DOES BEER ADVERTISING AFFECT OVERALL CONSUMPTION IN THE UNITED STATES?

Abstract

Critics of alcoholic beverage advertising have maintained that the huge expenditures and attractive promotional messages result in increased levels of alcohol consumption and contribute to alcohol abuse including underage purchase. They argue that restrictions or bans on such advertising

will help reduce overall consumption and the social ills related to heavy drinking. However, the relationship between advertising and consumption is a complex economic and cultural issue, making it difficult to identify a direct relationship between advertising and increased consumption. The majority of empirical evidence suggests that advertising expenditures are not significantly related to primary or aggregate demand for alcoholic beverages, but instead may positively impact selective demand for a particular brand or product category.

The purpose of this article is to provide an analysis of the relationship between annual advertising expenditures and consumption, using a generalized least-squares regression procedure, for beer sold in the United States from 1970 to 2003. Information from these thirty-three years will provide the most comprehensive analysis that has been published to date of the relationships of various variables with aggregate beer consumption.

Econometric Studies of Advertising and Alcohol Beverage Consumption

Almost all econometric studies of alcohol advertising expenditures have come to the conclusion that advertising has little or no effect on marketwide alcohol demand (1). The National Institute on Alcohol Abuse and Alcoholism (U.S. NIAAA, 2000, 422) on the other hand claims that "...the results of research on the effects of alcohol advertising are mixed and not conclusive." Studies have traditionally used coefficient point estimates and some of them that used annual data obtained small advertising elasticities of about 0.1 or less. Coefficients of such magnitude fail to demonstrate that advertising expenditures increase marketwide alcohol consumption in a material way (2).

Most studies have found only weak advertising effects on aggregate alcohol expenditures and have concluded that "...advertising is not effective in enlarging markets" (3). Bourgeois and Barnes (4) examined the relationship between advertising and alcoholic beverage consumption in Canada from 1951 to 1974. After examining beer, wine, distilled spirits and total alcohol consumption in conjunction with several marketing and non-marketing variables, they found little evidence of a significant relationship between advertising and per capita alcoholic beverage consumption. According to Bourgeois and Barnes, their study "suggests that alcohol consumption is influenced more by uncontrollable variables than by those variables over which marketers and policy makers might exercise control in the short run."

In a study of beer brand advertising from 1977-1998, Wilcox (5) found that advertising and market share levels in the United States were significantly related for eight brands of beer. Expenditures in the electronic media were positively associated with almost all of the brands. Wilcox concludes that the findings suggest that advertising is a fairly important marketing tool for most of the leading brands and that when used effectively, it appears to influence brand market share.

The majority of the econometric studies suggest that advertising for alcoholic beverages does not significantly impact primary demand, but is positively associated with selective demand across brands and product categories. The following sections present an analysis of the relationships between aggregate consumption of beer and advertising expenditures in the United States from 1970 to 2003 taking into account the socio-economic variables that have been identified in prior research attempts.

Research Methodology

The database included one beer consumption variable, one beer advertising variable, and five socio-economic variables-population, CPI, per capita income, Federal Excise tax and average state tax on malt beverages. The consumption variable consisted of the total yearly sales reported in millions of barrels and was felt to be the most reliable sales activity currently available. The advertising consisted of media totals for newspaper, magazines, network television, spot television, radio, outdoor, cable and syndicated television for the beer industry reported on an annual basis. Although these variables may not reflect total advertising expenditures, they are the best measures of expenditures currently available. All advertising series were deflated using the McCann-Erickson Media Unit Cost Index for obtaining consistent aggregation of expenditures. One 0-1 predictor was included in the models to capture the addition of warning labels that were placed on the products in 1988/89. The Federal Excise tax and the state tax were adjusted by the Consumer Price Index to reflect a constant dollar taxation rate.

A stepwise regression analysis with backwards elimination of nonsignificant predictors was used in determining which variables were significant predictors of the consumption series. The total advertising variable (aggregate value of advertising spending) and total population (aggregate value) with other predictor variables-per capita income, consumer price index, warning label, adjusted state tax, adjusted federal tax-were used in a generalized least-squares regression equation with beer consumption as the dependent variable. The least significant predictors were dropped and another regression analysis was performed. The analysis continued until a final model was found with all variables significant (p < .05).

Discussion

The major finding in this study is that aggregate advertising and per capita consumption levels for beer in the United States were not significantly related from 1970 to 2003. These findings support the general agreement among the researchers that aggregate beer advertising expenditures in the United States have little or no effect on aggregate consumption. This is the first study to confirm this relationship over such an extended period of time-the last thirty-three years.

It is important to note that the relationships observed in this study are correlational, not necessarily causal. Other factors not included in the analysis such as changing attitudes towards drinking or personal preference shifts in brand choice may no doubt have had an impact on consumption of these brands. It may be, in many cases, that consumption "causes" advertising expenditures.

Also, this study only examines advertising expenditure levels. The creative appeals used by the advertisers play a critical role by interacting with expenditure levels to result in effective advertising. There was no attempt here to measure such interaction effects. This article has focused on the economic and marketing aspects of beer advertising and has presented evidence over the most comprehensive time period studied to date that advertising has had little impact on aggregate consumption . Clearly social and legal aspects are areas that will require further empirical investigations and analyses.

REFERENCE

REFERENCES

1. Nelson, Jon P. "Alcohol Advertising and Advertising Bans: A Survey of Research Methods, Results, and Policy Implications," in: Advances in Applied Microeconomics, Vol 10: Advertising and Differentiated Products, edited by M.R. Baye and J.P. Nelson, 2001, Amsterdam: JAI & Elsevier Science.

2. Nelson, Jon P. "Alcohol Advertising and Advertising Bans: A Survey of Research Methods, Results, and Policy Implications," in: Advances in Applied Microeconomics, Vol 10: Advertising and Differentiated Products, edited by M.R. Baye and J.P. Nelson, 2001, Amsterdam: JAI & Elsevier Science.

3. Lariviere, E., Larue, B., Chalfant, J., 2000. Modeling the demand for alcoholic beverages and advertising specifications. Agricultural Economics, 22, 147-162.

4. Bourgeois, J. C. and James G. Barnes. "Does Advertising Increase Alcohol Consumption?," Journal of Advertising Research, 19 (August), 1979, 19-29.

5. Wilcox, Gary B. "Beer Brand Advertising and Market Share in the United States: 1977 - 1998," International Journal of Advertising, 2001.

AUTHOR_AFFILIATION

Harsha Gangadharbatla, The University of Texas at Austin, Austin, TX

Gary B. Wilcox, The University of Texas at Austin, Austin, TX