Impact of Features and Display Ads on the Demand for Orange Juice: An Extension of the Rotterdam Demand Model

Florida’s citrus industry has a long history of using generic advertising as a primary instrument for shifting demand for various forms of citrus juices. Consumption behavior and consumer responses to these advertising are expected to substantially differ with each type of citrus juice These juices are classified into several groups defined as: frozen concentrated orange juice (FCOJ); refrigerated ready to- service not form concentrate (NFC); and refrigerated ready-to-service from concentrated orange juice (RECON). RECON comes from the fact that bulk concentrate has to be reconstituted into the ready-to-service form. While these juices may be substitutable, they fundamentally differ in both form and perception about the product attributes. Furthermore, the expectation is that demand for each juice type differs geographically because of the climate, economics, and demographics. Geographically, four U.S. regions are defined to be Northeast, West, South and North Central. Given the cost and marketing strategies needed, it is paramount that the industry understand any differences in demand across product forms and geographical market. Hence, the purpose of this study is to determine the demand and then measure the impacts of feature and display advertisements on the demand orange juice by form and market location. Feature and display ads are common methods for promoting orange juice as it is for many commodities. Specifically for the citrus industry, feature ads include best-food-day ads, store flyers, circulars, and other printed materials. Display ads include the display of the products in secondary locations, cut cases placed next to regular shelf location, and those displays in primary locations which give visual interest of the product in the store. With each media, the primary question is how much impact do these programs have on the overall demand for orange juice? Turning to established consumer demand models, these impacts are measured in this paper. A system of orange juice demand equations are estimated using the absolute price version of the Rotterdam model by Barten. The exact model is not specified at this point. The demand model is estimated with restrictions Engel aggregation, linear homogeneity,and symmetric assumptons imposed. Imposing advertising variables in a demand system, only adding up restriction involves the impact of advertising must be offset by demand decreases for other products to satisfy the budget condition as a result of demand increase for some products. Demand model is transposed to the differentiated terms based on the average values of the expenditures, prices, and quantities to simulate the impact of prices and advertising change on demand. The quantities and prices are included across regions, time, and product forms.