THE RELATIONSHIP BETWEEN ADVERTISING AND PRODUCT QUALITY OVER
THE PRODUCT LIFE CYCLE:
A CONTINGENCY THEORY
Tellis, Gerard J.; Fornell, Claes
JMR, Journal of Marketing Research; Feb 1988; 25, 1; ABI/INFORM Global
pg. 64

The relationship between advertising and product quality has been a controversial topic in the literature because of conflicting empirical evidence and divergent theories about advertising’s effects.The authors present an interactive theory based on consumer response to advertising and the costs of producing quality products.The theory posits that the relationship between advertising and quality is stronger when quality is produced at lower cost and cosumers are less responsive to advertising.
Product life cycle(PLC) is used for to proxy consumer response to advertising and the cost of producing quality,assuming both are lower in the later stages of the life cycle.Accordingly,advertising and quality are likely to be more strongly related later in the PLC. The association between advertising and quality is one important means of evaluating the role of advertising.Unraveling the relationship between advertising and quality has not been easy because the empirical evidence is scarce and the theoretical work is controversial.
The case for advertising’s anticompetitive effects probably is made most strongly by Comanor and Wilson.They believe advertising differentiates products and thus reduces cross-elasticities of demand.As a result,pruduct quality and advertising would be related negatively.But Nelson takes an opposite position based on the information theory of advertising developed by Stigler,Telser and others.For him firms with better quality are likely to advertise more.This assumption is said that the position of a market on that continuum depends on how much information consumers have about competitive products and how much is costs to produce product quality.
In summarize,his hypothese said that the effect of product quality on advertising,market share and profit will be more positive in the later stages of the life cycle.In other words,the efficient market as described by Nelson is more likely in the later stages of the PLC;the perverse market resembling the Comanor and Wilson scenario,if it exists at all,is more likely in the early stages of the PLC.
They show us three conclusion:First,the effects of quality are generally positive and in line with Nelson’s view of the role of advertising.Second, as hypothesized,the relationships of quality to advertising,market share and profit are of the same sign in any one condition and are all stronger in more mature product markets.Third,the results are stable across various estimation methods.
Finally,when advertising elasticity and the cost of quality are high,perverse relationship may be present as suggested by Comanor and Wilson.The positive effects of quality are stronger in the late stages of the PLC,when consumers are better informed about competitive products and firms are better able to control their costs.For consumers advertising can not be used as a guide to either high or low product quality.
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