Product placement is an increasingly common sight on TV shows. In fact, recent estimates indicate that product placement is a 7 billion dollar industry that represents about 10% of the entire television advertising market. The puzzling question is whether this can actually be effective at getting people to change their buying behavior — would someone really choose to buy Coca-Cola because they saw a Coca-Cola branded cup on American Idol?

The answer to this question is yes, according to new research co-authored by Simha Mummalaneni, an assistant professor of marketing at the University of Washington Foster School of Business. “What’s surprising is that most people would say that they are too sophisticated to be affected by product placement, and that in many cases they don’t even notice it,” says Mummalaneni. “However, we were able to show that brands that used product placement did in fact see increased sales volume as a result. Product placement is affecting people’s purchasing behavior, even if they aren’t consciously realizing it. Not only does product placement increase sales, but it is about twice as effective as traditional TV ads on that metric.”

To examine this question, Mummalaneni and his co-authors Ali Goli (also at Foster), Yantao Wang (Microsoft), Pradeep K. Chintagunta (University of Chicago), and Sanjay K. Dhar (University of Chicago) had to assemble and link a complex set of data.

• First, they started with a comprehensive dataset consisting of all the times that brands in a few different CPG product categories used product placement on TV.
• Second, they used detailed viewership information to figure out how many people in different TV markets actually saw each of those product placement instances, and for how long.
• Third, they included other information about what the brands were doing at the same time: how much traditional TV advertising were they using, what were their products’ prices, were they using in-store promotional strategies like retail end displays; etc.
• Finally, the fourth data component was detailed retail sales data. The authors used scanner data from grocery stores and convenience stores, which meant that they could figure out how much demand went up for individual products in a specific store.

“It’s interesting that product placement has gotten more popular in recent years, since it goes against the micro-targeting trends that we see in digital advertising these days. Most online ads personalized and shown only to people who are considered to be the ideal audience,” says Mummalaneni. “On the other hand, product placement is a much blunter marketing tool. For instance, let’s say that Coca-Cola chooses to buy product placement on a specific episode of American Idol. Once they make this decision, that episode is broadcast to the entire country — Coca-Cola can’t pick and choose which people, which cities, or which states get to see it. They’re totally at the mercy of people’s viewing decisions — people only see the product placement if they happen to watch American Idol that night.”

The fact that brands can’t choose exactly who views their product placement is beneficial for Mummalaneni and his coauthors’ econometric model. In the example of an American Idol episode that has Coca-Cola product placement, that episode might be much more widely watched in the Seattle TV market vs. the Portland TV market. The authors can then examine two things: (1) whether Coca-Cola sales go up in Seattle relative to the usual numbers in Seattle, and (2) whether there is also a similar pattern in Portland. “If sales go up only in Seattle but not in Portland, then that’s a signal that product placement seems to be effective in that case,” says Mummalaneni. “The key is that we make this kind of comparison over and over again, to get a good measurement of the average effect. We look at data from 35 different brands, nearly 100 different TV markets, 200 different products, and nearly 2000 stores. That kind of scale is necessary when trying to measure small effects like we tend to see in the world of advertising.”

So how much does product placement affect people’s buying behavior? Mummalaneni and his co-authors find that a 10% increase in product placement would increase demand by about 1.2%. “That kind of effect may not seem huge, but it’s more than twice as big as the effect of TV advertising that we can measure for the exact same brands over the same timeframe,” says Mummalaneni. “We’ve seeing product placement become more popular over the past few years, and this is a good reason why — companies have figured out how to do it successfully in a way that tangibly increases product sales, and it’s more effective than the other ways that companies have typically tried to sway people. As long as product placement continues to work on consumers, brands are going to keep using it.”

For more details, read the full research paper here.

Authors:

• Simha Mummalaneni (Foster School of Business, University of Washington)
• Yantao Wang (Microsoft)
• Ali Goli (Foster School of Business, University of Washington)
• Pradeep K. Chintagunta (Booth School of Business, University of Chicago)
• Sanjay K. Dhar (Booth School of Business, University of Chicago)