Dynamics of Retail Advertising: Evidence from a Field Experiment

39 Pages Posted: 19 Jan 2006 Last revised: 25 Feb 2015

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

Multiple version iconThere are 2 versions of this paper

Date Written: October 2007

Abstract

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.

Keywords: Advertising, Direct Mail, Field Experiment, Internet, Catalog, long-run demand

JEL Classification: C93, M31, M37, L81, L15, O30, L2

Suggested Citation

Simester, Duncan and Hu, Yu Jeffrey and Brynjolfsson, Erik and Anderson, Eric, Dynamics of Retail Advertising: Evidence from a Field Experiment (October 2007). Economic Inquiry, Forthcoming. Available at SSRN: https://ssrn.com/abstract=875396 or http://dx.doi.org/10.2139/ssrn.875396

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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