Goodwill formation is a complex process and many factors influence the formation of goodwill of a firm. The implications of advertising enabled goodwill formation are reported in several articles in the research literature. In a paper my co-author and I extend this stream of research by including quality in the goodwill formation process. The relationship between quality/advertising investments and goodwill level suggest that with everything else held constant, a firm would decrease its advertising efforts with higher goodwill levels. The implications on quality efforts are quite opposite. With higher accumulated goodwill level, a firm invests higher in quality. This finding puts into perspective the differing implications for advertising and quality efforts with regards to the firm's goodwill level. As the goodwill of a firm increases less of this need to be communicated through the medium of advertising. However, with increasing goodwill levels a firm makes higher investments in quality to maintain (or potentially increase) the goodwill level.
Source: Nair, A. and Narasimhan, R. 2006. "Competing with Quality and Advertising Based Goodwill," European Journal of Operational Research, 175(1), 462-474.