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Dynamics Of Retail Advertising: Evidence From A Field Experiment

Author

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  • DUNCAN SIMESTER
  • YU (JEFFREY) HU
  • ERIK BRYNJOLFSSON
  • ERIC T. ANDERSON

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 L2, L81, M3)

Suggested Citation

  • Duncan Simester & Yu (Jeffrey) Hu & Erik Brynjolfsson & Eric T. Anderson, 2009. "Dynamics Of Retail Advertising: Evidence From A Field Experiment," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 482-499, July.
    • Handle: RePEc:bla:ecinqu:v:47:y:2009:i:3:p:482-499
    DOI: 10.1111/j.1465-7295.2008.00161.x
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    7. van Diepen, Merel & Donkers, Bas & Franses, Philip Hans, 2009. "Does irritation induced by charitable direct mailings reduce donations?," International Journal of Research in Marketing, Elsevier, vol. 26(3), pages 180-188.
    8. Hu, Yu Jeffrey & Tang, Zhulei, 2014. "The impact of sales tax on internet and catalog sales: Evidence from a natural experiment," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 84-90.
    9. Hong, Xianpei & Xu, Lei & Du, Peng & Wang, Wenjuan, 2015. "Joint advertising, pricing and collection decisions in a closed-loop supply chain," International Journal of Production Economics, Elsevier, vol. 167(C), pages 12-22.
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    12. Tong Wang & Cheng He & Fujie Jin & Yu Jeffrey Hu, 2022. "Evaluating the Effectiveness of Marketing Campaigns for Malls Using a Novel Interpretable Machine Learning Model," Information Systems Research, INFORMS, vol. 33(2), pages 659-677, June.
    13. Madhobi Hossain & Tiasha Islam, 2019. "Effect of Advertising Expenses and Sales Incentives on Financial Performance: Dissecting the Cases of Two Market Leaders," Business and Economic Research, Macrothink Institute, vol. 9(1), pages 69-83, March.
    14. Seth Stephens-Davidowitz & Hal Varian & Michael D. Smith, 2017. "Super returns to Super Bowl ads?," Quantitative Marketing and Economics (QME), Springer, vol. 15(1), pages 1-28, March.
    15. Hailiang Chen & Prabuddha De & Yu Jeffrey Hu, 2015. "IT-Enabled Broadcasting in Social Media: An Empirical Study of Artists’ Activities and Music Sales," Information Systems Research, INFORMS, vol. 26(3), pages 513-531, September.
    16. Harikesh S. Nair & Sanjog Misra & William J. Hornbuckle IV & Ranjan Mishra & Anand Acharya, 2017. "Big Data and Marketing Analytics in Gaming: Combining Empirical Models and Field Experimentation," Marketing Science, INFORMS, vol. 36(5), pages 699-725, September.
    17. Hailiang Chen & Yu Jeffrey Hu & Michael D. Smith, 2019. "The Impact of E-book Distribution on Print Sales: Analysis of a Natural Experiment," Management Science, INFORMS, vol. 65(1), pages 19-31, January.
    18. Gázquez-Abad, Juan Carlos & Canniére, Marie Hélène De & Martínez-López, Francisco J., 2011. "Dynamics of Customer Response to Promotional and Relational Direct Mailings from an Apparel Retailer: The Moderating Role of Relationship Strength," Journal of Retailing, Elsevier, vol. 87(2), pages 166-181.
    19. Lewis, Michael & Whitler, Kimberly A. & Hoegg, JoAndrea, 2013. "Customer Relationship Stage and the Use of Picture-Dominant versus Text-Dominant Advertising: A Field Study," Journal of Retailing, Elsevier, vol. 89(3), pages 263-280.
    20. Navdeep S. Sahni & Dan Zou & Pradeep K. Chintagunta, 2017. "Do Targeted Discount Offers Serve as Advertising? Evidence from 70 Field Experiments," Management Science, INFORMS, vol. 63(8), pages 2688-2705, August.

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    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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