Plenty of research shows that negative advertising pays off in politics, partly because it helps voters recognize weaknesses in an opposing candidate that otherwise might remain hidden.
For consumer brands, however, we found a different story.
Since less is known about negative advertising of consumer products, we conducted a study to explore what happens when regulators allow companies to run ads highlighting a competitor’s weaknesses. Our results suggest that while negative advertising can benefit the attacking firm at times, it tends to do more harm than good overall, not only for all of the companies involved but sometimes for the people buying the products, too.
Negative advertising isn’t a new phenomenon in business. There are examples dating back to the early 20th century of companies engaging in such strategies, sometimes trading barbs back-and-forth with competitors in a series of negative ads. But when we look at the historical accounts of such advertising wars over the decades, we find executives complaining about them in the aftermath, saying they eroded consumer confidence in the product category overall, hurting both brands.
To identify why that might be, we built a model that takes advantage of game theory to study how customers form beliefs about competing consumer products in the wake of negative-advertising campaigns, and how companies choose product design and advertising strategies in anticipation of these beliefs.
Prisoner’s dilemma
The model showed us that if only one firm engages in negative advertising against a competitor, the attacking firm stands to benefit. As such, the most logical move for the competing firm is to start running negative ads of its own.
However, if both competitors put out negative ads simultaneously—perhaps highlighting different negative aspects of each other’s products—this can reduce the overall demand for the product category. The problem is, even though each firm is losing revenue, they are still better off given how much revenue they would lose if they stopped their negative ads but the competition continued attacking.
If the competitors could come to an agreement to cease negative advertising together, they would both benefit. But because they make decisions unilaterally, they can’t, and each suffers the consequences—an outcome known as a “prisoner’s dilemma” in economics.
And what about consumers? How are they affected by negative advertising?
On the surface, it would seem they gain. Thanks to the ads, they presumably would be more aware of the weaknesses of products, make a more informed comparison and find a product that better fits their needs. It might even help intensify competition if companies can improve their product or service quality to reduce the weaknesses that rivals can attack.
Unfortunately, our research shows that in some markets, none of these benefits materialize, and, in fact, customers further suffer from reduced innovation and reduced product assortment.
Less innovation
To understand why this is, we took a step back and asked: “How would firms design their products if they could anticipate negative-advertising wars down the road?”
The key idea is that if your product is similar to a competitor’s product, negative advertising isn’t attractive because if you claim your competitor’s product is bad, consumers will infer that your similar product isn’t much better. For example, a fast-food chain that criticizes the healthiness of a competing chain’s burger may bring unwanted attention to the healthiness of its own burger.
Knowing this, companies in certain markets will choose to design and offer similar products to their competitors to avoid negative-advertising campaigns afterward.
This effect, however, isn’t the same across all markets. Our model showed that companies are more likely to be less innovative when consumer tastes in a product category are more homogenous.
For example, in pharmaceutical products, consumers often want similar things—effectiveness, few side effects, etc. When consumers want similar things, product offerings will have more similar characteristics, and negative advertising wars become more damaging for the firms involved. As such, producing innovative products becomes risky. The threat of a negative advertising war does all the work.
However, in sectors where consumers differ drastically in their preferences, such as apparel, companies may benefit from offering differentiated products to larger consumer segments who appreciate the innovation, even when this move comes at the risk of negative-advertising wars.
Politics is different
The fact that negative advertising works in politics seems to be at odds with what we found with commercial brands. Indeed, when we extended our model to political competition, where a candidate’s objective is to obtain a larger share of votes than the competition, we found support for higher differentiation in the candidates’ positions, along with more negative advertising.
The explanation for this is simple: The primary goal of politicians is to beat the opponent by any margin instead of maximizing their total vote count. Hence, strategies that shrink the market—or reduce the overall votes cast—aren’t as harmful to politicians, making negative advertising wars less costly and the incentive to reduce differentiation from the competitor less attractive.