“Dynamics Of Retail Advertising: Evidence From A Field Experiment”, 2009-07-20 ():
[background: 2005] 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 2 competing effects: brand switching and intertemporal substitution. [One implication: short-run advertising experiments can show causal effects which are merely cannibalizing future sales.]
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. [Another bias: an advertising campaign might ‘work’ but only by cannibalizing one’s own customers in the present.]
…We show that the magnitude of these effects varies systematically across consumers. Intertemporal substitution is the dominant effect among the firm’s “Best” customers who had historically placed a large number of orders with the firm. For these customers, the short-run increase in demand is almost entirely offset by a reduction in future demand. This is a robust result that survives a series of validity checks. We interpret the result as evidence of intertemporal substitution—an effect that has not been previously recognized in the advertising literature.
…Overall the results indicate that advertising can do little to make a firm’s Best customers any better. For these customers, any short-run increases in demand reflect substitution either from different channels or from future demand. In contrast, for other customers, advertising can lead to a long-run shift in the demand function. For these customers, the increase in short-run demand is complemented by higher demand in other channels and higher demand in future periods.