DYNAMICS OF RETAIL ADVERTISING: EVIDENCE FROM A FIELD EXPERIMENT

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)