Dynamics of Retail Advertising: Evidence from a Field Experiment
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Yu Jeffrey Hu
Purdue University - Krannert School of Management
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
Northwestern University - Department of Marketing
Economic Inquiry, Forthcoming
We present findings from a controlled field experiment that allows us to investigate the dynamic effects of retail advertising. The experimental design overcomes limitations that have hindered previous investigations of this issue. Our study uncovers dynamic advertising effects that have not been previously considered in the literature. We find that current advertising does affect future sales but surprisingly, the affect is not always positive; for the firm's best customers the long-run outcome may be negative. We argue that this finding reflects two competing effects: brand-switching and intertemporal substitution. The study also provides evidence of cross-channel substitution, with the firm's best customers switching demand to the ordering channel that corresponds to the advertising.
Number of Pages in PDF File: 39
Keywords: Advertising, Direct Mail, Field Experiment, Internet, Catalog, long-run demand
JEL Classification: C93, M31, M37, L81, L15, O30, L2working papers series
Date posted: January 19, 2006 ; Last revised: February 19, 2008
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