An Experimental Investigation of the Effects of Retargeted Advertising: The Role of Frequency and Timing

Abstract

In collaboration with an online seller of home-improvement products, we conduct a large-scale randomized field experiment to study the effects of retargeted advertising – a form of internet advertising in which banner ads are displayed to users after they visit the advertiser's web site. We find that retargeting causes 14.6% more users to return to the website in four weeks. The impact of advertising decreases as the time since the consumer first visits the website increases. 33% of the effect of first week's advertising occurs on the very first day. Further, we also find clear evidence of the existence of complementarities in advertising over time – the effect of advertising in week 2 of the campaign is higher when the user was assigned to a non-zero level of advertising in week 1. We discuss mechanisms that can explain our findings. In addition to the substantive findings, we demonstrate a novel low-cost method that can be applied generally to conduct valid online advertising experiments.

Keywords: Internet marketing; Online advertising; Field experiment; Timing of ads

JEL Classification: M3