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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 FourthStreet, 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 ofFlorida, 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, RichLutz, and Alan Sawyer for their detailed comments and many helpful suggestions.

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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

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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 on-

line 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

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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

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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 performance-

related 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

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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 performance-

related 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. Absoluteutility, 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.

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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.

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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, Wald-

2 (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).

2 The choice shares in Table 2 are margin totals calculated from Table 1 (see the example presented at the bottom ofTable 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, alsop = 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

supportingH2b.

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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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 0.10).

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

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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

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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

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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

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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

Absolute Rating Absolute RatingCount (%) for each

Choice OptionLow High Low High

Low

N = 23Conmec: 9 (39%)

Dwyer: 3 (13%)

Defer: 11 (48%)

N = 22Conmec: 15 (68%)

Dwyer: 5 (23%)

Defer: 2 (9%)

N = 22Conmec: 4 (18%)

Dwyer: 1 (5%)

Defer: 17 (77%)

N = 23Conmec: 5 (22%)

Dwyer: 1 (4%)

Defer: 17 (74%)

Relative

Rating

High

N = 23

Conmec: 15 (65%)

Dwyer: 5 (22%)

Defer: 3 (13%)

N = 22

Conmec: 16 (73%)

Dwyer: 4 (18%)

Defer: 2 (9%)

N = 23

Conmec: 13 (57%)

Dwyer: 4 (17%)

Defer: 6 (26%)

N = 23

Conmec: 14 (61%)

Dwyer: 4 (17%)

Defer: 5 (22%)

Total

N = 90Conmec: 55 (61%)

Dwyer: 17 (19%)

Defer: 18 (20%)

N = 91Conmec: 36 (40%)

Dwyer: 10 (11%)

Defer: 45 (49%)

Category Adoption

Rate (AR)ARwithout std. wars = (55+17)/90 = 80% 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)With Standards War

(N = 91)

Low Relative Rating High Relative Rating Low Relative Rating High Relative Rating

N = 45(9+15)/45 = 53%

N = 45(15+16)/45 = 69%

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

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

H2b: Impact of Absolute Performance On Conmecs Choice Share*

Without Standards War

(N = 90)With Standards War

(N = 91)

Low Absolute Rating High Absolute Rating Low Absolute Rating High Absolute Rating

N = 46(9+15)/46 = 52.2%

N = 44(15+16)/44 = 70.5%

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

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

* Note: The choice shares presented in Table 2 are margin totals calculated directly from data given in Table 1. Forexample, in the presence of a standards war and given a low relative rating, Conmecs share of 20% is calculated bypooling data from the two cells under With Standards War in Table 1: the Low Relative-Low Absolute and LowRelative-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.

Absolute Ratings

52

70

38

41

0

10

20

30

40

50

60

70

80

Low High

%C

hoosingConmec

No SW

SW

Relative Ratings

69

5953

20

0

10

20

30

40

50

60

70

80

Low High

%C

hoosingCo

nmec

No SW

SW

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TABLE 3

STUDY 2 RESULTS: MEANS

With Standard Wars Without Standard WarsAd Formats Direct

ComparativeIndirect

ComparativeNon-

comparativeDirect

ComparativeIndirect

ComparativeNon-

comparative(N = 16) (N = 16) (N = 16) (N = 16) (N = 15) (N = 16)

Choice SharesDefer Choice 31% 50% 62% a* 56% 53% 25% a*Advertised Brand 69% 44% 19% a 31% 40% 63% a*

Confidence Measures 5.33 4.59 3.41 a, b 4.52 4.53 4.70

Attitude towards Ad 5.98 6.12 6.15 4.78 5.94

a

6.86

a, b

Similarity Ratings 4.68 5.57 a* 6.85 a, b 5.95 4.38 a* 4.79 a

Performance Ratings 6.80 6.00 a 4.65 a, b 4.94 6.00 a 6.69 a, b

a Cell means significantly different from Direct Comparative means at p < 0.05 significanceb Cell means significantly different from Indirect Comparative means at p < 0.05 significancea* Cell means significantly different from Direct Comparative means at p < 0.10 significanceb* 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)

Low Prior Uncertainty(Ad Brand = Philips)

Ad Formats DirectComparative

(N = 16)

IndirectComparative

(N = 16)

Non-Comparative

(N = 16)

DirectComparative

(N = 16)

IndirectComparative

(N = 16)

Non-Comparative

(N = 15)

Choice SharesDefer Choice 50% 44% 38% 56% 56% 60%Advertised Brand 44% 31% 6% a, b* 31% 31% 33%

Confidence Measures 5.83 4.86 a 4.00 a, b* 5.67 5.77 5.95

Attitude towards Ad 6.07 5.96 5.42 6.42 6.09 5.66

Similarity Ratings 4.00 5.05 a 5.85 a, b* 5.00 5.05 5.17

Performance Ratings 6.25 5.79 5.20 a 6.06 6.70 7.06 a

a Cell means significantly different from Direct Comparative means at p < 0.05 significanceb Cell means significantly different from Indirect Comparative means at p < 0.05 significancea* Cell means significantly different from Direct Comparative means at p < 0.10 significanceb* 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 STANDARDS WAR CONDITIONS

The New Videophone Industry

Due to recent technological breakthroughs in sending voice and videoover a POTS (plain old telephone system) line, a consumer market forvideo telephones has now emerged. Seeing the people you call maysoon 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 eachother. Users of the Conmec brand of videophone will be able tocommunicate with the users of Dwyer brand of videophones, and viceversa. Software functions such as message recording and image editingfor Conmec systems will work with messages and images from Dwyersystems.

Analysts predict a market share battle. As of now there is a lot ofuncertainty about which brand will eventually have a higher marketshare.

The New Videophone Industry

Due to a very recent technological breakthrough in sending voice andvideo over a POTS (plain old telephone system) line, a consumermarket for video telephones is now emerging. Seeing the people youcall 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 witheach other. Users of the Conmec brand of videophone will not be ableto communicate with the users of the Dwyer videophone, and viceversa. Software functions such as message recording and image editingfor Conmec systems will not work with messages and images fromDwyer systems.

Analysts predict a winner-take-all, VCR-like standards battle. As ofnow there is a lot of uncertainty about which brand will eventuallyemerge as the winner.

Choice Scenarios:

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 youwith 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 fromactual physical performance of the machine to more indirect, market related factors. Based on the 11-point star-scale the brands were rated asfollows:

1 2 3 4 5 6 7 8 9 10 11| | | | | | | | | | |

Dwyer Conmec($80) ($120)

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 givenbelow, would you prefer? Please click on the appropriate button.

1. Choose Conmec, OR2. Choose Dwyer, OR3. Defer Choice for a later occasion.

Standards War Absent Standards War PresentLow Absolute Rating High Absolute Rating Low Absolute Rating High Absolute Rating

Low Relative Rating Dwyer = 7, Conmec = 8 Dwyer = 9, Conmec = 10 Dwyer = 7, Conmec = 8 Dwyer = 9, Conmec = 10

High Relative Rating Dwyer = 5, Conmec = 8 Dwyer = 7, Conmec = 10 Dwyer = 5, Conmec = 8 Dwyer = 7, Conmec = 10

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FIGURE 2

STUDY 2 AD STIMULUS: DIRECT, INDIRECT, AND NON COMPARATIVE FORMATS

Ad Copy* for the Indirect Comparative Format Ad Copy* for the Non Comparative FormatCrystal Clear

With 500 lines of horizontal resolution (HR), Conmec offers youpictures that are twice as clear as any other videophone.

Real Time Video

A communication speed of 56 kilobytes per second (Kbps), or40-45 frames per second (fps), that is far superior to all other

brands, gives you a smooth, no-jerk, video signal. Just like onTV.

Electricity Bills

And all this, without any monster electricity bills. Conmecconsumes half as much power as any other brand does.

Great Support More videophone manufacturers, software developers, &

technicians to look after your every need, than any othercompetitor.

Available Everywhere

YourConmec Videophone is now available at more stores andshops than any other videophone.

Preferred

Already we have sold a 100,000 units, much more than any othercompetitor.

Crystal Clear

With 500 lines of horizontal resolution (HR), Conmec offers youpictures that are crystal clear.

Real Time Video

A communication speed of 56 kilobytes per second (Kbps), or40-45 frames per second (fps), gives you a smooth, no-jerk,video signal. Just like on TV.

Electricity Bills

And all this, without any monster electricity bills. Conmecconsumes very little power.

Great Support Videophone manufacturers, software developers, & technicians

to look after your every need.

Available Everywhere

YourConmec Videophone is now available at a lot of stores andshops.

Preferred

Already we have sold a 100,000 units.

* NB: Barring the copy differences, the ad (picture/layout) was identical to the direct comparative ad shown above.

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.

Electricity Bills

And all this, without any monster

electricity bills. Conmec consumes

half as much power as Dwyer does.

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.

Preferred

Already we have sold a 100,000

units, much more than competitors

like Dwyer.

ChooseCONMEC: TheBestWayToKeepinTouch !

Direct Com arative Format

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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 youfeltabout the ad which you saw earlier.Please mark your response by circling at an appropriate place on the scale provided below. Didyou find the ad:

Not Convincing 1 2 3 4 5 6 7 8 9 ConvincingOffensive 1 2 3 4 5 6 7 8 9 Not Offensive

Bad 1 2 3 4 5 6 7 8 9 Good Not Interesting 1 2 3 4 5 6 7 8 9 Interesting

Irritating 1 2 3 4 5 6 7 8 9 Non Irritating Not Informative 1 2 3 4 5 6 7 8 9 Informative

Cronbach Alpha = 0.83 (Study 2); 0.80 (Study 3)

Confidence Measures:

Q: To what extent do you agree ordisagree with the following statements:

The ad made me feel that there is something special about Conmec that is different from otherbrands.

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 aboutwhich 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 islikely 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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