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AMITAV CHAKRAVARTI and JINHONG XIE*

Standards Competition and Effectiveness of Advertising Formats in New Product Introduction

Amitav Chakravarti is Assistant Professor of Marketing, New York University, 44 West Fourth Street, Suite 9-83, New York, NY 10012-1126 (Phone: 212 998 0517; Fax: 212 995 4006; email: achakrav@stern.nyu.edu). Jinhong Xie is Associate Professor of Marketing, University of Florida, P.O. Box 117155, Gainesville, FL 32611-7155 (Phone: 352 392 0161 Ext. 1233; Fax: 352 846 0457; email: jinhong.xie@cba.ufl.edu). The authors thank Bart Weitz, Joe Alba, Rich Lutz, and Alan Sawyer for their detailed comments and many helpful suggestions.

Standards Competition and Effectiveness of Advertising Formats in New Product Introduction

ABSTRACT Compared to other markets, those with standards battles exhibit certain fundamental characteristics that make the consumer decision to adopt a new product more risky and complex. This paper examines how standards competition affects consumer behavior, an issue that has been relatively neglected by past research in this area. Study 1 sheds light on the fundamental issue of how consumers respond to information on absolute and relative utility of a product. We find that standards competition motivates consumers to heed information on relative performance and ignore information on absolute performance. As a result, information regarding the relative (absolute) performance of a product has a stronger (weaker) impact on a products share in markets with standards competition. Consistent with this finding, Study 2 shows that standards competition moderates the effectiveness of different advertising formats: it strengthens the effect of comparative ads but weakens the effect of non comparative ads. This moderating effect relates to the manner in which the ad format influences confidence in the advertised brand, associative heuristic processing, and attitude towards the ad. Finally, Study 3 shows that in a market with a standards war, the effectiveness of comparative ads is moderated by the relative brand familiarity of the advertised brand. This research takes a step toward a better understanding of these important but under explored issues and provides managerial insights for firms launching new products in markets with competing technological standards.

INTRODUCTION With the rapid development of information technology and the digital revolution, technological standards have an increasingly important effect on the success of many new products, including computers, electronic video games, wireless communication, home networking, video/audio electronics, banking services, and the Internet (Katz and Shapiro 1994). As noted by The Economist, New standards can be the source of enormous wealth, or the death of corporate empires. With so much at stake, standards arouse violent passions (The Economist 1993). A common feature of the markets in which technological standards have become so important is that the consumption utility of a product or service increases with the number of people using it. Economists call this demand interdependence network externalities (Farrell and Saloner 1986, Katz and Shapiro 1985) or network effects (Chou and Shy, 1992). Standards competition is common in the presence of network effects because the product feature that creates the network usually requires a technical protocol to do so. These technical protocols are often patent protected. In the early stages of market development, competitors may simultaneously introduce products based on incompatible patented technologies. Standards competition may also occur either because an incumbent refuses to license its technology to a new entrant or because the cost of achieving compatibility is so high that the entrant prefers to introduce its own technology. Standards competition may also arise because an entrant may refuse to take a license, hoping to establish its own standard and reap major profits in future. Over the last two decades, we have observed many fierce standards battles between incompatible technologies (Shapiro and Varian 1998). Some well-known examples are those for the VCR between Matsushitas VHS and Sonys Betamax formats, for streaming audio and

video software between Microsoft and RealNetworks, for 56k modems between 3Com and Rockwell/Lucent, and for Internet browsers between Microsoft and Netscape. In addition, there are many ongoing standards battles in various new product markets, such as home networking (Wong 2000), wireless communication (Wexler 2000), expansion devices for portable electronics (Miles 2000), digital music devices (Chun 1999), personal digital assistants, and online music sharing software (Richtel 2001). Because of their importance, standards battles and network effects have generated a considerable amount of research. For example, economists have examined the social welfare implications of standards competition and have analyzed associated issues of regulatory policy (e.g., Farrell and Saloner 1986, Katz and Shapiro 1985). Recent research has also explored issues of firm strategy and new product pricing (Dhebar and Oren 1985, Xie and Sirbu 1995), new product diffusion acceleration (Van den Bulte 2000), product upgrades (Padmanabhan, Rajiv, and Srinivasan 1997), technology licensing and standards competition (Sun, Xie, and Cao 2002), product compatibility (Xie and Sirbu 1995), complementary products diffusion (Gupta, Jain, and Sawhney 1999), asymmetric network effects (Shankar and Bayus 1999), knowledge management in service firms (Ofek and Sarvary 2001), cross-market network effects (Chen and Xie 2003), effect of network effects on pioneer survival (Srinivasan, Lilien, and Rangaswamy 2004), and empirical analysis of indirect network effects (Nair, Chintagunta, and Dub 2004). While recent research has examined standard battles from both societal and firm perspectives, the consumers perspective has received little attention. Most theoretical work on standard wars is based on the simple assumption that consumers willingness to pay for a standard increases with its installed base. Aside from several recent empirical studies that use aggregate, market-level data such as prices and sales to test the existence of such a relationship

in some industries (e.g., Brynjolfsson and Kemerer 1996, Gandal 1995), recent research has provided little theory or evidence on how consumers may behave in markets with standards battles. Compared to other markets, those with standard battles exhibit certain fundamental characteristics that make the consumer decision to adopt a new product more risky and complex. First, the expected utility of adopting a product in these markets is largely determined by the standards future installed base, which is highly uncertain in the early stages of the standards introduction. Second, the adoption decision is also more complicated because consumers often must choose not only among brands but also among competing technological standards (e.g., Nintendo vs. Sega systems for video game players, GSM vs. TDMA for digital wireless telephones, DVD vs. Divx systems for digital video disk players, and Microsoft Word vs. WordPerfect for word processing software). Finally, adopting a "losing" standard can be very costly to consumers (e.g., to owners of the Betamax VCR and Divx digital video players). For these reasons, consumers may behave very differently in markets with standards battles than in those without them: they may search for different types of information, use different criteria in evaluating and comparing alternatives, engage in different decision-making processes, and respond differently to advertising. Another limitation of research on standards competition and network effects is the dearth of research on firm communication strategies. Given the high uncertainty and extreme complexity of consumers adoption decisions in markets with standards battles, it is crucial for firms to communicate effectively with consumers about the value of their products and to take steps to build consumer confidence in the products future market growth. In this paper, we ask and answer four specific research questions. First, does standards competition affect the likelihood of consumer new product adoption? Second, does standards

competition affect the importance that consumers place on different types of performance-related product information? Third, since advertising is often used to convey performance-related information, how does standards competition affect consumer response to various advertising formats, and which advertising format is most effective in winning a standards battle? Fourth, will the effectiveness of various advertising formats in markets with standards competition be moderated by consumer familiarity with the advertised and comparison brands? To address these questions, we designed three studies. The first study was motivated by the fact that it is fairly commonplace to express consumption utility in both absolute and relative terms. Thus, in the first study we examine the effect of standards competition on consumers adoption decisions and the relative importance in such decisions of two types of performancerelated information: absolute and relative product performance. Building on results from the first study, the second study investigates the interaction between standards competition and the effectiveness of three different advertising formats--direct comparative, indirect comparative, and non comparative. The third study investigates the moderating effect of consumer brand familiarity on the effectiveness of advertising formats in markets with competing standards. The three studies are presented in the next three sections. After presenting the results of our three experiments, we conclude by summarizing our findings, interpreting their implications, and discussing avenues for future research.

STUDY 1 Study 1 addresses two of the four questions raised earlier. First, we investigate how a standards battle affects a consumer's new product adoption decision. Specifically, does an ongoing standards battle significantly reduce the consumers likelihood of adopting a new

product? The literature on network effects suggests that an unresolved standards competition reduces the probability of adoption early in the diffusion process (Van den Bulte 2000). Such a standards war increases consumer uncertainty because the value of a product is determined not by its quality alone but also by the outcome of the standards war (Klopfenstein 1989). For example, after VHS won the standards battle in the VCR market in the 1980s, the Sony Betamax player was considerably devalued because it could not play VHS tapes, and Betamax tapes were no longer being made. Although the outcome of standards battles has a very significant impact on them, consumers have no means of predicting that outcome accurately. This leads to a great deal of uncertainty for the consumer early in the life cycle of the product (Van den Bulte 2000). Consequently, consumers may defer making a choice and may even forego adopting a product altogether (e.g., see Tversky and Shafir 1992, Dhar 1997, Burnham, Frels, and Mahajan 2003). As a face validity check, we hypothesize that: H1: Consumers are less likely to adopt a new product in the presence of standards competition than in the absence of such competition. The second and more important question addressed by Study 1 concerns the effect of standards competition on the importance that consumers place on different types of performancerelated product information. Consumers often actively seek information about the performance of products they intend to buy in order to predict the consumption utility of those products. Consumption utility can be expressed in both absolute and relative terms, as economics and decision-making research have clearly shown. Absolute utility, which is sometimes described as choiceless utility (Loomes and Sugden 1982), is the utility associated with the consumption of a particular good independent of other available alternatives. Relative utility is the differential consumption utility of a good relative to available alternatives.

Utility theory (e.g., see Mas-Colell, Whinston, and Green 1995) suggests that, when facing two alternative product offerings X and Y, a consumer will choose product X if two conditions hold: (1) a positive absolute utility of X (i.e., U(X) > 0), and (2) a positive relative utility of X over Y (i.e., U(X) - U(Y) > 0). Clearly, information about product performance can help consumers evaluate the two utility conditions, and this information also can be expressed in absolute or relative terms. In general, consumers value information on both absolute and relative performance of a product since it is predictive of its underlying absolute and relative utility. We propose, however, that consumers give significantly greater weight to information about the relative performance of a product in the presence of standards competition than in the absence of such competition. Findings from several streams of literature suggest that, in the face of uncertainty, decision makers become significantly more sensitive to information that compares choice alternatives. For example, the reason-based choice paradigm suggests that, in the face of uncertainty, decision makers tend to evaluate the consequences both of choosing one alternative and of foregoing the other (Shafir and Tversky 1992, Inman, Dyer and Jia 1997). Regret theory makes similar claims (e.g., Loomes and Sugden 1982, Sage and White 1983). The literature on decision making under conditions of uncertainty (e.g., Lipshitz and Strauss 1997) suggests that when faced with undifferentiated alternatives, decision makers often cope by carefully weighing the pros and cons of adopting one alternative over another. In the face of standards competition, consumers often feel very uncertain about which of the competing products will eventually win the standards battle. It is likely that consumers will resolve this uncertainty by carefully weighing the pros and cons of adopting one standard over another. Thus, information on relative performance of a product should have a greater impact on consumer adoption decisions when a standards war is present than when absent.

Additionally, we propose that standards competition may decrease the value of information regarding the absolute performance of a product. Our proposition is based on the fact that "winner-takes-all" scenarios are common in markets with standards competition (although not all incompatibilities lead to winner-takes-all outcomes). In a standards market, a product often needs to win the standards battle in order to provide any benefit at all to the consumer. As a result, in the presence of standards wars, the value of information depends greatly on whether it can help consumers predict the winner. Product information that helps consumers predict the winner is highly valued, whereas product information that is a poor predictor of the winning standard is devalued. In markets with standards competition, information on absolute product performance is an unreliable predictor of the winning standard (Klopfenstein 1989). Consequently, consumers are likely to give less weight to information regarding absolute product performance in markets with standards competition than in those without. Note that this proposition does not automatically follow from the previous proposition because absolute performance and relative performance of a product are two distinct aspects of product performance (e.g., see discussion by Markman and Moreau 2001), and more importantly, the absolute performance and relative performance of a product can vary independent of each other. Formally, we hypothesize that: H2a: The impact of information regarding the relative performance of a product on consumers' adoption decisions is significantly stronger in markets with standards competition than in those without standards competition.

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H2b:

The impact of information regarding the absolute performance of a product on consumers' adoption decisions is significantly weaker in markets with standards competition than in those without standards competition.

Procedure and Stimuli A computer-based experiment was conducted with a 2 (presence/absence of standards wars) x 2 (high/low absolute ratings) x 2 (high/low relative ratings), between-subjects design. A total of 181 undergraduate subjects participated in the study for extra credit. Videophones were chosen as the experimental product for two reasons: (1) Subjects did not have strong existing opinions about the product, and (2) subjects would not automatically assume the existence of a standards battle. The latter could be of concern especially with products such as computers and digital video disc players because of the widely publicized battles between Windows and Macintosh, and between DVD and Divx. The experimental procedure consisted of the following steps: Step1. Subjects were briefed about the experimental session. This briefing included instructions about the computer terminals and about the study. The computer terminals randomly assigned the subjects to any one of the eight experimental conditions. Step2. Subjects then read a description of a new product market (videophones). Depending on the condition assigned, subjects read either the No Standards War description or the Standards War description (see Figure 1, top panel). The first two paragraphs were identical for both descriptions and introduced the subjects to the new product, the key attributes of this product, and the two competing firms (Conmec and Dwyer) that produced it. The presence or absence of a standards war was manipulated by the third and fourth paragraphs in the description. Subjects assigned to the standards war conditions were told that the two competing

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brands were incompatible with each other, that analysts expected a standards battle between the two brands, and that there was considerable uncertainty regarding the outcome of this battle. Subjects assigned to the no standards war conditions were told that the two competing brands were compatible with each other, that analysts expected a battle between the two brands, and that there was considerable uncertainty regarding the outcome of this battle. Thus, the key difference between the two descriptions was the presence or absence of compatibility between the two competing brands. Step3. After the subjects understood the previous section to their satisfaction, they were given a choice task. Subjects saw one of the four possible choice scenarios (see Figure 1, middle panel). Subjects were told that they would be given "overall" ratings from Consumer Reports for the two products. The brands were shown on an 11-point scale and the ratings were described in a sentence (e.g., see Figure 1, bottom panel). The key manipulations involved varying the absolute and relative ratings of Conmec. The absolute rating of Conmec was determined by the star rating directly associated with Conmec, while the relative rating of Conmec was determined by the difference in the star ratings of Conmec and Dwyer. For example, consider the condition where Conmec was rated 8 stars while the other brand, Dwyer, was rated 7 stars (see Figure 1, middle panel). Here the absolute rating of Conmec was 8 stars, while the relative rating (i.e., the difference in ratings between the two brands) of Conmec was 1 star. The absolute rating of Conmec was varied at two levels, i.e., 8 stars or 10 stars. The relative rating of Conmec was also varied at two levels, i.e., a difference of 1 star or a difference of 3 stars. The design ensured that the absolute (relative) rating of Conmec was held constant when its relative (absolute) rating was varied.

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The focal brand, Conmec, was the higher-rated and more expensive brand (Conmec = $120, Dwyer = $80) in all four choice scenarios. In each case, subjects were given the option to defer their decision for a later occasion, choose the focal brand (Conmec), or choose the other brand (Dwyer). In addition to the choice task, they were asked to provide reasons for their choice. They were also asked to answer a manipulation check question that is discussed later. Results Adoption Rates (H1). Hypothesis H1 suggests a negative effect of standards competition on new product adoption. Table 1 presents the choice count and share (in parenthesis) for each choice option given different relative (low/high) and absolute (low/high) ratings. Table 1 also presents the category adoption rate (AR) with and without a standards war (ARwithout std. wars = 80%, ARwith std. wars = 51% ). We formally tested the hypothesized negative effect of standards competition on new product adoption using a logistic regression model: CHOICEConmec = 0 + 1*SWAR where CHOICEConmec is the choice share of the focal brand Conmec, and SWAR is a dummy variable indicating the existence of standards war (i.e., SWAR = 0 in the absence of a standards war, SWAR = 1 in the presence of standards war). As predicted, standards competition had a negative effect on the focal brands choice share (1= -1.36, standard error [S.E.] = 0.33, Wald2 (1, N = 181) = 16.41, p < 0.01, also p = 0.00 by Fishers Exact Test1). This suggests that significantly more subjects chose to defer choice in the presence of standards war than in its absence. Information on Relative Performance (H2a). Our hypothesis (H2a) suggests that the presence of standards competition will strengthen the impact of information regarding relative
1

For all studies, we provide Fishers Exact Test for small samples along with the Wald-2 statistic. Note though, FET can be conducted only on ab contingency tables, and not on higher order (e.g., abc) contingency tables.

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performance. Following Barron and Kenny (1986), we tested the hypothesized interaction effect using the following logistic regression model: CHOICEConmec = 0 + 1*RELATIVE + 2*SWAR + 3*RELATIVE*SWAR where RELATIVE is the relative rating (low/high). The interaction term was marginally significant (3 = 1.07, S.E. = 0.64, Wald-2 (1, N = 181) = 2.74, p < 0.10), providing support for H2a. This result implies that information on the relative performance of a product had a greater impact on choice shares in the market with a standards war than in the market without a standards war. This positive moderating effect of standards competition on the importance of relative performance can also be found by examining the simple main effects. The upper part of Table 2 shows Conmecs marginal choice share under low and high relative performance ratings. As shown in Table 2, in the presence of a standards war, Conmecs choice share is 20% given a low relative performance rating, but 59% given a high relative performance rating.2 This difference is significant (parameter estimate [B] = -1.73, S.E. = 0.47, Wald-2 (1, N = 91) = 13.21, p < 0.01, also p = 0.00 by Fishers Exact Test). However, in the absence of a standards war, Conmecs choice share is 53% given a low relative performance rating and 69% given a high relative performance rating. This difference is not significant (B = -0.66, S.E. = 0.43, Wald-2 (1, N = 90) = 2.26, p > 0.10, also p = 0.20 by Fishers Exact Test). We also graphically illustrate this interaction effect in Table 2. The graph shows that an increase in Conmecs relative performance increases Conmecs choice share to a greater degree in the presence of a standards war (39% increase) than in the absence of a standards war (16% increase).

The choice shares in Table 2 are margin totals calculated from Table 1 (see the example presented at the bottom of Table 2).

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Information on Absolute Performance (H2b). Hypothesis H2b suggests that the presence of standards competition will weaken the impact of information regarding absolute performance. We tested the hypothesized interaction effect using the following logistic-regression model: CHOICEConmec = 0 + 1*ABSOLUTE + 2*SWAR + 3*ABSOLUTE*SWAR where ABSOLUTE is the absolute rating (high/low). This interaction term was not significant (3 = -0.63, S.E. = 0.61, Wald-2 (1, N = 181) = 1.05, p > 0.10). However, the simple main effects do provide some evidence that the impact of absolute ratings differ with the presence/absence of a standards war. As shown in the lower part of Table 2, in the presence of a standards war, Conmecs choice share is 38% given a low absolute performance rating and 41% given a high absolute performance rating. This difference is not significant (B = -0.14, S.E. = 0.42, Wald-2 (1, N = 91) = 0.11, p > 0.10, also p = 0.83 by Fishers Exact Test). However, in the absence of a standards war, Conmecs choice share is 52.2% given a low absolute performance rating, but 70.5% given a high absolute performance rating. This difference is significant (B = -0.78, S.E. = 0.44, Wald-2 (1, N = 90) = 3.11, p < 0.10, also p = 0.08 by Fishers Exact Test). As shown in the corresponding graph, an increase in absolute rating increases Conmecs choice share to a lesser extent in the presence of a standards war (3% increase) than in the absence of a standards war (18.3% increase). These results provide evidence supporting H2b. Discussion The evidence from Study 1 suggests that standards competition moderates the effect of both absolute and relative ratings on the choice shares of the focal brand. A higher relative rating leads to a significant increase in choice share in the presence of a standards war, but to a non significant increase in choice share in the absence of a standards war. This implies that standards

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competition strengthens the impact of information regarding relative product performance. On the other hand, a higher absolute rating of the focal brand leads to a significant increase in its choice share in the absence of standards competition but does not significantly affect its choice share in the presence of such competition. This implies that standards competition weakens the impact of information regarding absolute performance. These results indicate that subjects were differentially sensitive to information regarding absolute and relative product performance in the presence of standards wars. Analysis of the manipulation check is consistent with this explanation. As a manipulation check, subjects were asked to indicate the extent to which they paid more attention to the relative ratings of the brands than to corresponding absolute ratings in making their decision. Subjects reported greater use of relative judgments in the presence of a standards war (mean [M] = 5.70) than in the absence of a standards war (M = 5.0, F(1, 179) = 5.43, p < 0.05).

STUDY 2 The first study demonstrated the importance of information on relative performance of products in standards markets. However, the implications of this finding for ways in which companies should design their marketing communications are less clear. The previous study suggests that consumers value marketing communication that conveys information on relative performance of a target brand. One way of conveying information about the relative performance of a product is to use ad formats that are comparative in nature. Would the increased value of information on relative performance lead to a greater preference for comparative over non comparative ad formats? More specifically, in the presence of standards competition, are

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comparative formats more effective than non comparative formats in inducing consumers to adopt the advertised brand? We addressed this specific research question in the current study. Results from Study 1 and past research on comparative advertising suggest that the presence of a standards war might moderate the impact of comparative and non comparative ad formats on product adoption. First, results from Study 1 indicate that comparative ad formats may positively impact product adoption. Recall that Study 1 showed that the presence of a standards war resulted in greater impact of information on relative performance of products, which in turn led to higher choice shares (see also manipulation check). These results indirectly suggest that, in the presence of a standards war, information on relative product performance creates greater confidence in the target brand. Since comparative ad formats tend to provide information about relative performance of the advertised product, whereas non comparative ad formats typically do not provide such information, it is likely that there will be greater confidence in the advertised brand when the format is comparative than when it is non comparative. Thus, comparative ad formats could be more effective than their non comparative counterparts because of the ability of the former to reduce uncertainty regarding the advertised brand. This suggests that, in markets with standards competition, comparative formats are likely to be more effective than non comparative formats in inducing consumers to adopt the target brand. However, past research on comparative advertising shows that, under certain conditions, comparative formats can be less effective than non comparative formats. Two main explanations have been advanced for the relative superiority of non comparative formats in such cases. One is related to the generation of negative affect (e.g., see Pechmann & Ratneshwar 1991). Comparative ads tend to generate negative affect, and consumers find such ads offensive and

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irritating. Negative affect or ad-evoked feelings, in turn, often lead to source derogation, discounting of ad message, and negative attitude toward the ad and advertised brand (Brown, Homer and Inman 1998). As a result, consumers may view the advertised brand unfavorably (Batra and Ray 1986). In contrast, non comparative ads do not generate negative affect because they avoid comparison between brands (Grewal et al. 1997). In the presence of a standards war, certain characteristics of the environment may accentuate this negative affect toward comparative ads. Given the possibility of a "winner-takes-all" outcome in a standards war environment, firms have a greater incentive to claim superiority over competing standards. Consumers are likely to be sensitive to this fact and may more actively engage in source derogation and discounting of the ad message when they view such ads (Friestad and Wright 1994). The second explanation for why non comparative formats may be superior under some conditions is based on association heuristics (Chaiken 1987). According to this theory, the very act of comparing two (or more) brands reinforces the consumer's belief in the similarity of these brands, often leading to sponsor misidentifications (e.g., see Pechmann and Stewart 1990). Consequently, consumers end up invoking a heuristic that leads them to believe that if two brands are being compared, then they must be similar. By avoiding any comparison, non comparative ads do not invoke this heuristic. Several studies, such as those conducted by Pechmann and Ratneshwar (1991), Gorn and Weinberg (1984), Sujan and Dekleva (1987), and Grewal et al. (1997), document this unintended associational effect of comparative advertising. In the context of a standards war, certain characteristics of the market may further encourage such heuristic processing. Association heuristics are more likely to occur when the advertised and comparison brands have the same relative market size (Pechmann and Stewart 1991, Grewal

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et al. 1997), a condition that is typical of markets with standards wars where nascent technologies with similar market sizes battle it out to establish their respective standards. In summary, the results of Study 1 highlight the importance of information on relative product performance and predict that comparative ad formats are likely to be more effective than non comparative ads because of their ability to reduce uncertainty regarding the advertised brand (uncertainty-reduction hypothesis). Past research cautions about a contrary effect, where comparative ads are rendered less effective because of the strong negative affect and association heuristics that they generate (negative affect-association heuristics hypothesis). Study 2 was specifically designed to test these two competing predictions. These two competing predictions are summarized below: H3a: Uncertainty-Reduction Hypothesis: Comparative ad formats are likely to be more effective than non comparative ad formats because the comparative formats are better than the non comparative formats in reducing uncertainty regarding the advertised brand. H3b: Negative Affect-Association Heuristics Hypothesis: Comparative ad formats are likely to be less effective than non comparative ad formats because the comparative formats generate more negative affect and association heuristics than the non comparative formats. Design, Stimuli, and Procedure We again used videophones as the experimental product in a 2 (presence/absence of standards war) x 3 (ad formats), between-subjects design. A total of 95 subjects were given extra credit in an undergraduate marketing course for participation in this computer-based study. The

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three types of ad formats were direct comparative, indirect comparative and non comparative. There were four broad steps in the experimental procedure: Step1. This step was identical to that of Study 1 and primarily involved randomly assigning the subjects to any one of the six experimental conditions. Step2. The second step was also identical to that of Study 1 and primarily manipulated the presence or absence of a standards war. Step3. In this step, subjects saw an ad for the Conmec brand on the computer screen. Each subject saw an ad that was direct comparative, indirect comparative, or non comparative. Each brand was described by three product-based and three non product-based attributes. The product-based attributes were clarity of picture, quality of video, and power consumption. The non product-based attributes were industry support, availability at retail outlets, and sales. Figure 2 presents the direct comparative ad along with the ad copy of the other two formats. After reviewing the ads, the subjects continued to the third set of screens containing the dependent measures. Step4. The main dependent measure of interest was the adoption rate (choice tasks). However, to track the process explanations underlying the competing predictions outlined in the previous section, we also took specific measures of an ad format's potential to (a) reduce uncertainty (confidence ratings), (b) generate negative affect (attitude toward ad), and (c) invoke association heuristics (similarity ratings). We also recorded subjects' perceptions about the performance of the advertised product (performance ratings). In this step, subjects were first asked to provide similarity ratings. Specifically, they were asked to indicate how similar they thought the advertised brand, Conmec, was to its competitor, Dwyer (a) on an overall basis, and (b) with respect to each of the six attributes discussed in the

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ad. Each response was recorded on a 9-point similarity scale with "most different" and "exact same" as the endpoint anchors. Subjects were then asked to rate the advertised brands performance against the competition on an overall basis as well as on each of the six target attributes. These responses were collected on 9-point semantic scales. Each subject was then given two choice tasks. For the first choice task, subjects were presented with two offers: (a) the advertised brand (Conmec) at a price of $490, and (b) the non advertised brand (Dwyer) at a price of $380. Subjects were asked to: (a) choose the advertised brand, or (b) choose the non advertised brand, or (c) defer their decision. The second choice task was similar to the first task but without the option to defer. For both choice tasks, subjects were asked to provide reasons for their choice. We then measured each subjects attitude toward the ad and confidence in the advertised brand. The items used for these two measures and their psychometric properties are discussed in Appendix 1. Finally we asked subjects to rate the importance of each of the six videophone attributes. Results For the sake of brevity, we discuss only key findings in this section. Our discussion of the results will focus on the five measures mentioned earlier: choice shares with the option to defer, confidence ratings, attitude towards ad ratings, similarity ratings, and performance ratings. We also limit our discussion of the planned contrasts to differences between the (a) direct comparative and non comparative formats, and (b) indirect comparative and non comparative formats. Comparisons between the direct and indirect comparative conditions can be inferred from the results presented in Table 3. For all other detailed statistical results, the reader may contact the authors directly.

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Interactions. The standards war manipulation had a significant interaction with the ad format manipulation for choice shares (B = 1.77, S.E. = 0.55, Wald-2 (1, N = 95) = 10.09, p < 0.01), similarity ratings (F(2, 89) = 13.40, p < 0.01), performance ratings (F(2, 89) = 23.04, p < 0.01), attitude towards the ad (F(2, 89) = 3.65, p < 0.05), and confidence measures (F(2, 89) = 3.45, p < 0.05). These significant interactions (especially for the choice measure) imply that the efficacy of the ad formats with respect to adoption rates varies with the presence or absence of a standards war. We will therefore examine each condition separately. Without Standards War. In the absence of a standards war, the results were similar to the findings from past research that we reviewed earlier. The choice share of the advertised brand was highest when the ad format was non comparative (NC), followed by the indirect comparative (IC), and direct comparative (DC) formats (NC = 63%, IC = 40%, DC = 31%). This is a marginally significant main effect (B = -0.65, S.E. = 0.37, Wald-2 (1, N = 47) = 3.04, p < 0.10, also p = 0.20 by Fishers Exact Test) that is driven mainly by a marginally significant difference between the direct comparative and non comparative formats (B = -0.65, S.E. = 0.37, Wald-2 (1, N = 32) = 3.02, p < 0.10, also p = 0.06 by Fishers Exact Test, 1-tail). The forced choice measure behaved similarly. Additionally, the confidence measures were unaffected by the ad format (F(2, 44) = 0.06, p > 0.10). However, compared to the direct comparative format, the non comparative format provided more differentiation (MNC = 4.79 , MDC = 5.95, F(2, 44) = 7.10, p < 0.01) and better attitude towards the ad (MNC = 6.86 , MDC = 4.78, F(2, 44) = 13.28, p < 0.01). The non comparative ad format also had significantly higher performance ratings (MNC = 6.69 , MDC = 4.94, F(2, 44) = 8.30, p < 0.01). The results of the similarity and performance ratings did not

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differ by the type of attribute (i.e., product or non product-based). Moreover, analysis of the single-item overall similarity and overall performance measures yielded similar results. Thus, similar to findings from past research on comparative advertising, the comparative ads in this study generated more negative affect and association heuristics. With Standards War. In the presence of a standards war, the results generally appear to contradict the predictions based on past research on comparative advertising, and concur with the predictions based on Study 1. The choice shares were analyzed using logistic regression procedures. In the choice task with the option to defer, the choice share of the advertised brand was significantly affected by the ad format manipulation (B = 1.12, S.E. = 0.41, Wald-2 (1, N = 48) = 7.31, p < 0.01, also p = 0.02 by Fishers Exact Test). Contrary to the market without a standards war, in the presence of a standards war the choice share of the advertised brand was highest when the format was direct comparative, followed by the indirect comparative, and non comparative formats (DC = 69%, IC = 44%, NC = 19%). Planned contrasts showed that the choice share of the advertised brand in the direct comparative ad format was significantly higher than its choice share in the non comparative ad format (B = 1.12, S.E. = 0.41, Wald-2 (1, N = 32) = 7.25, p < 0.01, also p = 0.01 by Fishers Exact Test). Although the choice share of the advertised brand was higher in the indirect comparative condition than in the non comparative condition, this difference was not significant (B = 1.21, S.E. = 0.81, Wald-2 (1, N = 32) = 2.22, p > 0.10, also p = 0.25 by Fishers Exact Test). Choice shares in the forced choice task showed similar results. The confidence measures were significantly affected by ad format (F(2, 45) = 6.00, p < 0.01). Consistent with predictions based on Study 1, subjects had significantly more confidence in the advertised brand when the format was direct comparative than when the format was non

23

comparative (MDC = 5.33, MNC = 3.41, F(1, 45) = 11.02, p < 0.01). Confidence in the advertised brand was also significantly higher in the indirect comparative format than in the non comparative format (MIC = 4.59, MNC = 3.41, F(1, 45) = 5.86, p < 0.05). Contrary to predictions based on past research on comparative advertising, attitude toward ad was not significantly affected by the ad manipulation (F(2, 45) = 0.04, p > 0.10). The comparative formats generated no differential negative affect. The average similarity ratings were significantly affected by the ad format manipulation (F(2, 45) = 9.13, p < 0.01). However, contrary to the results in the absence of a standards war, the planned contrasts showed that the average similarity rating in the non comparative format (MNC = 6.85) was significantly higher than that of both the indirect comparative (MIC = 5.57, F(1, 45) = 6.86, p < 0.05) and the direct comparative (MDC = 4.68, F(1, 45) = 19.89, p < 0.01) formats. This result did not differ by the type of attribute (i.e., product or non product-based). The overall similarity ratings also behaved in a like manner. The average performance ratings were significantly higher when the ad format was comparative (F(2, 45) = 16.42, p < 0.01). The average performance rating of the advertised brand was significantly lower under the non comparative ad condition (MNC = 4.65) than under both the indirect (MIC = 6.00, F(1, 45) = 11.39, p < 0.01) and the direct (MDC = 6.80, F(1, 45) = 34.09, p < 0.01) formats. This result, too, did not differ by the nature of the attribute. Again, the results for the overall performance ratings showed a similar pattern. Discussion Before we summarize our findings, a few aspects of the results deserve further elaboration. First, the uncertainty-reducing role of comparative ads in the presence of a standards war becomes more apparent when we revisit the data from the choice tasks. Interestingly, for the forced choice task in the presence of a standards war, a higher proportion of subjects chose the

24

cheaper, non advertised brand Dwyer when shown the non comparative ad than when shown the direct comparative ad (NC = 56%, DC = 6%, B = -1.47, S.E. = 0.57, Wald-2 (1, N = 32) = 6.63, p < 0.01; also p = 0.00 by the Fisher Exact Test). For the choice task with the option to defer, there was a similar effect. The high proportion of subjects choosing the non advertised brand is surprising. Given the uncertainty associated with a standards war, one would expect the subjects to make their choice very carefully and not to choose a brand for which they had no information. It is likely that subjects chose the cheaper alternative to hedge their risks because choosing the cheaper brand would minimize their losses if their chosen brand were to lose the standards battle. This underscores the non comparative ads inability to instill confidence in the advertised brand among the adopters. Second, it was surprising that although the comparative ads generated strong negative affect in the absence of a standards war, this negative affect disappeared in the presence of a standards war. One possible explanation for the disappearance of negative affect could be related to the fact that (a) in the presence of a standards war, the need for information on relative product performance increases substantially (e.g., see Study 1), and (b) comparative ad formats provide information on relative product performance. Perhaps it is this "informational" aspect of the comparative ad that shifted attention away from its "affective" aspect (e.g., see Batra and Holbrook 1987, Goldberg and Gorn 1987). This conjecture is consistent with previous research (e.g., Stewart and Furse 2000, MacKenzie and Lutz 1989, Petty and Cacioppo 1981) showing that attending to communication content (e.g., information on relative product performance) may shift attention away from its format or executional characteristics (e.g., an offensive tone). Third, it was also surprising that the strong association heuristics generated by the comparative ads in the absence of a standards war disappeared in the presence of a standards

25

war. The disappearance of association heuristics could perhaps be explained by subjects' motivational state. Recall that in Study 1 we found that subjects exposed to a standards war were strongly motivated to look for a particular type of information (i.e., information on relative performance). This concurs with past research showing diminished heuristic processing when decision makers are strongly motivated to process information (Eagly and Chaiken 1993). Fourth, there is evidence that in the presence of a standards war, variables related to network effects have a stronger influence on choice than other variables related to intrinsic product quality. Recall that the videophones were described by means of three product-based attributes (i.e., picture clarity, video quality, power consumption) and three non product-based attributes (i.e., number of units sold, industry support, retail availability). The non product-based attributes are good proxy variables for variables related to network effects (e.g., all three non product-based attributes can influence a consumers expectation about the network size). We looked at the importance ratings of the six videophone attributes that were collected at the end of Study 2. The three non product-based attributes were regarded as more important in the Standards War conditions (M = 6.54) than in the No Standards War conditions (M = 5.98, F(1, 93) = 2.87, p < 0.10). This analysis shows that variables related to network effects become more important in the presence of a standards war. To summarize our main results, in the presence of a standards war, a comparative ad format tended to induce significantly better adoption rates than a non comparative ad format. In the absence of a standards war, the comparative ad format was less effective than a non comparative ad format. Further analysis of the confidence measures, attitude towards ad, and similarity ratings point to a common pattern of results. These measures indicate that, under conditions of a standards war, the relative superiority of comparative formats can be attributed to

26

the fact that they (a) generate more confidence in the advertised brand, and (b) do not generate any negative affect nor invoke any association heuristics. On the other hand, without a standards war, the comparative formats are less effective because they generate negative affect, invoke association heuristics and do not significantly impact confidence in the advertised brand.

STUDY 3 In the previous study we argued that comparative ads are more effective in a market with standards wars because they reduce prior uncertainty about the advertised brand by providing information on the products relative performance. In other words, it appears that consumers use the information in an ad (or an ad format) to update their priors about the relative performance of the advertised brand. If the key function of a comparative format is reduction of prior uncertainty regarding the advertised brands relative performance and its ability to win the standards war, then manipulating these priors should allow us to test this process explanation. Since consumers often use brand names to predict the performance of new products (Janiszewski and Van Osselaer 2000), one way of manipulating these priors is to vary the familiarity of the advertised brand relative to the comparison brand. Consider, for example, a market where a standards battle is being fought between a familiar, well-known brand and an unfamiliar brand. In such a situation, consumers are likely to have strong priors regarding each brand's likelihood of winning the standards battle. In general, as long as the familiar brand has a good reputation, consumers are likely to believe that it has a greater chance of winning the standards competition than the unknown brand. Further, consider two situations: (1) The advertised brand is the well-known brand and the comparison brand is the unfamiliar one; and (2) the advertised brand is the unfamiliar brand while the comparison brand is the well-known

27

one. If our process explanation regarding the uncertainty-reducing role of a comparative ad holds true, then the comparative ad format is likely to have much less impact in the former situation than in the latter one. Since the uncertainty regarding the advertised brands ability to win the standards battle is much higher in the second situation than in the first, it is likely that the comparative ads will have a much greater impact in the second situation than in the first one. Put differently, when the advertised brand is familiar (and the comparison brand is unfamiliar), the information in the comparative ad is in line with the priors and is therefore likely to have a much weaker effect than when the advertised brand is unfamiliar (and the comparison brand is familiar), where the information in the comparative ad updates the priors by providing information that is different from that previously held. However, if our process explanation does not hold, then the effectiveness of comparative ad formats should not vary as a function of this prior uncertainty. In fact, a different pattern of results could very well emerge. For example, it is possible that subjects may rely solely on the familiarity of the advertised brand in judging the credibility of the claim. In this case, the familiar brands claim would be regarded as more credible than that of the unfamiliar brand (e.g., Grewal et al. 1997). We would then observe greater effectiveness of the comparative formats when the advertised (comparison) brand is familiar (unfamiliar), a result inconsistent with our process explanation. In Study 2 we did not vary the familiarity of the advertised and comparison brands and both brands were unfamiliar. In this study, we varied the familiarity of the two brands to verify the uncertainty-reducing role of comparative ad formats. Formally, we hypothesize: H4: In the presence of standards competition, the advantage of comparative ad formats over non comparative ad formats is stronger when the advertised brand is

28

unfamiliar and the comparison brand is familiar, than when the advertised brand is familiar and the comparison brand is unfamiliar. Stimuli, Design, and Procedure We tested our proposition in a 2 (familiarity of advertised vs. comparison brand) x 3 (ad format), between-subjects experimental design. Note that a standards war was present in all conditions. A total of 95 undergraduate students from a subject pool were given extra credit for participating in the study. The product again was videophones. Subjects were randomly assigned to one of the six experimental conditions. The experimental procedures were identical to those used in Study 2 for the conditions where a standards war was present; therefore, only the differences will be highlighted. The first and second steps were identical to those of Study 2, except that the brand names, Conmec and Dwyer, were replaced with the brand names Philips and Conmec, respectively. In a separate pretest, 15 students rated Philips (M = 7.33) as a significantly more familiar brand name than Conmec (M = 1.4, t(14) = 14.98, p < 0.01). In the third step they saw an ad for a target brand. There were two key manipulations here. First, the familiarity of the advertised and comparison brands was manipulated in the same manner as described in the example earlier. In three conditions we used an unknown brand (Conmec) as the advertised brand and a relatively well-known brand (Philips) as the comparison brand. In the other three conditions we used the relatively well-known brand (Philips) as the advertised brand and the unknown brand (Conmec) as the comparison brand. Second, the ads were in one of the three formats: direct comparative, indirect comparative, or non comparative. After the subjects had reviewed the ads carefully, they went on to the fourth step. The fourth step comprised the dependent measures and was identical to that of Study 2. Results

29

The familiarity of the advertised and comparison brands moderated the efficacy of the comparative formats (B = -1.09, S.E. = 0.60, Wald-2 (1, N = 95) = 3.31, p < 0.10). Table 4 contains the cell means for all measures. Consider the choice task with the option to defer. When the advertised brand was unfamiliar (Conmec) and the comparison brand was familiar (Philips), the proportion of subjects choosing the advertised brand in the direct comparative format was significantly higher than the corresponding proportion for the non comparative format (DC = 44%, NC = 6%, B = 1.22, S.E. = 0.57, Wald-2 (1, N = 32) = 4.57, p < 0.05; also p = 0.03 by Fishers Exact Test). However, when the advertised brand was familiar (Philips) and the comparison brand was unfamiliar (Conmec), the choice share of the advertised brand did not differ across the ad formats. The forced choice task followed a similar pattern of results. The average confidence ratings had a significant interaction (F(2, 89) = 3.70, p < 0.05) between the familiarity and ad format manipulations. When the advertised brand was relatively unfamiliar (Conmec), the ad format had a significant impact on the confidence ratings (F(2, 45) = 8.05, p < 0.01). The average confidence rating in the direct comparative format (MDC = 5.83) was significantly higher than the average confidence rating in both the non comparative (MNC = 4.00, F(1, 45) = 14.59, p < 0.01) and the indirect comparative (MIC = 4.86, F(1, 45) = 7.24, p < 0.05) formats. But when the advertised brand was relatively familiar (Philips), there was no significant impact (F(2, 44) = 0.10, p > 0.10) of ad format. For the average similarity rating, there was a significant interaction (F(2, 89) = 3.23, p < 0.01) between the ad format and familiarity manipulations. Planned contrasts showed that when the advertised brand was relatively unfamiliar (Conmec), the ad format manipulation had a significant main effect (F(2, 45) = 7.62, p < 0.01). Specifically, the average similarity rating for the direct comparative ad format (MDC = 4.00) was significantly lower than both that of the non

30

comparative format (MNC = 5.85, F(1, 45) = 12.46, p < 0.01), and that of the indirect comparative format (MIC = 5.05, F(1, 45) = 5.48, p < 0.05). In contrast, when the advertised brand was relatively familiar (Philips), the ad format manipulation did not have a significant impact on the similarity ratings (F(2, 44) = 0.06, p > 0.10). This pattern of results did not differ for the overall similarity measure, nor did it differ by the type of attribute (i.e., product or non product-based). Additionally, the attitude toward ad measure did not show an interaction between the ad format and familiarity manipulations (F(2, 89) = 0.04, p > 0.10). For the performance ratings, there was also a significant interaction between the ad format and familiarity manipulations (F(2, 89) = 7.08, p < 0.01). In the condition where the advertised brand was relatively unfamiliar (Conmec), the ad format had a significant effect on the average performance rating (F(2, 45) = 3.84, p < 0.05). Post-hoc analysis showed that the average performance rating for the direct comparative format was significantly higher than that of the non comparative format (MDC = 6.25, MNC = 5.20, F(1, 45) = 8.47, p < 0.01). When the advertised brand was relatively familiar (Philips), the format had a significant effect (F(2, 44) = 3.37, p < 0.05). Post-hoc analysis showed that the average performance rating for the direct comparative format was significantly lower than those of the non comparative formats (MDC = 6.06, MNC = 7.06, F(1, 44) = 6.20, p < 0.01). This pattern of results too, did not differ for the overall performance measure, nor did it differ by the type of attribute. Discussion The results of Study 3 support our prediction. Across different measures, the efficacy of comparative ad formats was moderated by the relative familiarity of the advertised brand. The comparative ad format led to higher adoption rates, more confident adoption decisions, increased

31

differentiation, and better performance ratings for the advertised brand when the advertised brand was relatively unfamiliar. These results are consistent with the explanation that the relative superiority of the comparative formats observed in Study 2 is attributable to their uncertainty-reducing role. When we used the relatively unfamiliar brand (Conmec) as the advertised brand, there was a high degree of uncertainty regarding the advertised brands performance in the standards war. As reflected in the confidence measures, this uncertainty was best addressed by the direct comparative format. In contrast, when we used the relatively familiar brand (Philips) as the advertised brand, the uncertainty regarding the advertised brand was considerably lower. Consequently, the relative efficacy of the comparative ad format was significantly diminished. Results of an ANCOVA further confirm this uncertainty-reducing role. The ANCOVA shows that when confidence ratings are controlled for, ad format is a non significant predictor of perceived performance in both (a) Study 2: Performance = a + 1 (Ad Format) + 2 (Confidence); 1 = 0.03 (p = 0.88), 2 = 0.22 (p = 0.01), and (b) Study 3: Performance = a + 1 (Ad Format) + 2 (Confidence); 1 = 0.16 (p = 0.58), 2 = 0.27 (p = 0.01).

GENERAL DISCUSSION In this research, we have examined choice situations with a standards war from a consumers perspective, giving special attention to the impact of standards competition on a new products adoption rate, the value of performance-related product information to consumers, and the effectiveness of advertising formats. Building upon past research, we proposed that standards competition impacts consumer behavior by affecting a consumers likelihood of adopting a new product, varying the value that consumers place on different types of performance-related

32

product information, and affecting consumers responses to different advertising formats. Our results support these hypotheses. Additionally, our findings may also be generalizable to other winner-takes-all scenarios besides standard wars, such as political elections and sports betting. However, our findings do not apply to scenarios where consumers can easily acquire both competing technologies. Summary of Findings and Implications Impact of Standards Battles on New Product Adoption. Our results reveal that an ongoing standards competition has a negative effect on new product adoption (Study 1). The lower adoption rate in the presence of a standards war suggests that new product success in the early stages of the product life-cycle, is less likely if competing products are based on different technology standards than if they are compatible. Even though compatibility may be desirable, as pointed by Gilbert (1992), incompatibility cannot be avoided when: (a) legal barriers such as patent protection prevent firms from using proprietary technology; (b) the use of compatible technology actually leads to significant increases in the costs of the new product; and (c) compatibility does not allow a firm to fully exploit the advantages of its new technology. This further underscores the importance of understanding the impact of standards competition on consumer behavior and developing marketing communication strategies that are more effective in the presence of such competition. This research takes a step toward a better understanding of these important but under explored issues and provides managerial insights for firms launching new products in markets with competing technological standards. However, two qualifiers about our findings deserve mention: (a) these results are particularly relevant for the early stages of a products life cycle, and (b) not all standards incompatibilities lead to winner-takes-all outcomes.

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Relative vs. Absolute Performance-Related Information. Results from the three studies also shed light on the important issue of how consumers respond to information on absolute and relative utility of a product. Results of Study 1 show that standards competition varies the impact of different types of performance-related information. Specifically, standards competition motivates consumers to heed information on relative performance and to ignore information on absolute performance. As a result, information regarding the relative (absolute) performance of a product has a stronger (weaker) impact on a products share in markets with standards competition. This is not an isolated finding; we also find similar evidence in Studies 2 and 3. Although absolute and relative performance information was not directly varied in Studies 2 and 3, the ad format manipulation can be considered an indirect manipulation of information on absolute and relative product performance. The relative superiority of the comparative ad over its non comparative counterpart underscores the fact that consumers tend to heed information on relative performance and to ignore information on absolute performance in the presence of a standards war. Relative performance is especially crucial in markets with standards competition because of the sensitivity of such markets to sudden tipping in which a winner takes all. Our findings in Studies 1, 2, and 3 empirically demonstrate that consumers are much more sensitive to relative performance in markets with standards competition than in those without, suggesting that firms competing in markets with incompatible technologies should emphasize relative product performance over absolute product performance in new product design and in go/no-go decisions. It is also equally important that firms communicate this relative advantage to consumers (Baker and Lutz 1987).

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Effectiveness of Advertising Formats: Comparative vs. Non Comparative. Our examination of the effectiveness of advertising formats (Study 2) reveals several important findings on how standards competition affects consumer response to different advertising formats. First, our results show that standards competition moderates the effectiveness of different ad formats: it strengthens the effect of comparative ads but weakens the effect of non comparative ads. We attribute this moderating effect to the fact that, in markets with standards competition, on viewing comparative ads, consumers: (a) develop greater confidence in the advertised brand, (b) are less likely to engage in associative heuristic processing, and (c) tend not to have a negative attitude toward the ad. Second, our results demonstrate that the benefit (cost) of using a comparative (non comparative) ad format in the presence of standards competition can be significant. For example, in Study 2, when non comparative ad formats were used, there was no significant difference in choice share between the two brands. However, when a direct comparative ad formats was used, the advertised brand had a significant advantage in choice share (Table 3). These results show that the use of certain ad formats can stimulate adoption rates even in the presence of standards competition (Study 2). Third, we find that ad format may affect consumer price sensitivity. Note that the advertised brand in Study 2 was priced higher than the comparison brand. The direct comparative ad format led to a greater choice share for the higher-priced brand in markets with standards competition than in markets without. The results also show that the non comparative ad format led to a lower choice share for the higher priced brand in markets with standards competition than in markets without (Table 3). These results imply that in the presence of standards competition, while the direct comparative format reduces consumer price sensitivity, the non comparative format increases consumer price sensitivity. The ad formats affected

35

consumer price sensitivity primarily by influencing consumer confidence. This is borne out by the data from Study 2, where, when direct comparative (non comparative) ads were used, consumers felt more (less) confident about the winner, and were thus less (more) sensitive about prices (Urbany et al. 1997). Effect of Brand Familiarity on the Effectiveness of Advertising Formats. In markets with standards competition, firms sponsoring different standards may differ on the extent to which consumers are familiar with the brand name of their products. Our results (Study 3) support the hypothesized moderating effect of brand familiarity on the effectiveness of different ad formats in the presence of standards competition. We show that comparative ad formats are more effective when the advertised brand has a disadvantage than when it has an advantage in terms of brand familiarity. In other words, we should see more comparative ads for smaller firms than for their larger rivals. This is borne out by some observations in the trade press. An apt example is Apples ads for its G4 chip (e.g., Time, January 1999). These ads directly compare the G4 to the Pentium chips and claim to be 100% to 200% faster. On the other hand, the ads for the Pentium III chip were non comparative in nature (e.g., PC Magazine, 05/25/99). This was also the case in many other industries (e.g., Microsoft Windows 2000 vs. Linux Red Hat). Note, however, that other factors might encourage larger firms to refrain from comparative advertising (e.g., fear of inadvertent awareness building for the comparison brand). Directions for Future Research Although we have looked at some key factors influencing consumer behavior in the presence of standards competition, several important issues remain unexamined. First, while our results in the absence of standards competition were consistent with past research, in the presence of standards competition, there were no differences in attitude toward the ad across

36

different ad formats. To account for this unexpected result, we surmised that the "informational" value of comparative ad formats might have shifted the consumers attention away from its "executional" aspects. Although past research suggests that this explanation is plausible, future research should investigate this effect in a systematic manner. Another important research issue concerns the time to adopt or the delay in adopting a standard or a new product. In other words, what factors influence the time when a standard or a product category is adopted? This research question is best addressed by a longitudinal study. It is also important to investigate other scenarios of uncertainty where our findings our extendable (e.g., political elections, sports betting). Finally, we need a clearer understanding of consumer risk perceptions and the factors that influence consumer expectations about the installed base. For example, besides a standards perceived probability of success, do consumers also take into account the potential payoff? Do potential payoffs and success probabilities equally influence consumer expectations about the installed base? Do negative externalities have an influence similar to that of positive externalities? Do perceptions of risk in a standards market vary by consumer expertise? Research directed toward these issues will further our understanding of consumer behavior in standards markets.

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TABLE 1 STUDY 1: SHARES BY CHOICE OPTIONS AND CATEGORY ADOPTION RATE Without Standards War With Standards War

Count (%) for each Choice Option

Low

Absolute Rating High

Absolute Rating Low High

N = 23
Low Relative Rating High
Conmec: 9 (39%) Dwyer: 3 (13%) Defer: 11 (48%)

N = 22
Conmec: 15 (68%) Dwyer: 5 (23%) Defer: 2 (9%)

N = 22
Conmec: 4 (18%) Dwyer: 1 (5%) Defer: 17 (77%)

N = 23
Conmec: 5 (22%) Dwyer: 1 (4%) Defer: 17 (74%)

N = 23
Conmec: 15 (65%) Dwyer: 5 (22%) Defer: 3 (13%)

N = 22
Conmec: 16 (73%) 4 (18%) Dwyer: Defer: 2 (9%)

N = 23
Conmec: 13 (57%) 4 (17%) Dwyer: Defer: 6 (26%)

N = 23
Conmec: 14 (61%) 4 (17%) Dwyer: Defer: 5 (22%)

N = 90 Total Category Adoption Rate (AR) ARwithout std. wars = (55+17)/90 = 80%
Conmec: 55 (61%) Dwyer: 17 (19%) Defer: 18 (20%)

N = 91
Conmec: 36 (40%) Dwyer: 10 (11%) Defer: 45 (49%)

ARwith std. wars = (36+10)/91 = 51%

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TABLE 2 STUDY 1: IMPACT OF RELATIVE AND ABSOLUTE PRODUCT PERFORMANCE H2a: Impact of Relative Performance On Conmecs Choice Share* Without Standards War (N = 90) High Relative Rating Low Relative Rating N = 45 (9+15)/45 = 53% N = 45 (15+16)/45 = 69%
Relative Ratings
80 70 60 50 40 30 20 10 0

With Standards War (N = 91)

Low Relative Rating High Relative Rating

N = 45 (4+5)/45 = 20%

N = 46 (13+14)/46 = 59%

% Choosing Conmec

53

69 59 No SW SW

20

Low

High

H2b: Impact of Absolute Performance On Conmecs Choice Share* Without Standards War (N = 90) High Absolute Rating Low Absolute Rating N = 46 N = 44 (9+15)/46 = 52.2% (15+16)/44 = 70.5% With Standards War (N = 91)
Low Absolute Rating High Absolute Rating

N = 45 (4+13)/45 = 38%

N = 46 (5+14)/46 = 41%

Absolute Ratings
80 70 60 50 40 30 20 10 0 % Choosing Conmec 70 52 41 38 No SW SW

Low

High

Note: The choice shares presented in Table 2 are margin totals calculated directly from data given in Table 1. For example, in the presence of a standards war and given a low relative rating, Conmecs share of 20% is calculated by pooling data from the two cells under With Standards War in Table 1: the Low Relative-Low Absolute and Low Relative-High Absolute cells. Specifically, Conmecs choice share given a Low Relative rating is (4+5)/(22+23) = 20%. Similarly, other marginal choice shares presented in Table 2 can be calculated directly from Table 1.

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TABLE 3 STUDY 2 RESULTS: MEANS

Ad Formats

With Standard Wars Direct Indirect NonComparative Comparative comparative (N = 16) (N = 16) (N = 16) 31% 69% 5.33 5.98 4.68 6.80 50% 44% 4.59 6.12 5.57 a* 6.00 a 62% a* 19% a 3.41 a, b 6.15 6.85 a, b 4.65 a, b

Without Standard Wars Direct Indirect NonComparative Comparative comparative (N = 16) (N = 15) (N = 16) 56% 31% 4.52 4.78 5.95 4.94 53% 40% 4.53 5.94 a 4.38 a* 6.00 a 25% a* 63% a* 4.70 6.86 a, b 4.79 a 6.69 a, b

Choice Shares Defer Choice Advertised Brand Confidence Measures Attitude towards Ad Similarity Ratings Performance Ratings
a b

Cell means significantly different from Direct Comparative means at p < 0.05 significance Cell means significantly different from Indirect Comparative means at p < 0.05 significance a* Cell means significantly different from Direct Comparative means at p < 0.10 significance b* Cell means significantly different from Indirect Comparative means at p < 0.10 significance

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TABLE 4 RESULTS OF STUDY 3: MEANS

High Prior Uncertainty (Ad Brand = Conmec) Direct Indirect NonComparative Comparative Comparative (N = 16) (N = 16) (N = 16) 50% 44% 5.83 6.07 4.00 6.25 44% 31% 4.86 a 5.96 5.05 a 5.79 38% 6% a, b* 4.00 a, b* 5.42 5.85 a, b* 5.20 a Low Prior Uncertainty (Ad Brand = Philips) Direct Indirect NonComparative Comparative Comparative (N = 16) (N = 16) (N = 15) 56% 31% 5.67 6.42 5.00 6.06 56% 31% 5.77 6.09 5.05 6.70 60% 33% 5.95 5.66 5.17 7.06 a

Ad Formats

Choice Shares Defer Choice Advertised Brand Confidence Measures Attitude towards Ad Similarity Ratings Performance Ratings
a b

Cell means significantly different from Direct Comparative means at p < 0.05 significance Cell means significantly different from Indirect Comparative means at p < 0.05 significance a* Cell means significantly different from Direct Comparative means at p < 0.10 significance b* Cell means significantly different from Indirect Comparative means at p < 0.10 significance

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FIGURE 1 STUDY 1 MANIPULATION, CHOICE SCENARIOS, AND CHOICE SCENARIO EXAMPLE Manipulation:
NO STANDARDS WAR CONDITIONS The New Videophone Industry Due to recent technological breakthroughs in sending voice and video over a POTS (plain old telephone system) line, a consumer market for video telephones has now emerged. Seeing the people you call may soon become an everyday reality. Currently, in the video telephone industry, there are two main players: Conmec Systems and Dwyer Technologies. The Conmec and Dwyer videophones are totally compatible with each other. Users of the Conmec brand of videophone will be able to communicate with the users of Dwyer brand of videophones, and vice versa. Software functions such as message recording and image editing for Conmec systems will work with messages and images from Dwyer systems. Analysts predict a market share battle. As of now there is a lot of uncertainty about which brand will eventually have a higher market share. STANDARDS WAR CONDITIONS The New Videophone Industry Due to a very recent technological breakthrough in sending voice and video over a POTS (plain old telephone system) line, a consumer market for video telephones is now emerging. Seeing the people you call may soon become an everyday reality. Currently, in the video telephone industry, there are two main players: Conmec Systems and Dwyer Technologies. The Conmec and Dwyer videophones are totally incompatible with each other. Users of the Conmec brand of videophone will not be able to communicate with the users of the Dwyer videophone, and vice versa. Software functions such as message recording and image editing for Conmec systems will not work with messages and images from Dwyer systems. Analysts predict a winner-take-all, VCR-like standards battle. As of now there is a lot of uncertainty about which brand will eventually emerge as the winner.

Choice Scenarios: Standards War Absent

Low Absolute Rating Low Relative Rating High Relative Rating Dwyer = 7, Conmec = 8 Dwyer = 5, Conmec = 8 High Absolute Rating Dwyer = 9, Conmec = 10 Dwyer = 7, Conmec = 10

Standards War Present

Low Absolute Rating Dwyer = 7, Conmec = 8 Dwyer = 5, Conmec = 8 High Absolute Rating Dwyer = 9, Conmec = 10 Dwyer = 7, Conmec = 10

Choice Scenario Example:

Instruction: We would now like you to make a product choice. Below we will provide you information on two videophone brands. To help you with your decision, we will also provide you with some information from Consumer Reports regarding these two brands. Q: Provided below is the Overall Rating of two videophones, reproduced from the Consumer Reports table published in a recent issue of JEC (Journal of Electronics & Communication). The Overall Rating considers all possible aspects related to the product experience, ranging from actual physical performance of the machine to more indirect, market related factors. Based on the 11-point star-scale the brands were rated as follows: 1 | 2 | 3 | 4 | 5 | 6 | 7 8 | | Dwyer Conmec ($80) ($120) 9 | 10 | 11 |

Thus, Conmec ($120) got an 8-star rating, while Dwyer ($80) got a 7-star rating. Now based on this information and all that you have read about the videophone industry till now, which of the following choice options given below, would you prefer? Please click on the appropriate button. 1. 2. 3. Choose Conmec, OR Choose Dwyer, OR Defer Choice for a later occasion.

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FIGURE 2 STUDY 2 AD STIMULUS: DIRECT, INDIRECT, AND NON COMPARATIVE FORMATS Direct Comparative Format
The new CONMEC Videophone !
Heres whats really different about the Conmec Videophone:

Crystal Clear
With 500 lines of horizontal resolution (HR), Conmec offers you pictures that are twice as clear as the Dwyer videophone.

Real Time Video

A communication speed of 56 kilo bytes per second (Kbps), or 40-45 frames per second (fps), that is far superior to Dwyer, gives you a smooth, no-jerk, video signal. Just like on TV.

Great Support
More videophone manufacturers, software developers, & technicians to look after your every need, than competitors like Dwyer.

Available Everywhere
Your Conmec Videophone is now available at more stores and shops than the Dwyer videophone.

Electricity Bills
And all this, without any monster electricity bills. Conmec consumes half as much power as Dwyer does.

Preferred
Already we have sold a 100,000 units, much more than competitors like Dwyer.

Choose CONMEC: The Best Way To Keep in Touch !

Ad Copy* for the Indirect Comparative Format

Ad Copy* for the Non Comparative Format

Crystal Clear Crystal Clear With 500 lines of horizontal resolution (HR), Conmec offers you With 500 lines of horizontal resolution (HR), Conmec offers you pictures that are twice as clear as any other videophone. pictures that are crystal clear. Real Time Video Real Time Video A communication speed of 56 kilobytes per second (Kbps), or A communication speed of 56 kilobytes per second (Kbps), or 40-45 frames per second (fps), that is far superior to all other 40-45 frames per second (fps), gives you a smooth, no-jerk, brands, gives you a smooth, no-jerk, video signal. Just like on video signal. Just like on TV. TV. Electricity Bills Electricity Bills And all this, without any monster electricity bills. Conmec And all this, without any monster electricity bills. Conmec consumes half as much power as any other brand does. consumes very little power. Great Support Great Support More videophone manufacturers, software developers, & Videophone manufacturers, software developers, & technicians technicians to look after your every need, than any other to look after your every need. competitor. Available Everywhere Available Everywhere Your Conmec Videophone is now available at more stores and Your Conmec Videophone is now available at a lot of stores and shops than any other videophone. shops. Preferred Preferred Already we have sold a 100,000 units, much more than any other Already we have sold a 100,000 units. competitor. * NB: Barring the copy differences, the ad (picture/layout) was identical to the direct comparative ad shown above.

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APPENDIX 1 ITEMS USED FOR ATTITUDE TOWARDS AD AND CONFIDENCE MEASURES IN STUDIES 2 & 3 Attitude Towards Ad: Instruction: We are now interested in knowing how you felt about the ad which you saw earlier. Please mark your response by circling at an appropriate place on the scale provided below. Did you find the ad: Not Convincing Offensive Bad Not Interesting Irritating Not Informative 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 4 4 4 4 4 4 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 Convincing Not Offensive Good Interesting Non Irritating Informative

Cronbach Alpha = 0.83 (Study 2); 0.80 (Study 3) Confidence Measures: Q: To what extent do you agree or disagree with the following statements: The ad made me feel that there is something special about Conmec that is different from other brands. Totally Disagree 1 2 3 4 5 6 7 8 9 Totally Agree

I would have more confidence in using Conmec now, than before I saw this advertisement. Totally Disagree 1 2 3 4 5 6 7 8 9 Totally Agree

Given the uncertainty in the videophone market, this ad helps me in making up my mind about which brand to go with. Totally Disagree 1 2 3 4 5 6 7 8 9 Totally Agree

Given the uncertainty in the videophone market, this ad makes me feel confident that Conmec is likely to emerge as the winner. Totally Disagree 1 2 3 4 5 6 7 8 9 Totally Agree

Cronbach Alpha = 0.89 (Study 2); 0.89 (Study 3)

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