What Drives Us to the Movies? It's Friends, not Ads
When deciding to consume experience goods such as movies, video games, books, CDs, concerts and sport events, consumers are much more influenced by their desire to share this experience with friends or family, rather than by advertising or word-of-mouth. Sebastiano Alessio Delre (Department of Marketing) and his coauthors Thijs Broekhuizen and Tammo Bijmolt (University of Groningen) reach this conclusion in their article The Effects of Shared Consumption on Product Life Cycles and Advertising Effectiveness: The Case of the Motion Picture Market forthcoming in the Journal of Marketing Research.
In this article, the authors model the behavior of consumers in the context of movie consumption, including advertising effects, word-of-mouth, and the desire to consume the good with others (shared consumption). They use an empirically driven agent-based-model (ABM), which simulates the U.S. motion picture market, with new movies launching, competing and then exiting. They find that this model fits with the actual patterns of the real movie life cycles only when the shared consumption component is high.
The authors also use this model to understand how pre-release advertising investments affect the launch and post-launch sales, and how these effects changes when consumers prefer to share the experience rather than see films alone. They find that on average when consumers value shared consumption more, advertising generates more demand in both periods, but does not accelerate demand to the launch period. Furthermore, the authors also find that producers overspend on advertising, as the rewards for advertising are smaller than their costs.
These findings have important theoretical implications in the field of innovation diffusion, and offer interesting managerial and methodological insights. First off, this study finds that advertising and word-of-mouth are not as important as previously thought, when compared to shared consumption. This represents a tremendous breakthrough for marketing studies that focus on social influences. Moreover, this work explains why for many experience goods such as movies and video-games most advertising is done pre-release, as this greatly helps firms capitalize on shared consumption.
Second, the fact that shared consumption is so important means that they should focus more on this effect, for instance by organizing theme nights or using social media to facilitate finding companions. Third, although they are right to spend most of their budget in the pre-release period, they do overspend on advertising. Fourth, this study also provides indications on the most profitable movie types as it indicates that studios should produce movies that encourage shared experience such as thrillers and action movies. Last but not least, the work of Delre, Broekhuizen and Bijmolt provides interesting methodological insights as well, as it offers a practical example of how to empirically validate simulation models such as ABMs using a vast amount of data from the real market.