How Third-party Organization (TPO) Endorsement Advertising Works: Do Consumers Perceive TPO Endorsement As Signals of Quality?

Abstract

Third-party organization (TPO) endorsement ads have grown increasingly popular in recent years. This study examines conditions under which TPO endorsements in advertising function as signals of quality within the framework of signaling theory. Specifically, the study addresses questions such as: Do consumers perceive TPO endorsements in advertising as signals of quality? Can low-quality firms contain TPO endorsements in advertising to signal high quality? One experiment is conducted with a student sample within the context of automobile ads. The results show TPO endorsements in advertising are signals of high quality in a separating equilibrium condition where the TPO is perceived as honest and endorses few high quality products. On the other hand, TPO endorsements in advertising are not signals of quality in a pooling equilibrium condition, where the TPO is perceived as dishonest and endorses many low quality as well as high quality products. Therefore, the results of this study are consistent with the predictions of signaling theory.

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