CHICAGO — Revenue from a product may decline significantly after the Federal Trade Commission orders a company to stop making a claim for that product, according to a study from the University of Chicago.
The study investigated four products: Kellogg’s Frosted Mini-Wheats, Dannon Activia, DanActive and Airborne. Through the use of Nielsen Homescan data, which tracks purchases of 40,000 to 60,000 households, the study found monthly losses in revenue ranging from 12% to 67% for the products following the termination of the claims.
Kellogg’s Frosted Mini-Wheats in January of 2008 started making the claim the cereal was “clinically shown to improve kids’ attentiveness by nearly 20%.” The F.T.C. in April 2009 issued a consent order that required Kellogg to stop making the claim. Four months later, monthly revenue from Mini-Wheats was $3.5 million below its established peak.
The F.T.C. in December 2010 issued a consent order that Dannon stop the claim “relieves irregularity” for Activia yogurt. The same month, the F.T.C. issued a consent order that Dannon stop the claim that DanActive drinkable yogurt “helps people avoid catching colds or the flu.” Four months later, monthly revenue from Activia was $3.82 million below its established peak, and monthly revenue from DanActive was $400,000 below its established peak.
The F.T.C. consent order for the Airborne supplement came in August 2008. Four months after the claim of “guaranteed cold-fighting properties” was pulled, monthly revenue of Airborne was $3.63 million below its established peak.
For all four products, the F.T.C. orders and the dropping of claims primarily affected consumers who were the least loyal. The sharpest declines came from households that, prior to the start of the claims, had not purchased the product.
Revenue for all four products increased after the claims initially appeared. Even with the F.T.C. action, there appeared to be an overall revenue gain from the disputed claims. The study’s authors gave Mini-Wheats as an example. Assuming a gain in market share from January 2008, when the claim started, to September 2010, when market share appeared to stabilize to pre-2008 levels, was due entirely to the claim’s presence, the total revenue gain for Mini-Wheats was $105 million over the 32 months.
“These calculations show that firms stand to gain from making false claims even if they are eventually caught,” the study said. “However, whether this is true in the long run is unclear because consumers may begin to lose trust in the brand and class-action settlements may involve larger sums.”Anita Rao, Ph.D., assistant professor of marketing at the Booth School of Business at the University of Chicago, and Emily Wang, Ph.D., assistant professor, Department of Resource Economics at the University of Massachusetts, wrote the report. Dr. Rao said the report is in a review process and eventually will be published.