Investigating the effects of including discount information in advertising

Abstract

Consider a display ad for a new pizza brand that announces a discount. Such discount advertising mentions the brand and often shows a picture of the product, thus informing consumers of the brand and some characteristics (the brand advertising effect). It also highlights a discount, thus informing consumers of the existence of a discount (the pure promotion effect). There could be a third effect, the discount spotlighting effect - a reduction in brand preference from discount advertising that arises from the brand choosing to highlight a discount in its advertising and marketing itself based on a low price. These three effects are typically confounded and, in particular, the `discount spotlighting' effect has not been studied before. Two identical consumers, one who has seen a brand ad and then found out about the discount separately, and another one who has seen a discount ad, have the same information about the brand and the discount. However, they may have different probabilities of purchase due to the discount spotlighting effect. We demonstrate the existence of this effect using a field experiment on a food delivery app with exogenous variation in ad content (in terms of presence or absence of discount information), and discount percentage. More broadly, we show that discount ads can induce more consumers to engage in search, but yield lower conversion rates to purchase conditional on search for a given consumer, relative to brand ads. Since these two ad types have different strengths, we show that targeted usage of both ad types increases revenue compared to using a single one.

Keywords: Advertising, Targeting, Discounts, Brand Preference, Field Experiment