Dynamics of Retail Advertising: Evidence from a Field Experiment

We present findings from a 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 firms 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 firms best customers switching demand to the ordering channel that corresponds to the advertising.