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Does advertising indicate product quality? Evidence from prelaunch and postlaunch advertising in the movie industry

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Abstract

Literature on the informative role of advertising indicates that advertising quantity can serve as an indicator of product quality. As product life cycles grow shorter, firms in many industries spend significant amounts on advertising during the prelaunch period to create large initial demand. Thus, the role of prelaunch advertising may differ from that of postlaunch advertising, and a proper understanding of these differences is important. This study provides an empirical investigation of whether advertising is a reliable indicator of quality before and after product launches, using the data from the movie industry. Analyses of 1078 movies released during 2003–2011 show that postlaunch advertising is a reliable quality indicator and increases revenues, whereas prelaunch advertising is not a reliable quality indicator, even if it leads to higher revenues.

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Notes

  1. In the prelaunch advertising equation, we include competition and seasonality in the first week; the postlaunch advertising equation instead includes average competition and seasonality over the subsequent weeks.

  2. Because we use the same sample for the different regression models, it is not possible to apply the typical equality test of two regression coefficients, which is based on independent samples. Instead, we check the significance of the difference between the two coefficients by comparing their confidence intervals. If two intervals overlap, there is no statistical difference between the two coefficients.

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Authors and Affiliations

  1. Department of Marketing, College of Business of Administration, California State University, Long Beach, CA, 90840, USA

    Reo Song

  2. Department of Marketing, College of Business, Kansas State University, Manhattan, KS, 66506, USA

    Sungha Jang

  3. Department of Operations Management and Information Systems, Leavey School of Business, Santa Clara University, Santa Clara, CA, 95053, USA

    Gangshu (George) Cai

Authors
  1. Reo Song
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  2. Sungha Jang
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  3. Gangshu (George) Cai
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Correspondence to Reo Song.

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Song, R., Jang, S. & Cai, G.(. Does advertising indicate product quality? Evidence from prelaunch and postlaunch advertising in the movie industry. Mark Lett 27, 791–804 (2016). https://doi.org/10.1007/s11002-015-9377-7

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