Evidence shows that marketers can direct consumers’ limited attention to specific product attributes by making them “prominent.” This research asks: How should firms decide which attribute to make prominent in competitive environments? A key feature of this setting is that consumers’ preferences are context-dependent and that a firm’s choice of an attribute affects the evaluation of all products in the category. We develop a model in which firms selectively promote one of two attributes (e.g., image or performance) before competing in price. We find when consumers evaluate both attributes, perceived differentiation within an attribute can become diluted; we call this the dilution effect. This implies that making the same attribute prominent can arise in equilibrium. Only if there is a sufficient quality advantage in an attribute do we find equilibria with firms making different attributes prominent. We also show how the dilution effect can be a disincentive for investments in quality improvements.
Bibliographical noteFunding Information:
The authors are grateful for comments and discussions with Mark Bergen, Ron Berman, Eric Bradlow, Ernan Haruvy, Dmitri Kuksov, Nanda Kumar, Lin Liu, Shĳie Lu, Robert Meyer, David Reibstein, Amin Sayedi, Jeffrey Shulman, Duncan Simester, Vasiliki Skreta, Upender Subramanian, Christophe Van den Bulte, Andre Veiga, Charles Weinberg, Linli Xu, Narine Yegoryan, Pinar Yildirim, especially the review team, as well as participants at the 2015 INFORMS Marketing Science Conference, the 8th Workshop on the Economics of Advertising and Marketing at Oxford University, SICS Conference at the University of California Berkeley, and seminars at the University of British Columbia, Indian School of Business, Indiana University, London Business School, Massachusetts Institute of Technology, University of Pennsylvania, University of Southern California, University of Texas at Dallas, and University of Washington. The first author gratefully acknowledges financial support from the 3M Nontenured Faculty Grant and Dean’s Small Research Grant at the Carlson School of Management, University of Minnesota. The authors are listed in reverse alphabetical order and contributed equally.
© 2017 INFORMS.
- Competitive strategies
- Context-dependent preferences
- Dilution effect
- Limited consumer attention
- Prominent attributes