Wringing more value from advertising dollars: the customer satisfaction boost

Abstract

Purpose

This paper aims to offer a new perspective on increasing advertising effectiveness, testing the idea that the link between advertising expenditures and brand equity is greater when a company's consumer satisfaction ratings exceed those of their competitors than when such ratings trail those of competitors.

Design/methodology/approach

The study used published data for 27 companies and their competitors from 2001 to 2009, providing 182 observations for analysis using hierarchical linear modeling. Annual data on advertising expenditures (obtained from Compustat) for companies whose corporate names are synonymous with their brand (e.g. Apple, McDonald's, Nike) formed the basis for testing the proposition of interest. Yearly brand equity data obtained from Interbrand, and customer satisfaction (CS) ratings from the American Customer Satisfaction Index website were employed to test whether year‐over‐year increases in advertising expenditure resulted in increasing the value of the brand and whether this positive effect was accentuated when a company's CS ratings exceeded those of its competitors.

Findings

As expected, a year‐over‐year increase in advertising expenditures contributed to enhance brand equity, but this positive effect was significantly greater when a company's CS ratings trumped the CS ratings of its competitors as opposed to trailing them.

Originality/value

If a company trumps its competitors in CS ratings, it should consider spending more on advertising, because now their ad dollars have a bigger bang for the buck in contributing to enhance the value of the brand. A company trailing its competitors in CS ratings should consider taking funds from the advertising budget to remedy that disparity, whether by product improvements, sales training, customer service hires, or whatever seems needed. Not only can increasing CS make future ad dollars more effective, on the flip side, it can make competitors' ad dollars less so.

Citation

Samaraweera, M. and Gelb, B.D. (2011), "Wringing more value from advertising dollars: the customer satisfaction boost", Journal of Business Strategy, Vol. 32 No. 6, pp. 24-29. https://doi.org/10.1108/02756661111180104