A Model of Image Advertising



In November 2004, American Express launched a new campaign called "My Life. My Card." The first spot featured Robert De Niro reciting a "love letter" to New York City. The advertising ends with the words, "My life happens here. My card is American Express." While the advertising is very striking in its execution (it features images of Ground Zero, for example), it does not directly mention any of the benefits of owning an American Express card, such as the card's excellent rewards program. Hence, despite its ability to put forth compelling economic arguments in favor of its product, Amex chose to air a purely "image-based" advertising. Here, we address the question of why and when a firm may choose to expend resources on vague image-based advertising as opposed to a more informative attribute-based message. We show that image advertising can serve as a signal of quality in the sense that the high quality firm engages in image advertising, while the medium quality firm engages in attribute-based advertising. This seemingly counter-intuitive result stems from the fact that the high quality firm purposefully withholds information from the consumer in order to motivate her to engage in own search about product quality, which is likely to result in a positive signal. We contrast this to the equilibrium where both the medium and the high type engage in attribute-based advertising. Therefore, the advertising message is important in enabling signaling; in other words, some ways of "burning money" are more effective than others.
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Dr. S. Puntoni