Dynamics of Retail Advertising: Evidence from a Field Experiment

18 Pages Posted: 8 Oct 2009

See all articles by Duncan Simester

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Eric Anderson

Northwestern University - Department of Marketing

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Abstract

We use a controlled field experiment to investigate the dynamic effects of retail advertising. The experimental design overcomes limitations hindering previous investigations of this issue. Our study uncovers dynamic advertising effects that have not been considered in previous literature. We find that current advertising does affect future sales, but surprisingly, the effect is not always positive; for the firm’s best customers, the long-run outcome may be negative. This finding reflects two competing effects: brand switching and intertemporal substitution. We also find evidence of cross-channel substitution, with the firm’s best customers switching demand to the ordering channel that corresponds to the advertising.

JEL Classification: L2, L81, M3

Suggested Citation

Simester, Duncan and Hu, Yu Jeffrey and Brynjolfsson, Erik and Anderson, Eric, Dynamics of Retail Advertising: Evidence from a Field Experiment. Economic Inquiry, Vol. 47, Issue 3, pp. 482-499, July 2009. Available at SSRN: https://ssrn.com/abstract=1484233 or http://dx.doi.org/10.1111/j.1465-7295.2008.00161.x

Duncan Simester (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Management Science
Cambridge, MA 02142
United States
617-258-0679 (Phone)
617-258-7597 (Fax)

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-313
Cambridge, MA 02142
United States
617-253-4319 (Phone)

HOME PAGE: http://digital.mit.edu/erik

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eric Anderson

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

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