Firms’ Advertising Strategies and Effectiveness of Traditional Advertising under Sugar Sweetened Beverage (SSB) Tax Policy

• In Event: Tax Policy and Politics

Abstract

I estimate the causal effect of Berkeley, California's soda tax policy, implemented in January 2015, from two perspectives. First, I examine how the policy influences firms' advertising strategies, particularly their spending behaviors. Second, I assess how the policy affects the effectiveness of advertising for diet and regular soft drinks among major brands.

While existing literature provides evidence of advertising effectiveness across various products from a marketing perspective, I examine how this effectiveness changes and firms changes their strategies under soda tax policies, a public health tool frequently used to mitigate the health risks of excessive sugar intake from soft drink consumption. Given the significant influence of advertising on consumer behavior, this novel research has the potential to provide valuable insights into health, nutrition, and public policy, while also contributing to the broader literature on advertising, marketing, and the retail industry.

Using weekly sales and advertising spending data from 2010 to 2015 from Nielsen and AdSpender, I estimate the impact of Berkeley’s soda tax policy on firms’ advertising strategies and the effectiveness of advertising for diet and regular soft drinks across major brands. My analysis focuses on 100 designated market areas (DMAs) in the United States to study advertising dynamics under the policy. I employ a conventional difference-in-differences approach to estimate the causal impact of the soda tax policy on advertising spending in post-policy Berkeley. Additionally, I use a bordering strategy between adjacent DMA pairs to estimate advertising effectiveness under the SSB tax policy. This approach leverages variation in advertising spending across border regions and adjacent counties. 

The findings reveal significant evidence that advertising is less effective for regular sodas in Berkeley under the tax policy compared to diet sodas, which were not taxed. Moreover, firms reduced advertising spending for regular sodas by approximately 10.2% following the policy implementation in the San Francisco advertising market, where Berkeley is located. Firms also adopted spatial marketing strategies, decreasing advertising spending near Berkeley’s DMA while increasing it in more distant DMA market areas.

These findings provide new insights into advertising strategies under SSB tax policies—a perspective often overlooked but with significant public health implications. Furthermore, the evidence on advertising effectiveness contributes novel insights to the literature. Together, these results have important implications for manufacturers, consumers, and policymakers regarding public health outcomes and the advertising market.

Author

• Rajib Rahman, University of Massachusetts at Amherst
  Presenting Author