaswcoo uoa>msom wcwwsm mossmcoo .mwcfiuowwo o>HuHuanoo scum uospoum ocu nonmaucouomwflp pom .mousnfiuuum nonpoum mowcmzo .moumMu mcfiwwuuo>p< can moosmuowoua Hosswcoo wuomwwm waflmfluuo>p< :OfiumEuowcH\w:HwHuuo>p< umBom noxum2\w:fimwuuo>p< magnum pan wchHuHm>p< mo mmHuomr—H 03H. H mamas -— ‘. ____ 3O .3 .a .83 .553 .m .02 :3 40> . infirm: co Ransom :.muo=poum Hoesmcoo mo ooflum one so wcwmfiuuo>p< mo uomaeH one: .cOHnH< .m xumz pom wfluumm .3 Hamm ”mousom .mnonwfinEm ma xocofiofimwo commences pom coaufluomEoo powonUCfi ou map muamoud :o uoowwo use .Ummmmuoop mum mmoaua xuumsch .GOHUHuoaaoo moowuoa mo mCOfiu pruoo ou pounano pouofiuumou mH unmuno .wuospoua uHosu mwfluuo>pm ou o>wucoocw muoE co>o EoSu o>wm mam muomfluuo>pm cu monmEHOmuom uoxumz msuoom wufiwoua w>Hmmooxm pom mmoflud awfim coaumEHOmcH\w:flmHuuo>p< HoBOm noxumz\mmfimwuuo>p< Awozsflucoov H mqm Further in- S‘ight into the advertising price relationship is provided by Nelson. Qfi~Nelson's Model of Consumer Search. Nelson,whose ideas are I‘Ooted in the work of Stigler, has developed an economic model of the 37 . . . 59 \ consumer and his search for information. “The major point in the model is the assumption that the price elasticity of demand depends upon the amount of knowledge consumers have about close brand substi- tutes, not upon the existence of a certain number of substitutes/E The central element is, therefore, the determination of the probability that the consumer will find or know about alternative brand offerings Within a product category. In his model, monopoly power results from consumer ignorance and will be reduced as advertising increases the amount of information and the number of known competing brands and thereby increases the price elasticity of demand and lowers price. Nelson approaches consumer purchasing behavior and the role 0f advertising by depicting the characteristics of the product that will affect the consumer's search process. He proposes that the great- er number of searches and/or sampling the consumer can make within a Product category, the greater is the price elasticity of demand for the product . 6 «film the Nelson model, consumers are assumed to have fixed Dre ferences; therefore, advertising cannot change tastes, differen- tiate a product, or establish any semblance of brand loyalty. The clueStion arises-«Why would a firm advertise in the Nelson model? \K‘S‘imply, advertising is seen as affecting the consumer's perception a‘bOut the product by signaling its characteristics. These 'signals‘ help the consumer direct his search process or choose which brand he may try. Products are differentiated only by their value, but adver- tiSing can inform consumers that the product exists or what some of 38 —~the attributes are.‘Although advertising cannot create attributes or add 'utilities' in the Nelson model, it can increase the value of a product by promoting lower prices for a product category. Through the examination of the central ideas of the major contributors of the advertising information theory, a theoretical grbase can be laid from which to summarize. (Generally, this model views advertising as providing information on brands, prices, and quality, thereby increasing consumer knowledge, reducing buyer search costs, and ultimately the total cost to society of transacting busi— " Iless. In addition, advertising induces sellers to improve the quality Of goods as better informed buyers are not as likely to purchase or {\‘Tepurchase low-quality or unsatisfactory goods. E‘By increasing in- formation, advertising also increases the number of substitutes known to buyers, thereby increasing price elasticity of demand and reducing pt‘ice-cost margins.) Advertising facilitates market entry allowing previously L1“known products to gain rapid market acceptance. Without advertis— ing, market penetration would be much slower for new products than \it is with advertising. if Finally, advertising serves consumers by increasing product variety and by permitting firms to exploit‘Qiecono— mies of scaleg’gin production and distribution--which in turn yield _l°V~7er consumer prices.) Since the early 1960's when Stigler hypothesized the relation- Ships central to the advertising information theory, much work has been done concerning the behavioral aspects of consumer search and 39 shopping behavior. As Stigler identified, search is directly related to the cost of information to the consumers. When this cost of acquiring the information concerning price is less than the savings realized by search, the consumer is likely to engage in search. With the presence of price advertising in the mass media within a market, *leflef:sfi_99§§ of search would ,be,,r9duced. For example, h_e \Euld only have to read newspapers or magazines to obtain the price comparative information instead of traveling to each retail outlet toacquire the information. The behavioral research indicated, however, that search for information and evaluation of that information on a consumer's pre- Purchase criteria is a complex process. Ordering of the product attributes on which the consumer bases his decision is hypothesized as playing a major role in search for information related to the at- tributes. Stigler assumed that price is an important attribute in the Consumer's evoked set. As can be imagined, the importance of price as an attribute for a convenience product may play a somewhat minimal ‘70 le. While the consumer has assigned weights to the product's at— tTributes and determined the most important aspects of each product or brand, price may indeed play a lesser role. For the savings of a few cents or even a few dollars, the consumer may remove or lower the order of price in his evoked set.\For example, location of sale \ may be a more important attribute than the price of the product\ Be- ing able to acquire the product at a higher price physically closer 40 .oto the consumer may offset any transportation costs involved in ac— quiring the product at a lower price at a location farther away from the consumer. Therefore, the rational consumer, while aware of the cost savings available on the product via mass media price advertis- ing,\would consider the total cost of acquiring the item before \ \ 1 making a purchase / Furthermore, time, a major element of the advertising infor- mation theory may be hypothesized in a slightly different role. Time, in the advertising information theory, is identified as playing a major role in the consumer search process. (Heduction of time for Search of price savings is seen as being the major benefit of price advertising:> However, even though the consumer's search for price is reEduced, the ultimate cost of the product, with time included as a Pllrchasing variable, may be important. {In other words, for the con- sllmer to realize a savings or reduction on the price of the product ‘31? service, the time expended acquiring the product is considered into tlle total purchase price:} Also, the extent to which aggregate consumer p11rchasing characteristics for a particular product category exhibit sllch behavior, the importance of price advertising is likely to vary. For substantial savings on identical products at different retail outlets, the time invested by the consumer may be beneficial. 'rllis would likely be the case for both shopping and specialty good Qlassifications. lIn these cases, the price of the product may be a highly ranked attribute in relation to time of acquiring the product 41 and in these cases provide an incentive to purchase at a location physically inconvenient. Generally, it can be stated that the presence or absence of price advertising for certain types of goods may have an effect on --— the price of the product within the market. (However, the consumer is pictured as associating the cost for the product with more than just the advertised price§ The time and convenience of the place of pur— chase may interact with price causing the consumer's perceptual impor— I tance of price to vary with product class. e-Several researchers have examined the effects of advertising on the price of products and services. Generally, four studies have been completed that examined (1)" the toy industryK‘CZ/l retail gaso— line, (3) eyeglasses, and .64) the prescription drug market. ‘ The Toy Industry. Steiner, by examining the toy industry, described the process by which advertising may lower consumer prices in strongly advertised industries whose goods are sold through the general retail trade. By the use of large media budgets by national a~C1\Iertisers, consumer recognition of the advertised item was increased, el'labling the buyer to readily identify and compare its price wherever the item was sold.62 ‘Steiner noted the effect of mass advertising by looking at the impact on distribution margins. Through an analysis of the toy industry from the 1950's to early 1970's, be traced the development and use of large national advertising campaigns to create consumer demand for toy items. Accompanying this rise in national advertising 42 ' expenditures, was the emergence of 'discount stores' that operated with a high volume and low margin retailing strategy. He concluded that in conjunction with this mass merchandising, advertising had—low- ered markups on advertised brands and reduced them on competing non- advertised-products as well as bringing lower price to the consumer.63 Retail Gasoline. Concerning the relationships between price advertising and the retail price of products, three studies have pro— Vided varying results. Maurizi compared markets that allowed price advertising for gasoline and markets that prohibited price advertis— ing for gasoline. Of the ten largest cities in the U.S., two were found to have ordinances prohibiting price advertising by retail gaso- line stations while in the remaining eight no ordinance was found. He hypothesized that average gasoline prices would be higher and tl'lat the variance of prices would be greater in the markets that pro— hibited price advertising.6l' Significantly greater variance was found in cities prohibit- ing price advertising. However, a significantly lower price was fOund in cities prohibiting price advertising. Furthermore, after all local, state, and federal taxes were subtracted, the difference batween the two groups means revealed no significant differences.65 Maurizi felt that possible inconsistencies of data collection techniques via survey methods left questionable the reliability of the Bureau of Labor Statistics retail price data. Concluding, Maurizi found (1) significantly greater variances in prices in cities prohibit— ing price advertising, and (2) significantly lower prices in cities 43 prohibiting price advertising, however, this was believed to be due to error present in the wholesale price data.66 Eyeglasses. Benham examined markets in which advertising for the price of eyeglasses was prohibited by state boards of optometry EHId markets in which advertising for price was legal. His data on eytaglasses and eye examination prices were obtained from a 1963 sur— ‘Ve37 of a national sample of individuals concerning use of an expendi- tirre on medical services. A subsample of 634 individuals who each I uIiderwent an eye examination and/or obtained a pair of eyeglasses in 11963 was used for the analysis. In addition to the amount spent by iridividuals for eye examinations and eyeglasses, detailed demographic iJIformation on each individual was included in the survey.67 His analysis dealt mainly with eyeglasses and not with eye e)Kaminations as very few states permitted advertising of eye examina- tiions in 1963. Benham hypothesized prices in states that restricted \q I’lrice advertising of eyeglasses would be higher than states that al- »\ {4"“ ' ’ >1f the ten drugs between the restricted and unrestricted markets. He h)7pothesized (1) that a greater dispersion of prices would be found 1:1 markets where price advertising was restricted, and (2) the aver— a£§e price was higher in states that restricted price advertising.7 The results of his analysis indicated that the dispersion 013 prices was significantly greater in restrictive states and the le'vel of prices was higher in restrictive states. He concluded that (1.) consumers pay an average of 4 percent more for the sampled drugs ill restrictive states than in unrestrictive states. Projected to all Prescription drugs, the results of this study indicate that consumers wOuld save over $400 million if the regulations had not been in ef— fEct. (2) With a significantly greater dispersion of prices in re- strictive states, it would become time—consuming and costly for con- Sumers to search out low prices. The net expected benefits of search for price information were outweighed by the cost of acquiring it. Consumers who viewed search as costly relative to anticipated savings were less likely to search out pharmacies with the desired mix of service and price. The result, therefore, is likely to be lower con— SLuner satisfaction than would be the case if price advertising was “\srnat restricted. The results of the study suggested that advertising Gaff act as a significant stimulus,to market competition through the pinavision of salient, useful information.71 I “From a review of the empirical work to date, results have I gfirnerally supported the relationships presented in the advertising '\'irlformation theory.-Steiner has demonstrated that mass media adver- tising associated with mass merchandising created economies of scale f<>r the retailer which in turn reduced distribution margins and ulti- Inately retail price. ”fiiThe presence of price advertising_in markets has generally had ttle effect of lowering average priCe and reducing dispersion of vari— aIlce within the market. That has especially been the case where the Pyroduct has exhibited characteristics of a shopping or specialty good 'p_ (eyeglasses and prescription drugs). The presence of price adver- xitising within a market seems basically to have no effect on the aver- age price of a convenience item (gasoline).—~However, in this last Case, it should be noted that the price advertising was via signs at the location of product sale and not the mass media as in the pre— Vious two cases. This conceivably could be an important difference 46 when comparing search costs as the purchaser would still have to visit the retail location to compare prices. In explaining the lack of effect of price advertising for average gasoline prices, in addition to methodological problems ‘(1) search costs for the consumer even with price advertising could have outweighed the benefits associated with the discovery of lower prices, (2) the varying level of service found at sales locations of gasoline may be an intervening variable, i.e., full service station Versus self—service stations, and (3) the nature of the product as l mOre of a convenience item, thereby reduced the consumer's motivation to search. Synthesizing and applying these findings to the area of beer Price advertising points to some interesting implications: (1) Consumer recognition and awareness of nationally adver- tised brands has enabled identification and comparison of price. '(2) The relative importance of the price attribute in the QCluisumers evoked set appears to play a lesser role in the convenience Product category. Conclusions concerning the convenience category, hOwever, are still uncertain and additional study should provide ad— ditional knowledge. (3) The effect of industry structure may be an important ele— ment. The number, type, and size of firms comprising the industry Could affect the pricing policies within that industry. Table II provides a summary of the effects of advertising 0n price from (1) the Advertising Market Power perspective, (2) the .Hmafi .mlmNN .aa ..oo maonmosnsm aumumoslruzom .zomouoo4 Hmfiuowmsmz < “mCHuoxumz .EmanHcoso .z.o mHHonmmH can Emswcflccso .m EoHHHHZ .mnma .>nooEou moanmflansm zoamozlnomwwn< .ooHoco Hoasmcoo wo epooga wzfiwmmooum coaumEHOWCH c< .cmEuumm .m mmEMh .mmoa .HmnEmomQ .muouflumcH mocofiom Mafiumxumz .muommEH oHEocoom m.wcflmfluuo>v< no coumomom wcfiwflmuoo< .mwuumm .3 Hana new :OHQH¢ .m Mum: ”moouoom .oofluo nonwon cu haoxwa me scammeuomcfl moeuo wnflcmesoo wcwwfiuuo>om mo cosmw>oum .muoesmcoo ou muonwou Ium unoflamm m we moeuo mums: mcH oozoa uo30H moowwo on , .musnwuuumfloHDE mum muosnoum Immoooum cowumEu0mcH 7 .wumoo soumom A. mosoou znoumnu new muoeamaoo ou coaumsu0wcw usm>oaou mcfinfl>ouo zn %ufi>wuwmcmm ooflno m.umE:m :OfiumE uoBOH umaoa umBOH Icoo omnouufie HHHB wcfimfiuwo>o< luownH mnemwuuo>o< .cOHu Imwucouowwwo uooooum swooucu %uw>fluflmcom moflho m.HoE:m nozom omfimu omens owflmu Icoo ommouooo HHHB mofimfluuo>o< uoxpmz mnemfiuuo>o< >uamfiomom wcwooonm mocmfico>coo oommmm kuomnh monsoosofi> Hmofiumuoosa mousH mofium co mnfimfluuo>o¢ mo uoomwm one HH mane“ 48 Advertising Information perspective, and (3) the Information Process- ing perspective on the price of different types of goods. The Ad— vertising Market power and Advertising Information theories make no specific mention of the difference product classifications may play or: the effect of advertising on prices.\\ln general, the Market }?ovver theory makes no distinction between types of goods in present— “rstijag;its relationships.\\With the Advertising Information theory, the Otlly distinction between goods is based on the cost of search. As 143mg as search costs produce favorable economic rewards, the consumer Vvill engage in search until those benefits are no longer present. 'The Information Processing theory presents products as multi- Eittribute objects. As price as an attribute increases in importance, the consumer's likelihood of information use increases. Where price i—s a relatively unimportant attribute, the consumer's use of price i.nformation is likely to be minimal. I"-II. Research Questions and Hypotheses (The discussion concerning the effect of price advertising Ori the price of products and services has generally pointed to lower Prices in areas in which price advertising is present The findings have been related to the cost of obtaining the information by the Consumer. Where the cost of acquiring information on price outweighs the actual savings found, the likelihood of search decreases. Em— pirically, this has been demonstrated for shopping and specialty goods in the case of prescription drugs and eyeglasses. ---‘____.._ 49 When applying the theoretical propositions to the area of convenience goods, however, the findings have been inconclusive. The consumer's lack of search for product information in the convenience good category may be hypothesized as playing a major role in relation to the price of the product. Conceivably the savings obtained via search could be outweighed by the cost or effort of obtaining the in: fc>rmation. In this case, the consumers use of the information, if anrailable, might be minimal. Also, the nmltiattribute nature of products as described by tlne information processing theory may play an important role. In ttw convenience good category, the attributes of a particular product nlay be ordered by the consumer in the aggregate in such a way that E>Iice plays a minor role in the consumer's evoked set. Price infor- nIation may be provided, but not used to any great extent by the con- E3L1mer because of the relative unimportance of price in the consumer's decision process . To hypothesize the effect of price advertising on the price <>f a product, an ordering of product attributes would be helpful. 337 using this information, the research could determine the importance Price plays in the decision process and be able to estimate the ef— fects of price advertising. However, information of this type is not generally available. The lack of additional information concerning the effect of Price advertising on the convenience good category, necessitates reli- , ence on the advertising information theory. Through the provision of 50 infggatxion to the consumer via mass media, the potential search costs are reduced, the level of knowledge concerning comparative prices is increased, and potential economies of scale would be present for the retailers. Using this theory, the presence of price advertising in the mass media within a market should (1) reduce the average price of the product, and (2) decrease the dispersion of prices within that market. Specifically, the hypotheses are: Hypothesis I: The average retail price for a "conveni— ence” product is higher in markets where there is not .’ ' price advertising in the mass media than in markets ' where there is price advertising in the mass media. Hypothesis II: The dispersion of retail prices of a "convenience" product over time is greater where there is no price advertising in the mass media than where there is price advertising in the mass media. The Advertising Information theory was used as a basis for the hypotheses mainly because of the related empirical work concern- ing Price advertising and its effect on prices of products. However, SinCe this dissertation will explore a different category of products, Com7enience goods, the results may be different than previous findings. For example, if no price difference is found between the two markets, generally the relationships presented in the Information Processing theory .may be valid. However, if the prices are higher in restric— ti??? markets, the relationships presented in the Market Power theory 111:1er bG—ivvvalid. In this latter case, the brand images built by national me rchandising may have created strong brand preferences by the consum- ers ' I and result in general insensitiVity to price. Therefore, brands 51 may be an important variable and should be included as part of the analysis. If price is higher on nationally advertised and marketed brands in markets that restrict price advertising, relationships pre- sented in the Advertising Market Power theory may be valid. There- fore, in addition to the prior hypotheses, the study will also examine the effect of price advertising on the retail price of specific brands of the "convenience" product. Several different national brands will be tested, repeating the hypotheses. Specifically, the hypotheses are: Hypothesis III: The average retail price for the "convenience" product Brand A is higher in markets where there is not price advertising in the mass media than in markets where there is price advertis— ing in the mass media. Hypothesis IV: The dispersion of retail prices of the "convenience" product Brand A over time is greater where there is no price advertising in the mass media than where there is price advertising in the mass media. According to the Advertising Information theory, the presence 0f price advertising in a market has the effect of reducing search Costs for the consumer./ As the level of information within the mar- ket increases, the variance or dispersion of prices is likely to decrease. Therefore, if relationships presented in the Advertising Information theory are valid, the dispersion of prices within the market which allows price advertising will be lower than in markets where there is no price advertising. 52 ENDNOTES FOR CHAPTER II 1P. Nelson, "Advertising as Information," Journal of Political Economy, 81, July/August, 1974, pp. 729-745; P. Nelson, "The Economic Consequences of Advertising," Journal of Business, 48, April, 1975, pp. 213-241. 2George J. Stigler, "The Economics of Information," Journal of Political Economy, June, 1961, pp. 213, 216, 220. 3Ibid. 4James R. Bettman, An Information Processing Theory of Consum— er Choice, Addison—Wesley Publishing Company, 1979. 5E. Jerome McCarthy, Basic Marketing: A Managerial Approach, Third Edition, Richard D. Irwin, 1963, pp. 251—258; Louis P. Bucklin, "Retail Strategy and the Classification of Consumer Goods," Journal of Marketing, January, 1963, pp. 50—55. 6Bettman, p. l. 7Bettman, p. 107. 8Bettman, p. 111. 9Bettman, p. 112. 1 0James F. Engel, Roger D. Blackwell and David T. Kollat, Consumer Behavior, Third Edition, The Dryden Press, 1978, p. 367. 1 1Joseph W. Newman, "Consumer External Search: Amount and Determinants," in Consumer and Industrial Buying Behavior, eds. Arch Woodside, Jagdish Sheth, and Peter Bennett, North-Holland, 1977, p. 84. 12 Peter D. Bennett and Robert M. Mandell, "Repurchase Infor- mation Seeking Behavior of New Car Purchasers-—the Learning Hypothe- SlS." Journal of Marketing Research, No. 6, November, 1969, Pp. 430—433. 13 . . Herbert E. Krugman, "The Impact of Television Advert151ng: Learning Without Involvement," Public Opinion Quarterly, Fall, 1965, PP. 349-356. 1 4Bettman, p. 117. 1 5Allan Newell and Herbert A. Simon, flgflgfl_§£2§l§§.§9i¥i§§’ Englewood Cliffs, N.J.: Prentice—Hall, 1972. 53 l6Engel, Blackwell, and Kollat, p. 239. 17Joseph W. Newman and Richard Staelin, "Multivariate Analy— sis of Differences in Buyer Decision Time,” Journal of Marketing Re- search, August, 1972, pp. 249-257. 18John E. Swan, "Experimental Analysis of Predecision Infor— mation Seeking," Journal of Marketing Research, May, 1969, pp. 192—197. 19 Krugman, pp. 340—356. zoBettman, p. 123. 21G. Katona, The Powerful Consumer, New York: McGraw—Hill, 1960, p. 138. 22 G. Katona, The Powerful Consumer, New York: McGraw-Hill, 1960; R. A. Bauer, "Consumer Behavior as Risk Taking," in R. S. Hancock, ed., Dynamic Marketing for a Changing World, Chicago: American Market— ing Association, 1960, pp. 389—398; J. A. Howard and J. N. Sheth, The Theory of Buyer Behavior, New York: Wiley, 1969. 23John T. Lanzetta, "Information Acquisition in Decision Mak— ing.‘ in 0. J. Harvey, ed., Motivation and Social Interaction-Cognitive ,Determinants, New York: Ronald Press, 1963, pp. 239-265; John T. Lanzetta and Vera T. Kanareff, "Information Cost, Amount of Payoff, and Level of Aspiration as Determinants of Information Seeking in De- cision Making," Behavioral Science, 1962, pp. 459-473- 24 Richard J. Lutz and Patrick J. Reilly, "An exploration of the Effects of Perceived Social and Performance Risk on Consumer In— formation Acquisition," in Scott Ward and Peter Wright, eds., Advances in Consumer Research, Vol. 1, Chicago: Association for Consumer Re- search, 1974, pp. 393-405. 25Louis P. Bucklin, "Testing Propensities to Shop," Journal %£_!§EEEEEEE9 January, 1966, pp. 22-27; George Katona and Eva Mueller, A StUdY of Purchase Decision in Consumer Behavior," in Lincoln H. Clark, ed., Consumer Behavior: The Dynamics of Consumer Reaction, Volume 1, NEW York: New York University Press, 1955, pp. 30-87. 26 . I John D. Claxton, Joseph N. Fry and Bernard Portis, 'A Taxonomy of Prepurchase Information Gathering Patterns," £22322l_2£ Consumer Research, December, 1974, PP. 35-42. 27John T. Lanzetta and James M. Criscoll, ”Effects of Uncer- tainty and Importance on Information Search in Decision Making," Journal of Personality and Social Psychologyi 1968, pp. 479-486; John T. Lanzetta, "Information Acquisition in Decision Making," in 0. J. Harvey, ed., Motivation and Social Interaction-Cognitive QEEEEEEEEEEE) New York: Ronald Press, pp. 239—265. 54 28 Flemming Hansen, Consumer Choice Behavior: A Cognitive Theory, New York: Free Press, 1972. 29Bettman, p. 125. 30Bettman, p. 126. 31Bettman, p. 127. 32Bettman, p. 127. 33 Claxton, SE 31., 1974; Katona and Mueller, 1955. 34Bettman, pp. 127-8. 35Bettman, p. 128. 36Hans B. Thorelli, Helmut Becker and Jack Engeldow, Th3 Information Seekers, Cambridge, Mass.: Ballinger, 1975; Stephen J. Miller and William G. Zikmond, "A Multivariate Analysis of Prepur— chase Deliberation and External Search Behavior,” in Mary Jane Schlinger, ed., Advances in Consumer Research, Volume 2, Chicago: Association for Consumer Research, pp. 187-196; Claxton, E£.§£" 1974; Katona and Mueller, 1955. 37Joan E. Sieber and John T. Lanzetta, ”Conflict and Conceptu- al Structure as Determinants of Decision—Making Behavior," Journal of Personality, Number 32, 1964, pp. 622-641. 38Bettman, p. 128. 39John E. Swan, "Experimental Analysis of Predecision Infor- mation Seeking," Journal of Marketing Research, Number 6. May, 1969’ pp. 192-197; Claxton, E£.El" 1974. 4 0Swan, 1969; Claxton, fig 31., 1974. 41 . . Philip Kotler, Marketing Management: Analysis, Plgggiggy éfiijfiflflggl, 3rd Edition, Prentice—Hall, Inc., 1976, p. 89 4 2Kotler, p. 89. _ Paul W. Farris and Mark S. Albion, "The Impact of Advertis— lng on the Price of Consumer Products," Journal of Marketing, Vol. 44, NO- 3. Summer, 1980, p. 18. 44 - F. M. Scherer, Industrial Market Structure and Economic EEEEQEEEEEE, 1970, p. 324. 451bid., p. 235. )d’, 55 461bid., p. 235. 47Robert L. Steiner, "A Dual Stage Approach to the Effects of Brand Advertising on Competition and Prices," in John F. Cady (ed.), Marketing and the Public Interest, July, 1978, pp. 127—150. 48William S. Comanor and Thomas A. Wilson, Advertising and Market Power (Cambridge, Mass.: Harvard University Press, 1974). 49Farris and Albion, p. 110. 50J. J. Lambin, Advertising, Competition, and Market Conduct in Oliggpoly Over Time, Amsterdam: North-Holland, 1976. 51Farris and Albion, p. 110. 52Stigler, pp. 213-225; Philip Nelson, "Information and Con- Sumer Behavior," Journal of Political Economy, 78 (March/April, 1970), Pp. 311-329; Philip Nelson, "The Economic Value of Advertising," in Yale Brozen (ed). Advertising and Society, 1974, pp. 43—65; Philip Nelson, "Advertising as Information," Journal of Political Economy, Vol. 81, July/August, 1974, pp. 729-745; Philip Nelson, "The Economic Consequences of Advertising," Journal of Business, Vol. 48, April, 1975, pp. 213—241; Philip Nelson, "Advertising as Information Once More," in David G. Tuerck, (ed.), Issues in Advertising: The Economics of Persuasion, 1978, pp. 133-161. 53George J. Stigler, "The Economics of Information," Journal ._of Political Economy, Vol. 69, June, 1961, pp. 213—225. S4Stigler, pp. 213-225. 551bid., p. 214. 561b1d. 57Ibid., p. 220. 581b1d., p. 224. 59Philip Nelson. 6OIbid. 61Ibid. 62Robert L. Steiner, "Does Advertising Lower Consumer Prices?", Journal of Marketing, Vol. 37, October, 1973, pp. 19-26. ‘w— 56 63Ibid., p. 26. 6(“Alex R. Maurizi, "The Effect of Laws Against Price Adver- tising: The Case of Retail Gasoline," Western Economic Journal, September, 1972, pp. 321—329. 63Ibid., pp. 323-325. 66Ibid., p. 326. 67Lee Benham, "The Effect of Advertising on the Price of Eye- glasses," Journal of Law and Economics, October, 1972, pp. 337-352. 681bid., pp. 338-339. 691bid., p. 350. 70John F. Cady, "Advertising Restrictions and Retail Prices," Journal of Advertisirig Research, Vol. 16, No. 5, October, 1976, pp. 27—30. 7lIbid., p. 29. CHAPTER III THE BREWING INDUSTRY This chapter presents a historical perspective of the brew— ing industry for the purpose of structural analysis. The general Structural characteristics, consumption trends, and dimensions of rivalry are discussed from an economic perspective. Concluding the Chapter is a discussion of promotional efforts focusing on price and advertising competition . _The Brewing Industry Since 1947 Following World War II, the brewing industry went into a per‘iod of decline and stagnation which persisted until the early l960's.l Evidence of the decline and stagnation characterizing this period is shown by the trend in beer sales and industry profits. In Table III, total industry sales, in barrels for the period 1947-1977 are presented along with the value of shipments. From 1947 through 1967, beer sales in terms of barrels increased by just 24 percent, whe‘reas from 1967 through 1977 barrelage increased 48 percent. Dimensions of Structural Change. The major feature of struc— tural change in the brewing industry has been the decline in the num- be): of breweries (Table IV) and the increase in national concentration (Table V). Most of the plants that have exited the industry since 57 L TABLE III Taxpaid Withdrawals and Value of Shipments, for the Total Beer Industry: 1947—77 Total Taxpaid Value of Calendar Withdrawals Shipments Year (thousands of barrels) (mil.) 1947 87,172 $1,498.9 1952 84,836 1,777.1 1957 84,371 2,057.9 1962 91,197 2,282.0 1967 106,974 . 2,929.7 1972 131,809 4,054.4 1977 156,948 N.A. SOurces: U.S. Brewers Association, Brewers Almanac, Washington, D.C., 1976; Census of Manufacturers, 1977; Courtesy of U.S. Brewers Association. -_ - -___ 59 TABLE IV Number of Breweries and Brewery Firms: 1947-76 Year Plants Firms 1947 465 404 1952 357 263 1957 264 211 1962 220 171 1967 154 125 1972 131 108 1976 94 49 Sources: 1947-1972: Brewing Industry Survey (New York: Research Company of America, 1973-4). (For number of firms): U.S. Bureau of the Census, Census of Manufacturers. 1976: Brewers Digest Brewery Directory, 1977. —*———?fl—- 60 TABLE V National Beer Sales Concentration Ratios: 1935-77 (percent) Year Four—Firm Eight—Firm 1935 11 17 1947 21 30 1954 27 41 1958 28 44 1963 34 52 1966 39 56 1967 40 59 1970 46 64 1972 52 70 1973 54 70 1974 58 74 1975 59 78 1976 59 80 1977 63 83 SOUrces: 1935-72: U.S. Bureau of the Census, Census of Manufac- tures (based on value of shipments) (estab- ment basis). 1973: Based on share of total sales of U.S. Brewers. Brewing Industry Survey (1974). 1974—75: Based on sales data in Advertising Age, Novem- ber 3, 1975, and December 27, 1976. 1976-77: Based on sales data in Modern Brewery Age, Feb. 14, 1977, and Feb. 13, 1978, by permission. 61 1935 have been much smaller in terms of rated capacity than those re— maining or those built since World War II.2 The increase in national concentration since World War II implies that the industry has been transformed from a fairly unconcen- trated industry into what might be characterized, considering only concentration, as a moderately 'tight' oligopoly, based on a national market perspective. Due to the economic and political implications that are often drawn from the structural characteristics of an indus- try, a more in-depth analysis of the situation is presented. Structural Characteristics. Prior to World War II, most brewers served relatively small local areas, though some sold region- ally and a few such as Anheuser-Busch and Schlitz sold beer nation- ally. At that time firms selling nationally operated out of one brewery. To cover additional transportation costs not incurred by loCal or regional brewers, the national firms advertised their beer as being of premium quality and charged a premium price. The national breweries and a number of regional brewers such as Carling, Ham, and Falstaff began entering new geographical regions in the 1-950's and were successful in increasing their shares in those areas. The level of national concentration rose, but in regional markets con- centration did not rise to the same extent since the increased sales of these national and regional firms came at the expense of local and Small regional firms which had previously dominated these markets. What occurred in the regional markets then was a change in the compo— 81tion of the sellers. 62 Regional brewers have been displaced by national brewers and state concentration has been and continues to be higher than . . 4 . . national concentration. The eVidence on state concentration levels supports the earlier contention that what has occurred has been a replacement of regional brewers who once were market leaders by the national brewers in a large number of states. The increase in the level of concentration at the state level is not entirely attribut- able to success of the national brewers, however. There are states such as Oregon, Idaho, and Montana in which concentration increased in spite of the fact that the national brewers were never previously Very important in terms of sales. Estimates of the weighted average state concentration ratios are presented in Table VI. The 1964 and 1973 ratios are not directly Comparable with those of 1974—77 because some states appear on one list but not on the other. However, the average state concentration did rise in 1974 because of several mergers involving regional brew- eTS. Since then, average state four firm concentration has been re lat ively stable . A comparison of the national and state ratios yields two important conclusions: (1) concentration (especially four firm) has alWays been much higher at the state level than at the national level, and (2) the increase in concentration (especially four firm) has been ‘31th greater at the national level than at the state level. Therefore, inferences and conclusions drawn from the in- crease in national concentration must be done carefully. Most consumers 63 TABLE VI Weighted Average State Concentrationl (percent) 1964 1973 1974 1975 1976 1977 Four-firm 67.4 79.4 82.4 81.7 80.9 82.7 Eight—firm 88.5 95.3 -- -- -- -- l . . . . State concentration ratios were weighted by 1976 consumption as given in Beverage World, March, 1977, p. 54. The 1964 Texas con— centration is actually 1965. Including Illinois (1966 and 1973) would affect the 1964 and 1973 ratios by less than one percentage point. The States included in the 1964 and 1973 ratios accounted for 58 percent of 1976 U.S. sales; 62 percent for the 1974-77 ratios. TABLE VII Percentage Increase in Beer Sales, Population, and Income: 1951-76 1951-59 1959—67 1967-76 Total taxpaid withdrawals1 4.5 26.8 40.6 Population aged 20-442 0.8 7.4 19.7 Disposable personal income, 1972 dollars 28.5 40.3 33.0 1 See Table 3. 2 U.S. Department of Commerce, Bureau of the Census. 3Ibid. and Bureau of Economic Analysis. -_ __.._.. 64 face markets which are and always have been more concentrated than is indicated by the level of national concentration. The rise in nation- 31 concentration reflects a displacement of local and regional brewers by the national brewers rather than a dramatic decrease in the number of sellers faced by the consumer. Changes in Consumption Patterns. As has been established, beer sales declined and stagnated in the 15 years following World War II. In fact, total sales of 1947 were not surpassed until 1959. This stagnant demand is a major reason why many firms exited the in- dustry during this period. This lack of growth in demand has been in Part blamed on demographic factors. According to Brewers Almanac 1976 (p. 82) past industry sur— VEYS have shown that persons aged 21-44 account for about 697. of beer Consumption. Since this age group was almost constant in size during 1951-59, demographics appear to be a good explanation for beer demand during this period. However, after 1959, beer sales grew more than tWice as fast as did the number of people aged 20-44. Brewers Almanac (p. 29) constructed an index of beer consump— tion per capita by eliminating the under 21 population and weighting the older age groups according to their relative beer consumption. Between 1957-59 and 1975, the per capita consumption of the 'weighted beer consuming population' rose by 41.9%, while per capita consump- I:Zi.on based on total population grew 43.0%. This suggests that factors Other than demographics explain much of the increase in beer demand e-fter 1957-59. Real income is a variable common in many statistical 65 demand studies, and it usually has significant explanatory power. But according to Table VII, beer sales rose much less rapidly than did real disposable personal income from 1951 to 1967, whereas from 1967 to 1976 sales increased somewhat more than did income. Thus, it is likely that other factors may be partly responsi- ble for the change from the stagnant demand of the 1950's to the more rapid growth of the late 1960's and 1970's. One of these may have been a shift in tastes away from distilled liquor and toward beer and wine. Another may have been an easing of the legal restrictions on beer sales, i.e., in the areas of minimum ages, alcohol content, Price advertising and Sunday sales. National Brewers: Multi—Plant Economies of Scale Much of the success of the national brewers is attributable to the advantages that have been gained by multi-plant economies of S(tale. For example, two identical but separate plants may achieve lover per unit production, distribution, and/or marketing costs when operated jointly by one firm than when operated by two separate firms. The brewing industry was included in the sample of 12 indus— tTies studied by Scherer and his associates in an attempt to determine the importance of multi-plant economies of scale.6 They found that tl‘le only significant advantage to national multi—plant operation in t1'le brewing industry was of a promotional nature. However, it was S“-‘lbstantial enough by itself to give firms that pursued a multi-plant 66 strategy a significant advantage over other brewers. Reductions in production costs attributable to multi-plant operation were found to be insignificant. Although transportation costs for the firm as a whole were reduced, the reductions did not give any of the national firms any advantages over regional or local firms in their particular markets. National Brewers: Promotion and Advertising. There are several advantages resulting from promoting and advertising on a national basis. First, the national brewers tend to be larger and there may be discounts to firms that buy space or time in large quan- tities, although there appears to be little evidence for this proposi- C1011. A second possible advantage suggested by Scherer is that the Creation of an image requires a certain minimum level of advertising. In other words, it is not only advertising intensity that counts, but also the absolute amount spent on advertising.8 While this may be true, it appears that the national brewers in general had to over- QOme the—”threshold effect' due to the established images already held by many regional and local brewers. It should be noted that these established images of most regional beers were images of good inex- peInsive beers rather than premium beer images. Furthermore, it may be that most regional firms advertise more than 'threshold' amounts. Thirdly, national advertising may be more productive due to buyer mobility. As people move out of a region, the information con— vQYed to them in the past by local brewers becomes useless. Likewise, 67 people moving into a region must be informed of new, local—based beers that are now available to them. Thus, to keep a mobile population informed would be more costly for local or regional brewers as com- pared to those brewers advertising and selling nationally. The value of the information does not depreciate as rapidly, nor is there a need to inform those first entering the market from another location. National as compared to regional or local advertisers may also be advantaged if a good is most effectively advertised through media that are not divisible in terms of audience selectivity. Since ~ network television is such a medium, regional brewers will suffer a disadvantage vis-a—vis national brewers if network television has Significant advantages over more divisible media such as spot tele— v:Lsion. Porter has argued that network television has important cost adVantages over spot television, in large part because network rates range from only 10 to 70 percent of the sum of individual station I'ates, with the amount varying by time of day and season. However, most of the variation in network rates referred to by Porter simply accounts for time of day and seasonal differences in the size of audience viewing television. That is, network rates are varied by time of day and season to equalize approximately the cost per unit of audience reached by the different network advertisers. Similar variations also occur in the pricing of spot television which POrter neglects to consider.12 Secondly, a direct comparison between estimates of the cost Per thousand homes reached on network and spot television suggests 68 that the differences between the two are much smaller than those in- dicated by Porter. Estimates by the FTC suggest that the cost per thousand homes on spot television ranges from 85 to 121 percent of the cost per thousand on network television, the exact percentage depending on the number of commercial units purchased per situation and on the exact terms of the contracts entered by spot buyers. In- deed, making reasonably plausible assumptions respecting the weights assigned to the various spot purchases, the cost per thousand on spot television appears, on average, to equal roughly that on network So far as the cost of time is concerned, the advantages television. 0f network advertisers seem much smaller than what Porter suggests and in fact may be nonexistent. Table VIII gives network and spot television advertising levels for four national and six regional brewers in 1974 and 1975. with the important exception of Anheuser-Busch, television comprised almost all of the total measured media advertising for these brewers in 1975. While the four national brewers, Anheuser—Busch, Schlitz, Pabst, and Miller spent heavily on network television, they did not In avoid spot television despite its alleged cost disadvantages. 1974 both Miller and Schlitz spent more on spot television than on If network television has significant advantages 1'1 . et‘VOrk advertiSing. 0 Vet spot television for national advertisers, it is doubtful that t he four national brewers would rely on spot television as much as they do. “- 69 Hm.o an maa.m o mwm.q «mad mm.o mm Hom.m mmm omm.m mmaa nouum oq.o me mmo.a Nw mmm.m enmfi «To om 88m mam; mix 3.: meeeio oe.o Nm awo.~ QMH oau.q «woe oq.o om som.m o omo.~ mama uwwomnm Nm.H mm Noa.o woo.m omm.ma enmfi Ho.a mm moq.q uo~.oa NmN.HN mama noHHHE mm.o om NmN.m mqm.q mqe.w quad mm.o Na mm¢.m nwm.m NNo.m mama umnmm mm.o cw «Hm.oa m~o.o Hem.om «sea oo.H mm mom.m owe.ea omm.ow mama mafianom Hm.o oo m¢m.m «mo.m qu.ma qemfi qe.ow um NmH.o moq.m «mm.emm mama somsmluomsmcc< Amumfiaovv e< mweoz 0 mo A.Hoo .cuv A.Hoc .Luv AmanHov ocmmsonuv Hmuumm moo ommucoouom N>e N>H Hmmusuwocmaxm o< moHDUfiecoaxm 6 mm >9 uoam xpozuoz mfioozlo >H mN-eNa~ "muwaum Hohmz cos How mmhauflw=mmxm mcwmwuhm>w< >& Hens mamas 7O .muomfluuo>o< HmGOHumz wowemmq "wousomm .onma .NN .omD pom .mnoa .m .>oz .o < mcwmwuum>o< "mousom .mcwmfluuo>om uooouso mom .>H poem .>H xuozuw: .OHomu uonm .mocwumwma .mummmamsoc mum swede omuswmmfi xfim o£H H mm.o qema owmum>< is £3 89333 53.13 ow.o 5w mNo.m o qu.m enma wo.o ma wea.~ wHH qmm.~ mmaa uewfinom .u Nm.o Om omw.H o «Hm.o enma o~.o 00H mam o mam mmma wwmumamm mm.o mm mmm.~ o coo.N qmma om.o aw mwm.u o Nom.m meaa cmEoHHmm .0 Amumfiaoev e< demo: 0 mo A.Hov .zuv A.Hoe .ruV AmumHHoe ecmmsonuv Hmuumm Hoe QMMucoouom N>H N>H Hmwusuwocomxm e< ousuaecmaxm m on >9 uomm xH03uoz mHoszo >8 llllllllllllllllllllllir lIlllllllllllllllllllllllllllllll :E .395 esfise 71 Scherer found that national brewers prefer spot television advertising in order to tailor "the intensity of their campaigns to specific market conditions."‘ He concluded that for breweries "the advantage of advertising on a nationwide plane are in most respects 15 not very great." According to Scherer and his associates, industrial structural change was brought about by the interaction of promotional advantages and economies of scale.\National firms initially were 'content' with a small share of each market and charged premium prices to cover their transportation costs.) Having established a premium image, the national breWers had an incentive to expand their operations. They constructed InC‘dern regionally decentralized breweries which initially lowered transportation cost and later lowered production costs. This raised the price—cost ratio which in turn induced the national brewers to ad‘Jertise more intensively, thereby further establishing the premium image of their beer. At the same time real per capita income was rising and this led to consumers' "trading up," i.e., substitution of higher priced beers with premium 'images' for the lower priced beers. This income effect was reinforced by a relative price change as the premium/popular price differential narrowed. The brewers producing the premium b eers were the ones who had constructed the new, highly efficient b reweries, thereby enabling them to charge a relatively lower price. Prices. The price of beer, like most other prices, has b igen since World War II. This is indicated by the Consumer Price 72 Index for packaged beer (Table IX). However, beer prices have risen at a slower rate than the general price level, as indicated in column 2 of Table IX, which shows the ratio of the Consumer Price Index for packaged beer to the Consumer Price Index for all items. In addition, column 3 of Table IX shows that beer prices have increased at a slight— ly slower rate than the price index of all alcoholic beverages since 1956. Thus, the real and the relative price of beer has decreased over time . In Table X, the Consumer Price Indexes for beer consumed at home and for beer consumed away from home are presented along with the ratio of the two indexes. The ratio shows that the prices of beer ConSumed at home (largely packaged beer) have risen at a slower rate than the prices of beer consumed away from home (largely draught beer). GiVen the proportion of packaged to draught beer has steadily in— creased since World War II, the composite price will reflect the change in Consumption habits. While the composite price itself does not give much specific information, it is nonetheless useful as an indi- catol‘ of the overall average price actually paid for beer. A Federal Trade Commission staff report looked at recent price and Profit trends in four food manufacturing industries, one of which was brewing. It was found that beer prices have continued to in— Crease through April, 1975, but that the rise in beer prices is relat- ed 'I most clearly to increases in brewing costs, and not to enhanced PE‘Q f i t ability. "18 73 TABLE IX Beer Industry Price Indexes: 1956-77 (1967 = 100) Retail CPI for Beer CPI for Beer Consumer Price Divided by CPI Divided by CPI for Index for Beer for all Items Alcoholic Beverages 1956 86.1 1.07 1.008 1961 93.8 1.05 1.005 1966 98.3 1.01 1.003 1971. 112.9 0.93 0.966 1976 143.7 0.84 0.979 1977 145.9 0.80 0.067 lP acl{aged Beer Sour”ties: Handbook of Labor Statistics (1972), Department of Labor, Bureau of Labor Statistics, Brewers Almanac, U.S. Brewers Association; Brewing Industry Survey, Research Corporation of America. 74 TABLE X Consumer Price Indexes for Beer Consumed at Home and Away from Home: 1964-77 Beer Consumed Beer Consumed Column (1) at Home Away from Home Divided by Year (1) (2) Column (2) 1964 95.9 92.4 1.008 1969 105.4 111.8 0.943 1974 126.8 145.8 0.870 1977 145.9 173.5 0.841 SOurce: U.S. Department of Labor, Bureau of Labor Statistics. , O- r FL..6..{1}7 .33... 1 75 Price Promotions. It has been alleged that extensive price promotions (very short—term price cuts) were responsible for the in— creases in market share of the national brewers. Apparently, the ex- tent of price promotion activity in general has decreased in the past few years. This can be attributed to two factors. First, a number of states have enacted price posting laws which diminish the ability of brewers to engage in price competition. These laws, typically enacted at the request of small brewers who have trouble competing with the national brewers, restrict the number and length of temporary price cuts that the brewer can engage in over the COurse of a year. As of April, 1978, about one-third of the states had some kind of price posting law which restricted the ability of brewers to engage in price competition. Although no attempt was made to determine the actual effect of these laws on pricing behavior, some observers suggest that brew- ers prefer to use temporary price cuts on the order of a few weeks, so that laws requiring price cuts to remain in effect for periods as lng as six months or one year should substantially inhibit price com— petition.20 If this is the case, an increase in non-price competition 81"Would be expected in such states. It is not clear that the small erWers are any more successful at coping with non-price competition . 21 than with price competition. BMany economists prefer price to non-price competition. One 1* , ea~Son is a belief that when price competition is suppressed, the Q <>r1sumer often ends up with a higher priced package than he really 76 2 . . . . . . wants. Another reason is the belief that price competition is more effective in increasing output and reducing profits than is non-price these are beliefs, and it has not been . . 23 competition . However , proven that price competition is, in fact, generally more "efficient" in meeting consumer's needs. The recent reduction in price promotions may also be related to the fact that the prices of inputs used in brewing and packaging have risen dramatically in recent years. The price of metal cans rose 21 percent in the first half of 1974, another 13 percent in the later half. Malt, which represents about 8 percent of total direct Variable costs, rose 25 percent in price in the first half of 1974 and an additional 27 percent in the last half. As a result, beer Prices in general were forced up and price cuts probably would have been costly to firms. Brewers appeared to have trouble just passing on the increases in the costs of inputs, the latter having increased mOre in 1974 and early 1975 than did the price of beer in the same period. The variation in the extent of price promotion activity sug- geSts that it is used as a tool, in conjunction with advertising, for Increasing sales in those areas where a firm feels it can or must ex- pand. Of course, it can also be argued that price promotions are a defensive tool in that they may be used to counter decreases in sales (3 , _ r increased competition from other brewers. Thus, causality between 13 . . bi Ce promotions and sales may run in either direction. 77 Advertising. Much of the rivalry between firms in the brew- ing industry has manifested itself in the form of advertising. The use of advertising by the industry, however, has fluctuated over the past three decades. In 1946 aggregate industry advertising expendi— tures were $50.4 million, a moderate sum judging by the corresponding advertising-to-sales ratio of 2.61 percent (Table XI). Thereafter, however, aggregate advertising expenditures escalated, and continued to rise until 1965 when they peaked at $255 million with a correspond- ing advertising-to-sales ratio of 6.90 percent. This ratio is based on gross sales. If excise taxes were subtracted from this figure, the ratio would rise. Between 1965 and 1973 aggregate advertising expenditures in Current dollars gradually declined as did the industry advertising-to- Sal es ratio. Although comparable data are not available since 1973 there is evidence that there was a major escalation of advertising effort by the leading firms in 1975, 1976, and 1977 (see Tables XII and XIII). The escalation process before 1965 was judged by Greer to be tl'le most important cause of the increase in concentration, his reaSOning being that the level of advertising expenditures eventually became too burdensome for the 'less skillful or lucky firms'.25 The escalation was most likely triggered by the rapid growth of television and by geographical market extensions undertaken by expanding firms. He then suggested that the reversal of the escalation could be ex- pla“ined by his hypothesis that the relationship between advertising 4UB. 78 TABLE XI Industry Advertising and Advertising Intensity: 1946—73 Total Advertising Expenditures Advertising Advertising Year (thgusands If per barrel to Sales ollars) (dollars) (percent)3 1945 50,420 0.66 2.61 1950 115,545 1.38 4.79 1954 191,605 2.23 6.76 1958 209,793 2.50 6.84 1962 222,718 2.46 6.90 1965 263,251 2.62 6.90 1969 248,503 2.22 5.33 19734 199,870 1.44 5.33 So urces and Explanations: lBr e W (various years). Adver ' - tlslng dollars per barrel. W Advert“ - lslrlg as a percentage of gross sales. Brewers Almanac. 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Source: SEC Forms 10K, except as noted. 11. .. Fictiizs .3 82 and concentration is 'parabolic'. That is, up to a certain point in- creasing advertising efforts will lead to an increase in concentration, but after a certain point concentration will be sufficiently high to enable firms tacitly to collude on the amount of advertising. Collu- sion may then lead to a reduction in advertising levels, so that, from the industry point of view, the leading firms will be at their joint profitrmaximizing levels. Greer's analysis of the effect of advertising is mediated by his failure to take into account the significant increase in the minimum efficient plant size. He hypothesizes this as being a cause behind the increase in concentration, relying on an estimate made by Horowitz and Horowitz that a minimum efficient size plant is one which produces just 100,000 barrels per year.26 Furthermore, economists generally are divided on the real ability of firms to collude on advertising. Stigler argues that col— lusion to restrict advertising is more likely to be successful than collusion on prices since advertising is visible and, hence, it is less costly to detect cheating on any tacit or explicit agreement.27 Other economists argue that it is more difficult to collude on adver- tising than on prices. For example, Simon argues that since firms are always changing their advertising programs, it is difficult to monitor actual advertising efforts and thus difficult to detect when cheating occurs.28 Scherer also believes that it is generally difficult for firms in an industry to hold advertising expenditures at their joint profit-maximizing level. Because it takes time to react to a change 83 in a competitor's advertising program, firms may initiate their own new campaign with the results that an advertising race or competition is begun.29 However, a new theory based on collusion is not needed to explain trends in beer advertising. The same theoretical considera- tions which explain the start of the escalation process also shed light on why it subsided and may be on the rise again. According to Ackoff and Emshoff, the need for a larger market as a result of increasing sales economies coincided with the development of television, which led to an increase in a firm's brand recognition because it reduced the cost of achieving a given level of awareness. Thus, firms in— creased their advertising investments until a desired new level of brand recognition was attained. Once created, the level of advertis— ing decreased since all that was necessary was a level sufficient to maintain the awareness levels which is affected by such variables as consumer mobility, forgetting, changes in tastes and advertising by rivals, and changes in market conditions such as new brands or new methods of marketing.30 Therefore, by the mid-19603 firms, having achieved their higher level of brand recognition, decided accordingly to reduce their future levels of advertising. This explanation is consistent with Anheuser-Busch's decision to cut back on advertising. Studies of the effects of advertising on sales which the firm commissioned gave re— sults supporting this view.31 84 The process of rivalry between the national brewers and the major regional brewers can be put into perspective by data on firm advertising costs (in major media) per barrel which appear in Table XII. From 1949 to 1950, 6 of the 8 firms for which data are avail- able increased their level of advertising expenditures per barrel. From 1950 to 1951, 8 of the 11 firms for which data exist increased their per barrel advertising expenditures. This parallel escalation of advertising efforts generally persisted until the mid-19603 when a parallel de-escalation of advertising began. The de—escalation con- tinued through 1974. Since then Anheuser—Busch, Schlitz, Coors, and Heileman have sharply increased their advertising expenditures per barrel. Of interest is a comparison of the level of advertising in- tensity of the three brewers, Anheuser-Busch, Schlitz, and Pabst, with the growth in their relative shares of national barrelage. In 1951, their shares were respectively, 6.5 percent, 6.8 percent, and 4.7 percent (see Table XIV). In 1975 they were 23.8 percent, 15.5 per- cent and 10.6 percent. Clearly, Anheuser—Busch has grown the most and yet its advertising cost per barrel has been almost consistently be— low that of Schlitz. The data in Table XII are not consistent with the proposition that success is correlated with high advertising ex— penditures per barrel. Recently, a new process of rivalry has begun among major national brewers, this time at the instigation of Miller Brewing. 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U 0:... .VV v , Hut 3 I . :1 101 TABLE XVII Wholesale Alcohol Dollar Volume (000) City Beer and Ale Beer, Wine, Distilled Cincinnati 72,501 NA Cleveland 156,965 268,708 Columbus 56,791 139,000 Toledo 44,583 71,015 Fort Wayne NA 39,479 Indianapolis NA 171,136 Source: 1977 Census of Wholesale Trade. 102 the actual number of different brands of beer that could be obtained. The criteria of availability in both states was the initial factor. Next, it was decided to examine the market shares of beer brands in each state. Consulting The Brewinglndustry,2 the top brands in each state as well as the surrounding states was determined. The top four brands in Indiana, Michigan, Illinois, and Ohio are listed along with the market shares in Table XVIII. The next step was to determine the presence of any brewery in either Columbus or Indianapolis. No breweries were found in Indianapolis, but an Anheuser-Busch brewery was located in Columbus. This search for local breweries was undertaken because of the effect upon price the location of a brewery would have upon the price competi- tion within a market.3 Therefore, Anheuser-Busch products were ex- cluded from the sample. It was then decided to standardize the type of container to cans and the unit of analysis to a six pack of 12 ounce cans. It was the researcher's desire while comparing the two treat- ments of price advertising or no price advertising to also examine the results based on the type of outlet selling beer. The marketing literature has documented the existence of different strategies for varying types of retail outlets. For this analysis, the retailers were drawn from the population listed in the Indianapolis and Columbus telephone directory under the heading of: (1) grocery stores, and (2) beer carry-out. This would hopefully provide two distinct cate— gories of retailers reflecting differing marketing and pricing policies. 103 TABLE XVIII Beer Market Shares/State - 1977 Indiana Pabst Stroh A-B Miller Michigan Pabst Miller A-B Stroh Illinoisa Schlitz A-B Heileman Pabst Ohio Pabst A—B Miller Stroh 22. 22. 14. 19. 32. 21. 19. 11. 24. 23. 11. 10. 20. 19. 17. 14. GUJNO @1500 01me NUDUIG) Source: The Brewing Industry, FTC 1978. adata for 1973. 104 From each of these two headings in the telephone Yellow Pages, 15 telephone numbers were drawn using a random numbers table. Fifteen were drawn to complete the cell size of 10 for each treat- ment. Therefore, the total sample for Columbus consisted of twenty retail outlets--ten from the grocery heading and ten from the beer heading. The total sample size was 40. Each of the stores was called Friday, February 28, 1981 be- tween the times of 2:00 and 4:00 p.m. The question asked was: "What is your price for a six pack of cans for Miller, Pabst, and Strohs?" The price quoted was then entered on a coding sheet. Next the amount of state tax added to the products at the wholesale level which could affect the retail price was determined. The tax on a six pack of beer in Indiana was 5¢ and the tax in Ohio was 18¢ per six pack. These taxes were then subtracted from the re- tail price obtained via telephone. The recalculated prices were then used for analysis. The MSU CYBER 750 and SPSS was used to provide means, stan- dard deviation, and variance for each group. Then an analysis of variance was run to test the difference between the group means. Fol- lowing a visual inspection of the group means, another post hoc analysis was made after removing the beer carry-out classification. Therefore, the last analysis took place on just the grocery stores in each of the treatments. Table XIX shows the findings of the pretest that the prices of Miller, Pabst, and Strohs when combined are not different in an 105 TABLE XIX Average Beer Prices/State/Outlet (in 3'8) sum mean sd var N Ohio 48.64 2.43 .114 .013 20 Grocery Store 24.39 2.43 .111 .012 10 Beer Carryout 24.25 2.43 .123 .015 10 Indiana 47.34 2.37 .193 .037 20 Grocery Store 22.81 2.28 .235 .055 10 Beer Carryout 24.53 2.45 .081 .006 10 95.97 2.39 .159 .026 40 ANOVA Table Between Groups .0427 1 .0427 Within Groups .9537 38 .0251 Total .9964 39 F = 1.7008 Sig. = .20 106 area that allows advertising of the price via the mass media and one in which it is prohibited. An examination of Tables XX through XXII further indicate that there were no differences between the prices of Miller, Pabst, or Stroh individually through the two treatments. Examination by type of outlet revealed a difference between the means of grocery stores by price advertising (Indiana) and no price advertising (Ohio) as shown in Table XXIII. This pretest of beer pricing led to no clear conclusions. However, it did provide some helpful insight for further analysis. First, a more complete sampling of the brands of beer would be neces- sary to (1) reflect more the market price of beer, and (2) alleviate any bias regarding the possible competitiveness between specific brands within a market. To do this, a total market price of beer would be necessary containing different brands of beer. Second, a larger sample of outlets within markets would be needed to examine either (1) more locations within a state, or (2) additional states that both prohibited price advertising and states that allowed price advertising in the mass media. This pretest was also valuable in that the research question under investigation seemed to be a viable one and with the above modifications would be successfully completed. Generally, the findings of the pretest can be summarized as no significant differences between markets that prohibited the price advertising of beer in the mass media and markets that allowed price advertising of beer in the mass media. However, specific post hoc analyses provided insight into where the potential differences might exist. 107 TABLE XX Miller by State (in $'s) mean sd se N Ohio 2.45 .13 .03 20 Indiana 2.39 .197 .04 20 ANOVA Table Between Groups .03 1 .03 Within Groups 1.06 38 .03 F = .931 Sig. .3406 108 TABLE XXI Pabst by State mean sd se N Ohio 2.39 .112 .03 20 Indiana 2.31 .201 .05 20 ANOVA Table SS DF MS Between Groups .058 l .058 Within Groups 1.014 38 .027 F = 2.165 Sig. .1494 109 TABLE XXII Stroh by State mean sd se N Ohio 2.46 .113 .025 20 Indiana 2.39 .198 .044 20 ANOVA Table SS DF MS Between Groups .048 1 .048 Within Groups .988 38 .026 F = 1.832 Sig. = .1839 110 TABLE XXIII Beer Prices by Treatment/Grocery Stores (in $'S) sum mean sd SS N Ohio 24.39 2.44 .111 .111 10 Indiana 22.81 2.28 .234 .499 10 Total 47.2 2.36 .197 .736 20 ANOVA Table Between Groups .126 1 .1259 Within Groups .609 18 .0039 Total .736 19 F = 3.72 Sig. = .0698 111 Selection of the Markets This section presents the procedures used in selection of matched markets for inclusion in the sample. Recognizing the poten— tial effects that size, demographic composition, and other similar characteristics could have on pricing structure and policies, the comparison should be made on markets as similar as possible. Substan- tial effort was spent on locating the markets that would be used in the study. In order to test the hypotheses and achieve the purpose of the investigation, it was first necessary to determine which markets restrict price advertising in the mass media. Exhibit 1 lists the states that prohibit price advertising of alcoholic beverages in news- papers and magazines. This list comprised the starting point for determination of markets for use. Since the control of alcoholic beverages is a state-by-state decision, it was next important to de- termine if other existing regulations were present in these markets that could possibly affect the pricing structure in the markets. In addition to consulting the United States Brewers Associ— ation, Inc. Legal Memo, personal telephone conversations were made to the alcoholic control commissions of each state identified in Exhibit 1 to verify the restrictions. The restrictions in Arkansas were removed as of January 1, 1981. Delaware, New Hampshire, New Jersey, North Carolina, Pennsylvania, and Rhode Island place restrictions on the type of retail outlets allowed to sell packaged beer. Ohio had in 112 EXHIBIT 1 States Prohibiting Price Advertising of Alcoholic Beverages in Newspapers and Magazines Arkansas Delaware Georgia Michigan Minnesota New Hampshire New Jersey North Carolina Ohio Pennsylvania Rhode Island Source: United States Brewers Association, Inc., Legal Department Memo--Special Information on Advertising, December 1979. 113 effect a minimum 20% markup over wholesale price for all brewed bever— ages. Georgia and Minnesota were found to have no other market re— strictions except for the prohibition of price advertising. Exhibit 2 provides a summary of the findings. This procedure was done in an attempt to control for the market structures and its effect on pricing policies. The two broad markets that were chosen for analysis in the advertising restrictive treatment were Minnesota and Georgia. It was then decided to further narrow the markets to facilitate data collec- tion. Within the restrictive markets, the locations chosen for analy— sis were St. Paul/Minneapolis, Minnesota and Atlanta, Georgia both being major markets within the geographic regions. The next step was to match non—restrictive markets to the re- strictive markets. To accomplish this initially, variables such as population, per capita income, and the wholesale dollar volume of beer, wine, and distilled beverages were employed. Further informa— tion was used from A. C. Nielsen's Test Market Profiles 1981 to com- plete the matching process (see Exhibit 3). Following the accumula- tion and comparison of the information, Houston and Indianapolis were selected as matching non-restrictive markets. Therefore, the markets to be used to test the hypotheses were: Restrictive--St. Paul/Minneapolis and Atlanta Non-restrictive--Houston and Indianapolis The presence of price advertising in the mass media was the independ- ent variable with St. Paul/Minneapolis and Atlanta being the treatment Arkansas Delaware Georgia Michigan Minnesota New Hampshire New Jersey North Carolina Ohio Pennsylvania Rhode Island Source: 114 EXHIBIT 2 Market Selection Criteria (restrictive states) Restrictions removed 1/1/81 Restriction as to type of retail outlet to sell packaged beer Acceptable Bottle Law Acceptable Restriction as to type of retail outlet to sell packaged beer Restriction as to type of retail outlet to sell packaged beer Restriction as to type of retail outlet to sell packaged beer Minimum 20% markup over wholesale price Restriction as to type of retail outlet to sell packaged beer Restriction as to type of retail outlet to sell packaged beer in each of the markets--5/81. allowed allowed allowed allowed allowed allowed Telephone conversations with Liquor Control Commission 115 88 888.8NN 8N 888.888 88 888.888 88N.88N 88 +88 88 888.888 88 888.aN8 N8 888.sam 888.888 88 88-88 88 888.8NN 88 888.8N8 88 88s.8ss 88N.888 N8 88 p8888 .8amm so 888: mo 888 888.8a8 888.sNa.a 888.s88.a 888.aNs a8 888 cacammsom annoy N8 888.a88 a8 88s.Nsa.a N8 888.888.a 888.888.a s8 cmaoz 88 88s.888 s8 888.N8a.a 88 88s.888.a 888.8ss N8 :82 88a 888.888.a 88a 888.888.N 88a 888.8s8.N 888.8Ns.a 88a am .888 .888 8a888 amuos 88N.88N.N 88N.8aN.8 88N.NN8.N 888.888.N as .888 coaumassom amuos 8 888.8N N 88N.8a 8 888.88 888.8a N .888“; spam 8a 88a.8aa 8a 888.8Na ma 88N.N8a 888.8aa Na .maxaa moa>amm a8 888.NN8 88 888.888 N8 888.888 88a.~88 s8 Hmaaoo a8 88 888.888 88 888.888 88 888.888 888.8N8 s8 amaaoo 83 8 88am 88a 888.8Ns 88a 88s.8ss 88a 88a.s8a.a 88s.88s 88a aossav .888 “asua smsoasem sas.8a8.s ss8.N88.8a a88.8NN.Na sN8.8Na.aa mma88 aamuwm amuoa 888.aN sNN.sN sN8.aN 88N.sa 8a888\maouca scassm m>auommam 8Ns.N88.Na sas.88s.NN 88s.N88.NN NN8.88N.sa A8888 maooca wcassm m>a888888 88a.aNa s88.s8m aa8.ssN 8N8.N8N A8888 8.8 wammmaonz 8 8maaauma8 8 .mcaz .ammm N88.88 888.88 88N.88 8Na.88 ma8Nsa8 maooca spasms H88 88N.88a.a N8N.88N.N a88.8a8.N 8Na.8sN.a N ma8ssa8 coaumassos N N N . mHHOQMn—mfiwCH COumDOI .HZ\HDmn.—.um mufimdu< Am>fiuowuummucocv Ao>fiuoauumouv moaumfiumuomhmso nexus: m HHmmem 116 Aucsoo ”momcmo mzu mo ammuam .moamEEoo mo ucmEuumawm .m.:m "meHDOm mm oom.mo~ H8 oom.mm8 8m oom.a8m 000.08N wN +ooo.mm ea oom.wNH ma coo.mma ca oom.~oa oom.oma 8a mmaqmloooow 8H 00m.mma ma oom.mma ma cam.oma ooo.mma 8a mommauoooma ma oo8.moa Ha oom.mma NH oom.8ma ooo.Hma ca mom8a10000a Ha coo.m¢ OH oom.NNH NH oo~.mma ooN.mNH ma mmmmlooom AH oo~.ow oa oom.mma OH oom.moa oom.mNH ma mmmqlo mEoocH w manmmommwc 8H oow.oaa 8H ooo.ooa NH oom.oNH ooo.mma «a vmuwlmwmaaoo ma oom.soa ma oom.ama ma oow.owa oow.8ma ma maomlmwmaaou mm oow.amq om oom.a0m m8 ooa.mm8 oo~.wwm mm .vmao Hoosom swam .uamm mo paws mo coaumoavm N N N N maaommmmamcH noumsom .:HE\Hamm .um mucmHu¢ Am>HuoHHummusosv Am>auoauumouv Aconcaucoov m HHmmem 117 in which price advertising was absent and Houston and Indianapolis the treatment in which it was present. According to The Brewing Industry, the location of breweries within a market could significantly affect the pricing policies with- in that market as transportation has been found to be an important element in determination of such policies. The researcher felt that the presence of a sufficiently large brewery in the market could, therefore, affect the price competition present in the market. Con- sulting Brewers Digest Brewery Directory-1977 yielded locations of three breweries--an Anheuser-Busch brewery in Houston (capacity 2,600,000 barrels per year), a Heilman brewery in St. Paul (capacity 1,500,000 barrels per year), and an Olympia brewery in St. Paul (capacity 3,000,000 barrels per year). Additional search revealed two breweries located in San Antonio, Texas-~Pear1 (1,700,000 barrels per year) and Lone Star (1,500,000 barrels per year). It was felt that the relative closeness of these breweries to the Houston market would allow the brewers to compete on a price basis on a level of a brewery located within that market. Therefore, both St. Paul/Minneapolis and Houston were re— tained in the sample as their similarity was still present. A measure of the market similarity was necessary in order to rule out the possible differences that market variables might have on the price of beer in markets. To this end, 22 variables were chosen from Exhibit 3. The pairs of two originally matched cities were then . . 4 compared across these variables by use of correlation techniques. 118 Therefore, the resulting r2 would hopefully indicate the similarity between the two sets of variables. The list of variables, their values, and r2 values associ- ated with the matched pairs are presented in Table XXIV. The results of this matching show that (1) the Houston and St. Paul/Minneapolis markets are highly similar on the 22 variables (r2 = .9783), and (2) the Atlanta and Indianapolis markets are highly similar on the variables (r2 = .9958). From this analysis, the markets appear to be very much alike and comparisons across the markets should indicate the actual effect of presence or absence of price advertising on the re- tail price of beer. Retail Outlet Selection and Data Collection The hypotheses will be tested using information from A. C. Nielsen's In-store Audits for the period of March, 1980 through February, 1981. A. C. Nielsen maintains 75 district field service departments through the U.S. The in-store audits are available across a wide range of retail outlets including food stores, drug stores, and alcoholic beverage outlets. Each retail outlet is visited once a week by a field representative to gather market and brand informa- tion including price, inventory, and sales figures. The information is then compiled and summarized every two weeks to one month inter- vals depending on specific audit criteria. An actual physical count of merchandise in store, including the backroom and basement, is made 119 88Ns. u «8 8888888--.88az\a=88 .88 88ss. u «8 8aa88888888aum888a8< a8 888.888 88 888.a88 N8 888.888 888.888 88 +888.8N 8a 888.s8a 8a 88s.88a 8a 888.88a 88s.88a 8a sss8~-88888 8a 888.88a 8a 888.88a 8a 888.88a 888.88a 8a ssssa-8888a aa 888.88a Na 888.88a 8a 88N.s8a 888.a8a 8a sss8a18888a 8a 88s.88a Na 888.8aa aa 888.8s 888.88a 8a ssss18888 8a 888.88a 8a 88s.88a aa 888.88 88s.88a 8a sss8-8 mEooaH w manmmoamfln 8a 888.88a Na 88s.88a 8a 888.8aa 888.s8a 8a 8888-888aa88 8a 888.a8a Na 888.88a 8a 888.N8a 888.88a 8a 8888-888aa88 8N 88s.a88 s8 88a.Ns8 88 888.a88 88N.N8N s8 .8888 a88888 88a: .8a88 88 8888 88 88a888888 88 888.888 88 888.888 88 888.888 888.888 88 +88 88 888.aN8 N8 888.sa8 88 888.888 888.888 88 88-88 88 888.888 88 88s.888 88 888.888 88N.888 N8 88 88888 .8a88 88 8888 88 888 888.s8a.a 888.s88.a 888.8a8 888.aNs a8 .888 8a8888888 amuoa a8 88s.Nsa.a N8 888.888.a N8 888.a88 888.888.a 88 88883 s8 888.88a.a 88 88s.888.a 88 88s.888 888.88s N8 88: 88a 888.888.N 88a 888.8s8.N 88a 888.888.a 888.8Ns.a 88a a8 .888 .888 uasea amuoa 888.8a8.8 888.NN8.N 888.88N.N 888.888.N a8 .888 coaumaasos amuoa 8 888.8a 8 888.88 8 888.88 888.8a N .8888: 8888 8a 888.88a 8a 888.88a 8a 88a.8aa 888.8aa Na .8888: 88a>888 88 888.888 88 888.888 a8 888.8N8 88a.~88 s8 umaaoo a8 88 888.888 88 888.888 88 888.888 88s.8N8 88 88:8 .82 8 8888 88a 888.8Ns 88a 88a.88a.a 88a 888.8Ns 88s.88s 88a a88sa8 .888 8a=8< emsoaaam COumSOE . CCHE\ Hfimm . um mHHOQNfiQHUSH wucmHu< 808880 wo maamm vozoumz cwaumm mcomaumano >Hxx mqm<fi 120 A880 cam zucsoo "msmcmo mzu mo samuzm .mouwSEoo mo unweuumawa .m.: "mmuusom 8885;88:808 >Hxx mqm .05 130 12 Ounce Bottles. Table XXVI shows that the average price for domestic beer in the restrictive market is 40.07¢ and the average price in the non-restrictive markets is 39.63¢. The average price in the non-restrictive markets is .44c lower than in the restrictive markets. This difference is not significant at the .05 level. This finding did not support the hypothesis. Hypothesis II There is no difference in the dispersion of retail prices over time for a "convenience" product in mar- kets where there is not price advertising in the mass media and in markets where there is price ad- vertising in the mass media. Average Domestic Beer Dispersion 12 Ounce Cans. Table XXV shows that the dispersion of retail prices over time for domestic beer in the restrictive market is .492 and the dispersion in the non—restrictive markets is .156. The dis- persion in the restrictive markets is .336 greater than the non- restrictive markets. This difference has a Cochrans C value of .759 and is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXVI shows that the dispersion of retail prices over time for domestic beer in the restrictive market is .761 and the dispersion in the non-restrictive markets is 1.29. The dispersion in the restrictive market is .529 lower than the 131 TABLE XXVI Average Domestic Beer Price by Market (Bottles) (in ¢'S) Mean sd se var. min. max. Restrictive 40.07 .8722 .3561 .761 39.2 41.25 Non-Restrictive 39.63 1.136 .4638 1.29 38.8 41.79 Total 39.85 38.8 41.79 ANOVA Table Source DF SS MS F ratio F prob. Between Groups 1 .5633 .5633 .549 .4757 Within Groups 10 10.2569 1.0257 Total 11 10.82 Cochrans C 6292 P = .576 Kolmogorov-Smirnov D = 1 p > .05 132 non-restrictive markets. This difference has a Cochrans C value of .576 and is not significant at the .05 level. This finding did not support the hypothesis. Hypothesis III There is no difference in the average retail price for a "convenience" product Brand A in markets where there is not price advertising to the mass media and in mar- kets where there is price advertising in the mass media. Average Budweiser Price 12 Ounce Cans. Table XXVII shows that the average price for Budweiser beer in the restrictive markets is 38.08c and the average price in the non-restrictive markets is 38.84c. The average price in the restrictive market is .76c lower than in the restrictive markets. This difference is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXVIII shows that the average price for Budweiser in the restrictive markets is 39.99¢ and the average price in the non-restrictive markets is 41.37c. The average price in the restrictive markets is l.38¢ lower than in the restrictive markets. This difference is not significant at the .05 level. This finding did not support the hypothesis. Average Miller High Life Prices 12 Ounce Cans. Table XXIX shows that the average price for Miller High Life in the restrictive market is 38.7c and the average 133 TABLE XXVII Budweiser Price - 3/80—2/81 12 Ounce Cans (in c's) Mean sd se var. min. max. Restrictive 38.08 1.06 .4337 1.13 36.85 39.6 Non-Restrictive 38.84 1.85 .7539 3.41 36.66 42.2 Total 38.46 36.66 42.2 ANOVA Table Source DF SS MS F ratio ngrob Between Groups 1 1.718 1.718 .757 .4047 Within Groups Total Cochrans C 10 22.692 2.269 11 24.41 .7513, P = .25 Kolmogorov-Smirnov D = 2 p > .05 134 TABLE XXVIII Budweiser Average Price - 3/80-2/81 12 Ounce Bottles (in C'S) Mean sd se var min max Restrictive 39.99 1.42 .579 2.02 37.4 41.4 Non-Restrictive 41.37 2.46 1.000 6.05 38.6 45.39 Total 40.68 37.4 45.39 ANOVA Table Source DF SS MS F-ratio F prob. Between Groups 1 5.658 5.658 1.403 .2635 Within Groups Total Cochrans C Kolmggorov-Smirnov 10 40.318 4.038 11 45.976 .7501 P = .253 D = 1 p > .05 135 TABLE XXIX Miller High Life Average Price - 3/80—2/81 12 Ounce Cans (in ¢'S) Mean 3 sd se var min max Restrictive 38.7 .8931 .3646 .798 37.85 40.3 Non-Restrictive 39.58 1.567 .6397 2.456 38.06 42.49 Total 39.1425 37 85 42.49 ANOVA Table Source DF 88 MS F ratio F prob. Between Groups 1 2.314 2.314 1.423 .2605 Within Groups 10 16.265 1.627 Total 11 18.579 Cochrans C .7548 P = .243 Kolmogorov—Smirnov D = 3 p > .05 136 price in the non—restrictive markets is 39.58¢. The average price in the restrictive markets if .88¢ lower than in the restrictive mar- kets. This difference is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXX shows that the average price for Miller High Life in the restrictive markets is 39.89c and the average price in the non-restrictive markets is 39.96c. The average price in the restrictive markets is .07c lower than in the non-restrictive markets. This difference is not significant at the .05 level. This finding did not support the hypothesis. Average Miller Lite Prices 12 Ounce Cans. Table XXXI shows that the average price for Miller Lite in the restrictive markets is 39.29c and the average price in the non-restrictive markets is 39.37c. The average price in the restrictive market is .08¢ lower than in the non-restrictive markets. This difference is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXXII shows that the average price for Miller Lite beer in the restrictive markets is 40.24c and the average price in the non—restrictive markets is 40.62c. The average price in the restrictive market is .38c lower than in the non— restrictive markets. This difference is not significant at the .05 level. This finding did not support the hypothesis. 137 TABLE XXX Miller High Life Average Price - 3/80—2/81 12 Ounce Bottles (in c's) mean sd se var min. max. Restrictive 39.89 .669 .273 .447 39.15 41.1 Non-Restrictive 39.96 1.12 .458 1.258 38.66 41.8 Total 39.92 38.66 41.8 ANOVA Table Source DF SS MS F ratio F prob. Between Groups 1 .0127 .0127 .015 .9054 Within Groups 10 8.5284 .8528 Total 11 8.5411 Cochrans C .7377 P = .281 Kilmogorov-Smirnov D 2 p > .05 138 TABLE XXXI Miller Lite Average Price - 3/80—2/81 12 Ounce Cans (in C's) mean sd se var min max Restrictive 39.29 .476 .1943 .226 38.55 39.9 Non-Restrictive 39.37 1.08 .4422 1.17 37.7 40.99 Total 39.32 37.7 40.99 ANOVA Table Source DF SS MS F ratio F prob. Between Groups 1 .0161 .0161 .023 .8823 Within Groups 10 6.99 .699 Total 11 7.015 Cochrans C .8382 P = .095 Kolmogorov—Smirnov D = p > .05 139 TABLE XXXII Miller Lite Average Price - 3/80—2/81 12 Ounce Bottles (in c'S) mean sd se var min. max. Restrictive 40.24 .895 .365 .800 38.95 41.35 Non-Restrictive 40.62 1.341 .5475 1.800 38.56 42.69 Total 40.43 38.56 42.69 ANOVA Table Source DF SS MS F ratio F prob. Between Groups 1 .4294 .4294 .33 .5781 Within Groups 10 12.9953 1.2995 Total 11 13.4247 Cochrans C .6920 P = .395 Kolmogorov-Smirnov D = 2 p > .05 140 Hypothesis IV There is no difference in the dispersion of retail prices over time for a "convenience" product Brand A in markets where there is not price advertising in the mass media and in markets where there is price advertising in the mass media. Budweiser Retail Price Dispersion 12 Ounce Cans. Table XXVII shows that the dispersion of price over time for Budweiser beer in the restrictive markets is 1.13 and the dispersion of prices in the non—restrictive markets is 3.41. The dispersion of prices in the restrictive market is 2.28 lower than the non-restrictive markets. This difference has a Cochrans C value of .7513 and is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXVIII shows that the dispersion of prices over time for Budweiser beer in the restrictive market is 2.02 and the dispersion of prices in the non—restrictive markets is 6.05. The dispersion of prices in the non-restrictive markets is 4.03 lower than the non-restrictive markets. This difference has a Cochrans C value of .7501 and is not significant at the .05 level. This finding did not support the hypothesis. Miller High Life Retail Price Dispersion 12 Ounce Cans. Table XXIX shows that the dispersion of prices over time for Miller High Life beer in the restrictive market is .798 and the dispersion of prices in the non—restrictive markets 141 is 2.456. The dispersion of prices in the restrictive markets is 1.658 lower than the non—restrictive markets. This difference has a Cochrans C value of .7501 and is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXX shows that the dispersion of prices over time for Miller High Life beer in the restrictive markets is .447 and the dispersion of prices in the non—restrictive markets is 1.258. The dispersion of prices in the restrictive markets is .881 lower than the non-restrictive markets. This difference has a Cochrans C value of .7377 and is not significant at the .05 level. This finding did not support the hypothesis. Miller Lite Retail Price Dispersion 12 Ounce Cans. Table XXXI shows that the dispersion of prices over time for Miller Lite beer in the restrictive markets is .226 and the dispersion of prices in the non—restrictive markets is .226 and the dispersion of prices in the non-restrictive markets is 1.17. The dispersion of prices in the restrictive markets is .994 lower than the non-restrictive markets. This difference has a Cochrans C value of .8382 and is not significant at the .05 level. This finding did not support the hypothesis. 12 Ounce Bottles. Table XXXII shows that the dispersion of prices over time for Miller Lite beer in the restrictive markets is .8 and the dispersion of prices in the non-restrictive markets is 1.8. 142 The dispersion of prices in the restrictive markets is 1.0 lower than the non-restrictive markets. This difference has a Cochrans C value of .692 and is not significant at the .05 level. This finding did not support the hypothesis. Supplementary Findings In addition to findings presented directly relating to the hypotheses of the study, additional analysis was undertaken to test the relationships presented in the information processing perspective concerning the effect of price advertising on convenience product prices. From an analysis of the relationships presented in informa- tion processing, the prohibition of price advertising for a conveni- ence product should have no effect on the price of the product compared to markets in which price advertising is permitted. Therefore, the price of a convenience product should remain the same regardless of the presence or absence of price advertising in the mass media. A Kilmogorov-Smirnov two-sample goodness of fit test was used to test this hypothesis.1 A D value significant at .05 level was used to reject the null hypothesis that prices are not the same. Tables XXV, XXVI, XXVII, XXVIII, XXIX, XXX, XXXI, and XXXII indicate the calculated D values and significance levels. In each case, the D value was not significant at the .05 level. This, there- fore, indicates the prices are not significantly different. 143 ENDNOTE FOR CHAPTER V lSidney Siegel, Nonparametric Statistics for the Behavioral Sciences, McGraw—Hill Book Company, 1956, p. 127. CHAPTER VI CONCLUSIONS AND IMPLICATIONS This chapter is divided into four sections. The first sec— tion indicates the conclusions suggested by the study. In the second section, the implications of the findings concerning the theoretical perspectives are discussed. The third section presents a discussion of the assumptions and limitations of the study and the final section describes several areas which warrant further research. Conclusions Hypotheses. With respect to Hypothesis 1, the findings led to the following conclusions: The null hypothesis was not rejected based on the results of average market price of a convenience item. With respect to Hypothesis II, findings led to the following conclu- sions: The null hypothesis was not rejected based on the results of average market price dispersion over time for a convenience item. With respect to Hypothesis III, the findings led to the following conclusions: The null hypothesis was not rejected based on the results of average market price of a convenience item, Brand A. With respect to Hypothesis IV, the findings led to the following conclusions: The null hypothesis was not rejected based on the results of average mar— ket price dispersion over time for a convenience item, Brand A. 144 145 The conclusions can be summarized as follows: (1) The pre— sence of price advertising via the mass media for a convenience prod— uct had no effect on the price of the convenience product within that market compared to the price for the convenience product within a market that prohibited price advertising via the mass media. (2) The presence of price advertising via the mass media had no effect on the price dispersion over time for a convenience product within that market compared to the price dispersion over time for a conveni— ence product within a market that prohibited price advertising via the mass media. Implications The findings and conclusions of this study indicate several useful implications to the theoretical perspectives presented as well as the recent empirical work. The price and dispersion of price over time for a convenience product——domestic beer-—is unaffected by the presence or absence of price advertising in the mass media within a market. When examined in light of the advertising information theory, this finding generally could be explained by the fact that when a product is relatively inexpensive, the consumer's cost of search out- weighs any savings associated with search. In the case in which the product characteristics are those of either a shopping or specialty good, empirical work has demonstrated that the presence of price 146 advertising in a market has generally lowered the price of the prod— uct. However, when the product exhibits characteristics of a con- venience good, the presence or absence of price advertising has no effect on the price of the product. Applying these findings to the relationships presented in the information processing perspective reveals several interesting impli- cations. First, considering the multiattribute nature of products expressed in this theory, these findings indicate that price appears to be an attribute that has little importance for a convenience prod— uct--domestic beer. The importance of price advertising in relation to the product type, therefore, may play an important role. With beer exhibiting characteristics associated with a convenience good, price inclusion in advertisements is of little value to the consumer. Perhaps location or hours of operation of the retail outlet might be more salient attributes in the consumer's purchase decision for the product. Recognizing a certain amount of homogeneity in retail sales outlets within a market brought on by regulation, emphasis on diver- gent store policies in regard to location and hours of operation may be more important components of the advertising message. Second, the consumer's use of internal memory as described in the information processing perspective may also be an important reason why price advertising has no effect on the price of convenience products. The consumer may have sufficient information stored in memory without even activating his external search process to arrive at a purchase decision. Research has shown that if a consumer is 147 satisfied with his choice and the interpurchase time is relatively short, which would be the case in convenience products, the consumer may never engage in the external search process. Instead, he may rely on previous experience in the form of stored information concerning brand, location, and price to make his decision. Third, the nature of the user's segment may be an important element in the information processing perspective as well as the ad- vertising market power theory. With approximately 30% of the beer drinkers consuming 70% of the beer sold, perhaps the heavy user is insensitive to price. Because of the emphasis of national advertising on brand promotion, de-emphasizing price, the attribute that has been emphasized and is now salient to the consumer is brand image. For example, in a case study of two beer drinkers, the heavy drinker was found to be highly brand loyal while the light beer drink- er was found to be more price sensitive.l This finding was seen to vary somewhat with the setting in which the product was consumed. When consumed in a non-social setting, the light beer consumer's sensitivity to price increases. However, when consumed in a social setting the brand of beer chosen was most critical. This, therefore, may point to the importance image promotion plays in these social settings. Assumptions and Limitations This study used an ad hoc matched pair design to examine the effect of price advertising on the retail price of a convenience 148 product. The nature of the experimental design is limited concerning the generalization of the results to the population from which the original groups were drawn and to additional product types.2 The brands of beer examined was allowed to vary according to availability in each market. Ideally, comparison of markets which had the same brands of beer would have been preferred; however, such conditions were not possible. The research project used the average price for domestic beer in each market as the relative measure of the effect of price adver— tising. It was assumed that this average price accurately reflected the true market price for beer within that geographic area. Further— more, no attempt was made to determine the amount a consumer would spend in each area on beer. Therefore, while the results showed no difference in mean market prices between treatments, an analysis of consumer purchasing habits would reveal segments of the market and their respective consumption habits. Areas for Future Research The present investigation suggested five areas which should provide meaningful avenues for future advertising research. These general areas are briefly described along with suggestions for im— proving the present study. 149 First, an analysis at the functional level concerning deter- mination of the consumer's evoked set would provide the attributes on which the product is evaluated and the salience of each attribute. Through this information, a more accurate prediction and understand- ing of the systems effect of price advertising could be ascertained. As price increases in importance in the consumer's evaluation of the attributes and salience of those attributes, the more of a role price advertising is likely to play. Furthermore, an analysis from the consumer perspective would also provide information concerning the use of external search func- tion. Perhaps, only internal search is used and information stored in memory would be sufficient for certain classes of products. With information obtained from the consumer's perspective, an accurate pre— diction and increased understanding of the aggregate would emerge. Second, the analysis of price within a market in the pre— vious empirical studies concerning the effect of price advertising on the price of products has been measured by consumer purchase instead of the market price of the product. This would be helpful in isolat- ing segments of the consumers using particular products and consump- tion trends. Third, in conjunction with the measurement of price actually paid for the product from consumer purchasing records, the type of retail outlets could be noted. This would be beneficial in determin- ing if economies of scale were present in the marketplace. As sug- gested by Steiner, large discount stores may use the product as a 150 'loss leader'.3 Furthermore, analysis of this type would determine if in fact the large discount stores selling at lower price than con— venience stores actually return higher profits with lower prices be- cause of the volume created. Fourth, research concerning the brands of beer that are most or least affected by price advertising would be helpful. Through this type of analysis additional insight would be provided into the relationships between price sensitivity and advertising. 4‘ Finally, while the unit of analysis in this study was 12 ounce cans and non-returnable bottles sold singly, in six packs, twelve packs, and cases, future research could determine which methods of packaging would be most sensitive to pricing promotions. Perhaps an analysis based on each of these categories of packaging would be helpful in determining if there are differences between geographical areas across package types. Typically, retail price promotions can be noticed on six packs, twelve packs, and cases. These suggested areas should provide further insight into the effect of price adver- tising on the retail price of beer and lead to better understanding and prediction of the effect of price advertising on the price of convenience products. 151 ENDNOTES FOR CHAPTER VI lArch G. Woodside and Robert A. 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