UCL School of Management is delighted to welcome, Professor Jesse Yao, The Chinese University of Hong Kong, to host a research seminar discussing ‘Invitation to Search or Purchase? Optimal Multi-attribute Advertising’.

Abstract:

When considering whether or not to buy a product, consumers often evaluate different attributes of it. This learning process requires both time and effort, which incurs costs for the consumer. To encourage consumers to either purchase the product or continue seeking information instead of abandoning their search, firms may provide information through advertising. This paper studies the firm’s optimal choice of advertising content and the role of advertising for a two-attribute product. If the firm advertises one attribute, the consumer faces a one-dimensional search problem because she is uncertain about only the other attribute. If the firm does not advertise, the consumer faces a two-dimensional search problem because she is uncertain about both attributes. Given the consumer’s search strategy under different advertising strategies, we characterize the optimal advertising strategy. The firm does not advertise if the consumer’s prior beliefs about both attributes are extreme. No advertising serves as an invitation to search when the belief is high and as an invitation to purchase when the belief is very high. Otherwise, it advertises the better attribute if the consumer is optimistic enough about the worse attribute, and advertises the worse attribute if the consumer is less optimistic about it. In such cases, the role of advertising is non-monotonic in the belief due to different binding incentives of the firm in different belief regions.