Advertising as a Reminder: Evidence from the Dutch State Lottery

58 Pages Posted: 10 Jan 2020

See all articles by Chen He

Chen He

ShanghaiTech University - School of Entrepreneurship and Management

Tobias J. Klein

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); IZA Institute of Labor Economics; Netspar; Tilburg Law and Economics Center (TILEC)

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Date Written: August 1, 2019

Abstract

Consumers who intend to buy a product may forget to do so. Therefore, they may value being reminded by an advertisement. This phenomenon could be important in many markets, but is usually difficult to document. We study it in the context of buying a product that has existed for almost 300 years: a ticket for the Dutch State Lottery. This context is particularly suitable for our analysis, because the product is simple, it is very well-known, and there are multiple fixed and known purchase cycles per year. Moreover, TV and radio advertisements are designed to explicitly remind consumers to buy a lottery ticket before the draw. This can conveniently be done online. We use high frequency advertising and online sales data to measure the effects of TV and radio advertising. We show that advertising effects are short-lived and the bigger the less time there is until the draw. This is consistent with the predictions of a simple model in which consumers suffer from limited attention and advertising affects the probability that consumers think about buying a lottery ticket and otherwise value buying it as late as possible. We provide direct evidence that advertising does not only affect the timing of purchases, but also leads to market expansion. Finally, we estimate a dynamic structural model of consumer behavior and simulate the effects of a number of counterfactual dynamic advertising strategies. We find that total sales would be 35 percent lower without advertising and that shifting advertising to the week of the draw would lead to a 16 percent increase in sales. This means that consumers react strongly to reminder advertising and wish to be reminded late, when their intention to buy is higher.

Keywords: Reminder advertising, limited attention, adoption model

JEL Classification: M37, D12, D83

Suggested Citation

He, Chen and Klein, Tobias J., Advertising as a Reminder: Evidence from the Dutch State Lottery (August 1, 2019). ShanghaiTech SEM Working Paper No. 2020-001, Available at SSRN: https://ssrn.com/abstract=3517063 or http://dx.doi.org/10.2139/ssrn.3517063

Chen He (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

Middle Huaxia Road 393
Shanghai, Shanghai
China

Tobias J. Klein

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/klein/index.html

Tilburg University - Center for Economic Research (CentER)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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