INDONESIAN UNDERGRADUATE ECONOMIC REVIEW

Volume 2 Issues 1 No.1 (9 pages)

Advertising: A Trade Off Between An Effort to Increase Willingness-to-pay and Free-Rider

Problem (Study Case of Oreo imitated by Oriorio)
Mazaya Nur Intsi1
Universitas Padjadjaran-Bandung, West Java, Indonesia
mazzy.noor@gmail.com1
Accepted : October 28, 2016
Indonesian Undergraduate Economic Review 2016

ABSTRACT

INTRODUCTION

Recently, Oreo as one of the most famous cookie in

the world and in Indonesia done a very interesting
advertisement.
This
advertisement
attracts
consumers through its attractive visual and earcatching song. But it is followed by the similar
product which is the imitators, circulating among
consumers. The imitator product maybe different in
general and the kind of market target, but in terms of
brand name, product, and other forms are very
similar, for example Oriorio by PT Siantar Top. This
Imitators product are piggyback on the fame of
Oreo and use it to capture market share of it, because
it has a relatively cheaper price as well. Therefore,
Oreo is doing a massive advertising to raise
consumers willingness-to-pay because its price is
more expensive. In this paper will discuss whether
the fact of incessant advertising efforts of Oreos
face trade off between free-rider problem and an
effort to increase willingness-to-pay of consumers.
With the help of random sample of 82 persons as
surveyors, will be analyzed the preference of
consumers between Oreo and imitation products, as
for example is Oriorio. However, the results found
that Oreo continued to show positive outcome by
doing advertising. Consumers willingness-to-pay
are more increase and the free-rider problem seems
cause a little impact.

Similarity in a product brand is not a difficult thing

to find, since we encounter it daily. Lots of brands
have the same shape, color, characteristics and so
on. Of course, brand similarity is not happening
without a reason. Motive or purpose of brand
resemblance is usually because by forming a brand
similar to a well-known brand will be able to
piggyback on the number of sales of the
productif it can be justified by calculation. How
could it be? This question will be answered by
looking at the example of the similarity of the brand.
In Act No. 15 of 2001, it is recognized that the
existence of a protection system against brand is a
constitutive system, means the protection of rights
to the brand awarded based solely on their
registration system. It is also known as the first to
file system which means that protection is given to
anyone who sign up first. Appellant that applying
the same or similar brand will not be protected by
law. Related to brand resemblance in Act No. I5 of
2001, it has also set conditions such brands in the
examination of trademark registration to prevent
that happening, but in practice they often arise some
problems in brand inspection that led to their
similarities and brand resemblance

Keywords: Advertising, Oreo, Imitator, Free Rider,

Preference

Published online : November 14, 2016 (Vol.2 Issues1)

Advertising can help business to increase its

value and build its reputation. This can happen in
two ways: either through the purchase of advertising
space in magazines, newspapers, social media or
other outlets, or through editorial coverage. Ideally,
editorial coverage is the aim of many small
businesses. It costs you virtually nothing and can
have long-lasting impact on building your firm's
reputation. Essentially, this is about garnering public
relations. Make contacts with your local newspaper,
community organizations, and social clubs. Take
part in promoting nonprofit events or sponsor a

Little League team. All of these are ways to get your

business's name out in the public without spending
money directly on advertising.
Increased demand for an advertised product may
increase price, that, in turn, may lead to a free-rider
problem where competitive imports increase and
result in a smaller price increase than otherwise.
High a leader product demand, which in part has
been a result of advertising, has attracted substantial
amounts of similar product. The similar product
further we called it as the imitator has eroded the
impact of advertising on price by an estimated twothirds
LITERATURE REVIEW
1.

Advertising

Advertising is, among other things, a method of

providing potential buyers with knowledge of the
identity of sellers. It is clearly an immensely
powerful instrument for the elimination of
ignorancecomparable in force to the use of the
book instead of the oral discourse to communicate
knowledge. A small $5 advertisement in a
metropolitan newspaper reaches (in the sense of
being read) perhaps 25,000 readers, or fifty readers
per penny, and, even if only a tiny fraction are
potential buyers (or sellers), the economy they
achieve in search, as compared with uninstructed
solicitation, may be overwhelming. Advertisements
designed only to identify sellers. The identification
of sellers is necessary because the identity of sellers
changes over time, but much more because of the
turnover of buyers. In every consumer market there
will be a stream of new buyers (resulting from
immigration or the attainment of financial maturity)
requiring knowledge of sellers, and, in addition, it
will be necessary to refresh the knowledge of
infrequent buyers.(Stigler, )
In order to reach firms goal, firms management
as an agent will try to gain profit as high as possible
by increasing sale. An increase of sale as firms
revenue will effect in increase of salary of the
workers, managers, and the owner as well. Firm that
wants a quick sale increase, usually will do anything
to do the promotion. Promotion is not only using
printed media, such as newspaper, flyer, magazine,
billboard, and so on, but also by using visual media,
such as radio, television, handphone, and so on. In
promotion, firms product is introduced, how to use
it, the price, and how to buy it. A vigorous
promotion can make the buyers acknowledge the

product. Buyers then start to take advantage the

promotion period by make them think that they can
get the product with cheap price in an easy way. If
then they feel convenient with it, usually they will
do another purchase. Even if they already feel
satisfy, commonly after promotion period end,
buyer still do another purchase. A consistent
promotion will lead to a loyal buyer. A loyal buyer
will increase sale. Thus a loyal buyer will attract
another buyer candidate to buy the product. This is
certainly impact on the increase of sales.
According to Norman, Pepall, and Richards,
consumers may place a greater value on a product
the greater is the advertising of that product because
they enjoy knowing that the product they buy is
widely recognized by lots of others on television, in
the movies, and on billboards. For example,
consumers may gain from knowing that when they
serve their friends fresh fish for dinner their friends
will know through advertising that it is in to eat
fresh fish. Advertising raises consumer willingnessto-pay because it adds recognition and prestige to
the basic product. In this case, advertising builds
value, and although advertising responds to, rather
than changes consumer preferences, this approach is
similar in spirit to the earlier persuasive view of
advertising (Kaldor 1950).
2.

Willingness-to-pay

There is a fundamental difference in the two

examples. For the person at the beach the reservation
price for a bottle of water was 10,. But the highest
price he or she was willing to pay was only 4. For
the student with the highest reservation price of
100 for a room on campus the highest price he or
she was willing to pay was also 100. In the example
with the bottle of water at the beach, the person was
willing to pay the maximum price. In the example
with the rooms on campus, the student was willing
to pay the reservation price.
The difference lies in the circumstances under
which the products are offered. The circumstances
influence how much an individual is willing to pay
for a product. For the example with the rooms on
campus the student has no alternative to living on
campus but to rent the room at the offered price. So,
the choice is either to live on campus or not to live
on campus. In the example with the bottle of water
there are competing vendors selling slightly
differentiated products. On the beach competition
can be observed, for the room rental on campus there
is just one landlord.

How much a person is willing to pay depends on

the perceived economic value and on the utility of
the good. These two values determine whether the
price a person is willing to accept is the reservation
price or the maximum price. If a person believes that
there is no alternative offering, the highest amount
of money he or she is willingness-to-pay equals the
utility of the good and is the reservation price. If a
person perceives an alternative offering with an
economic value below utility, the highest price he or
she would accept equals the economic value of the
product and is the maximum price. When a marketer

observes a price at which a consumer switches from

purchasing to not purchasing or vice versa, often it
cannot be determined whether that was a reservation
price or a maximum price. In this case a more
general term for this price is applied. Following
Dowdeswell (1995, Annex 6, Glossary) this price is
defined here as the willingness-to-pay.
The willingness-to-pay is the highest price an
individual is willing to accept to pay for some good
or service. Based on the circumstances outlined
above two purchase situations can be identified:

Purchase situation pmax pres:

The reservation price is higher than or equal to the maximum price.

Purchase situation pmax > pres:

The reservation price is below the maximum price.

In purchase situation pmax pres the reservation

price remains an unobservable variable because
willingness-to-pay is determined by the maximum
price. Consider the example with the bottle of water
at the beach. Although the person had a higher
reservation price, the observed willingness-to-pay
was only 4. In purchase situation pmax > pres
willingness-to-pay is determined by the reservation
price. In the example for of the rooms on campus the
marketer can observe that all students who did not
rent a room at 100 had a reservation price below
this amount. When the price is lowered step by step
and more students rent rooms, the reservation prices
of these students can be observed. Note that in this
example the maximum price equals the current rent,
as there is no alternative. The reference product is
the same room in the dormitory, and the
differentiation value is zero. For the student who
rented a room for 100, the purchase situation was
pmax = pres.
3.

Free-Rider Problem

Conventional wisdom has long held that in a group

which is providing itself with some public or
common good, each member of the group will have
a strong tendency to be a 'free-rider' - to contribute
little or nothing toward the cost of the good, while
enjoying its benefits as fully as any other member of
the group. For example, if each of person pollutes
less by paying a bit extra for our cars, society benefit
from the reduction of harmful gases in the air they
breathe and even in the reduced harm to the ozone
layer that protects society against exposure to
carcinogenic ultraviolet radiation. If the society or
some subgroup of it prefer the state of affairs in

which each of them pay this bit over the state of

affairs in which they do not, then the provision of
cleaner air is a collective good for us. (If it costs
more than it is worth, then its provision is not a
collective good for society). Unfortunately, a person
is polluting less do not matter enough for anyone to
notice. Therefore, that person may not contribute his
or her share toward not fouling the atmosphere. She
or he may be a free-rider on the beneficial actions of
others.
Economic theory of a more formal stripe makes
the same prediction: that the free-rider problem will
cause a group to provide itself with no more than a
minimal level of the public good, even when every
member of the group could be made better off if the
public good were provided at a much greater level.
When a group is observed to avoid the free-rider
problem, it is presumably because some
countervailing force has been introduced which
tends to punish or otherwise discourage free riding
behavior. An extended non-technical development
of this view is given by M. Olson (1965).
An experiment was conducted to test
propositions drawn from a theory of rational
decision-making propounded by Mancur Olson
in The Logic of Collective Action. From Olson's
theory it was hypothesized that: (1) Given only a
public good to be achieved, the contributions from
individuals in an operational equivalent of a large
group will be smaller than the contributions from
individuals in a small group. (2) Given that certain
individuals' actions are not effective toward
obtaining a public good, the contributions from
those individuals in a condition in which a private

good is also provided-but made contingent upon the

individuals making a contribution to the public
good-will be larger than the contribution from those
individuals in a condition in which no private good
is provided. Because Olson's theory presumes an
informational input from a group context, two
propositions regarding reference groups and
individuals were also tested: (3) Individuals will
contribute less toward a group goal when their
actions are anonymous than when their
performances are reviewed by a reference person.
(4) Individuals who perceive that many of the
members of their reference group are making large
contributions toward a group goal will themselves
make larger contributions than individuals who
perceive that many of their reference group are
making small contributions, ceteris paribus. (This
last proposition is potentially inconsistent with
Olson's theory.) The results of the experiment
support propositions (1) and (2) and partially
support proposition (3) but the results do not support
proposition (4). Further the experiment suggests that
the amount of contributions which group members
are willing to make may be only indirectly affected
by the size of the group through the medium of
perceived effectiveness of an individual's
contributory efforts.
4. A Leader in a Market
A market leader is a company that has the
largest market share in an industry, and which can
use its dominance to affect the competitive
landscape and direction the market takes.
Companies may be the first to develop a product or
service. This allows them to set the tone for
messaging, define what the ideal product
characteristics are, and to become engrained in the
public eye as the brand that consumers associate
with the product itself.
A company that enters a market as a competitor
can differentiate itself and obtain majority market
share by aggressively marketing its version of the
product, and may indicate that whoever developed
the original product version is dated or oldfashioned. Companies may also invest heavily
in market research and product development, and
then use consumer information to develop features
that update an existing product.
Maintaining a dominant market share requires a
company to not only retain its existing customers by
building brand loyalty, but also attract new
customers who may be unfamiliar with the product

or service in question. The company may also attract

the customers of competitors by finding consumer
pain points, such as price or quality, and marketing
their product as a solution to that pain point. For
example, a computer manufacturer may lower its
prices to increase pressure on a smaller competitor.
In this regard, it is trying to price its competitor out
of the market, even if this results in a short-term
loss.
Market leaders have to be careful when it comes
to how they use and obtain their market share. If a
company becomes too dominant in the market or if
it seems to be abusing its position it may become
subject to anti-trust lawsuits. A market leader may
also find that maintaining a large market share costs
more than the revenue that market share brings.
5.

An Imitator in a Market

Imitation is the process by which a low-performing

firm replaces a subset of its own decision choices
and/or interdependencies with an equivalent set of
decision choices and/or interdependencies copied
from a high-performing firm. Among the highperforming firms, we assumed that the probability of
choosing a particular firm as the target of imitation
is proportionate to the firms performance level (see
Goldberg 1989). Implementing imitation involves
making at least three behavioral assumptionsunit
of imitation (i.e., individual decisions or modules),
target of imitation (decisions, linkages, or both), and
accuracy of imitation (perfect or imperfect).
An imitator in a market may get the advantage of
the leader one. The leader is usually a bigger firm
that have more cost to increase the quality of the
product in many ways, one of them is advertising.
But this increases of quality caused an increase of
price, thats why the price of leader product is
usually higher than the imitator. This attempt of
advertising can give the imitator a slit to come to the
market with the lower price and attack the leaders
market power, because now price is considered by
consumer, in case the products have many
similarities. So the preference of the consumers will
change.
METHOD
Method that used in this research is literature review
and premier data of questionnaire with students as
the object about the study case of trademark problem
between Oreo and Oriorio. To analyze how much
the imitator product affect the Oreos decision of
making massive advertising and to analyze the trade

off of it, between getting higher consumers

willingness-to-pay and the free-rider problem. This
paper use 82 surveyors to help the analysis.
The purpose of this paper is to give a real case
beside the theory that there are some trade off of the
advertising decision, when a big firm decide to make
a massive advertisement and making the brand wellknown, it is usually followed by the free-rider that
get some advantages from the brand that already
popular but has more expensive price (because of
the more cost it has to pay, such as advertising cost).
Based on the case of Oreo and Oriorio, this paper
want to analyze the impact of PT. Siantar Top
imitating very close to Kraft in product of Oreo, and
this paper shows the consumer preference between
this two product to see whether the imitator
(Oriorio) has the advantages as a free-rider or not
and the leader (Oreo) get the aim of massive
advertising to increase people willingness-to-pay or
not.
DISCUSSION
1.

The Free-Rider Problem:

Piggyback Oreo

Oriorio

It has long been recognized that the costs of

imitating new products have an important effect on
the incentives for innovation in a market economy.
As Arrow (1962) and others have pointed out, if
firms can imitate an innovation at a cost that is
substantially below the cost to the innovator of
developing the innovation, there may be little or no
incentive for the innovator to carry out the
innovation. But, this statement prove partially
because some innovator tend to eager their
promotion strategy in order to fight the imitator.
Oreo is a front-runner in its type of product
which is sandwich cookie with cream fill. It was
introduced around 1912. It was created a biscuit
shaped two slabs of chocolate which possessed a
layer of cream in the middle. Was named Oreo
biscuits. Oreo shape at the beginning of the creation
was almost exactly like the Oreo form we know
today, little difference is the shape of the motive in
both slab of chocolate. Design it never changed until
the end of Nabisco Oreo produce multiple versions,
such as the version of Double Stuff in 1975, the 1991
version of Halloween and Christmas version in
1995. And now Oreo is not just popular in Indonesia,
but it is popular in 100 countries in the world.
In order to increase the image of it, Oreo
continuously keep their marketing communication

consistently. This is done by advertising regularly in

mass media such as television, newspaper, and
magazine. The product is also introduced as fun and
healthy kids biscuit with their famous tagline
Twist, Lick, Dunk or in Indonesia is Diputer,
Dijilat, Dicelupin in every advertisement so it will
be embedded in consumers mind that the fun way
to eat it is by that way. Not only that, Oreo also
targeting their consumers by segmentation through
packaging differentiation strategy so the product
able to distributed equally. It is by issuing a package
consist of 3 pieces of Oreo. This is done so it can
pass through small mart both in any corner of city
and village.
Gaining recognition, Oreo start to increase their
price gradually. Until consumers start to feel that the
price is expensive. But still, it gets most of the
market attention because the peoples preference is
still Oreo. Even though the willingness-to-pay of the
people is not really increase because consumer
usually dont want expensive price.
As Oreo gains a lot of profit because it is the first
of its kind in Indonesia, other firms start to try their
luck by creating the same product. Knowing this,
Oreo start to improve their advertisement to fight
other imitation product, such as Oriorio. On the
other hand, Oriorio also start to do advertisement to
gain recognition. But instead of doing it as much as
Oreo does, it only does infrequently. This is cause of
the free-rider problem. People that find Oreos price
is expensive start to change their preference to the
imitators since their price are tend to be cheaper.
How it is increase Oreos price because advertising
cost is increase and give Oriorio as the imitators to
come to the market with the compete price. Now, the
position of Oriorio is considered to be the
substitution of Oreo.
Oreo is still in a high position of recognition, but
it sales start to decrease. Although the advertisement
getting vigorous, Oriorio and other imitators still
piggyback it. At first Oriorio sales their product
not in a mass quantity yet it is can be found in several
mart or stall. People often remember names for a
product with the famous brand, for example when
people want to buy mineral water, they ask for Aqua
and given with other brand with the same product.
In this situation, since the position of Oriorio is
considered to be the substitution of Oreo and Oreos
price is unfavorable, people that want to buy
sandwich cookie with cream fillwhich used to be
Oreoare given with Oriorio or other imitators. The

well-known of a famous brand is used by the

imitators for their explicit advantages, as the market
segmentation that cant handle by the famous brand
will caught by the imitators that has lower price, and
easier to get along the small shops. Without have a
big cost expend, by doing advertising the product,

the imitators have cheaper price than the famous

one. The imitators became a free rider, because
profit expected by the famous brand is undermined
by the imitators because their price is lower but
theyre known.

2. The Similarities1

Description

OREO

ORIORIO

Brand

Word OREO printed with white color

with combination of blue and white line.

Word ORIORIO printed with white color

with combination of blue and white line.

Packaging Color

The color is dark blue with essence of

light blue. Firms name in blue color with
white background with red line.

The color is dark blue. Firms name in blue

color with white background. Other name
in red color.

Packaging Design

Rectangular shape with serrated edge. In

the center, products name and a picture
of the product.

Rectangular shape with serrated edge. In

the center, products name and a picture of
the product.

Type of Product

Sandwich cookie with cream fill which

consist of two round shape cookie with
signature design on it and vanilla cream
fill in between.

Sandwich cookie with cream fill which

consist of two round shape cookie with
signature design on it and vanilla cream fill
in between.

Form

Two round shape cookie with signature

design on it.

Two round shape cookie with signature

design on it.

Product

Based on Supreme Court Decision No. 402 K/Pdt.Sus/2011 with alteration and addition

3. The Economic Impact: Change

Preference and Willingness to Pay?

of

Based on the survey, most of the surveyors are still

not affected significantly to the imitators

product. From the 82 surveyors, it is found that

93.9% of them know that there is the similar product
of Oreo in the market. It shows us that the imitator
has already receive peoples recognition generally.

Surveyors Know There is Imitator Product of Oreo

Know

Don't Know

6%

94%

From the 82 surveyors, 57 of them said theyve ever seen the advertising of imitator product, and 49 of the 82
surveyors said theyve ever bought the product.

Ever Seen the Imitator's

Advertising

Never
Seen
30%

Ever Bought the Imitator's

Product

No
40%
Ever
Seen
70%

Yes
60%

From 82 surveyors, all of them have ever seen Oreos advertising and 79 of them feel interested. And 50 of
them think that the massive advertising of Oreo is kind of new innovation and the rest think that it because theres
price and product competition between Oreo and the imitators.

Interest on Oreo's
Advertising
Interest

Not Interest

The Reason of Massive

Advertising of Oreo
New Innovation
Price and Product Competition from
Imitator

5%

41%
59%
95%

The survey give result of surveyors preferences too, with price considered most of surveyors still have
preference of Oreo (77 from 82), and most of them say that the massive of advertising of Oreo increase their
willingness-to-pay (49 from 82).

Preference (Price is
Considered)
Oreo

Increase WTP after

Advertising

Imitator of Oreo

Yes

Not

5%

40%
60%
95%

4. The Law Impact

According to Hadiputranto, Hadinoto &
Partners file report in January 2012as it is the

lawyer of KraftSupreme Court declared that: (1)

Kraft is the only legitimate owner of the OREO
trademark and its variations, (2) Krafts OREO
trademark and its variations are well-known

trademarks, and (3) PT. Siantar registered its

ORIORIO trademark in bad faith as it is similar to
Krafts OREO trademark. The Supreme Court then
ordered the cancellation of PT. Siantars Oriorio
trademark registration from the general register of
trademarks at the Indonesian Trademark Office.
It is also said that in addition to the decision
above, the Supreme Court also made a breakthrough
by accepting Krafts request to prohibit PT. Siantar
from filling any trademark applications that is
identical or similar to Krafts well-known Oreo
trademark, and to have the Trademark Office reject
any trademark applications that have been filed by
PT. Siantar which is identical or similar to Krafts
OREO trademark, or at least which is suspected to
be filed based on bad faith.
5. The Massive Advertising: An Effort to Get
Back the Consumer
Comical video-streaming advertisements have
become more popular among Indonesian audiences,
dominating YouTube's most popular ads in the
second half of 2015. Two of the most popular videostreaming ads for Indonesians were comic. 'Oreo
Penuh Keajaiban' (Oreo full of wonders), an
Indonesian version of the 'Oreo Wonderfilled' song,
was the most viewed commercial on the videosharing platform. This massive advertising actually
catching people attention and buy their preference.
So even though the imitator brand is cheaper but as
the one who has exist for years and already familiar
to the consumers, Oreo success in its effort to get
back the consumers, and the imitator still cant beat
out Oreo, and some consumers just think that those
imitating is really bad and illegal.
CONCLUSION
Therefore, trade off between free-rider problem
with an effort to increase willingness-to-pay is more
positive on to increase willingness-to-pay. Trade off
of Oreos advertisement is still give profit to it
because of its excellences can be differentiated with
the imitators. These excellences can be seen on their
quality of the product, quantity or pieces in the
package, package design and so on. And by help of
their continuous and consistent advertisement,
people are more familiar with Oreo. And Oreos
power market is still strong around consumers,
based on our surveyors.
So, the advertising decision of Oreo gives the
positive result, that in this case, the trade off between
effort to increase the willingness-to-pay and free

rider problem is not affect significantly to the Oreo,

as it have more excellences and the consumers
preference has proved that they prefer to choose
Oreo rather than the imitator product.
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