Discussion Paper Details

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Title: Advertising as a reminder: Evidence from the Dutch State Lottery

Author(s): Chen He and Tobias Klein

Publication Date: May 2018

Keyword(s): adoption model, limited attention and reminder advertising

Programme Area(s): Industrial Organization

Abstract: Consumers who intend to buy a product may forget to do so. Therefore, they may value being reminded by an advertisement. This phenomenon could be important in many markets, but is usually difficult to document. We study it in the context of buying a product that has existed for almost 300 years: a ticket for the Dutch State Lottery. This context is particularly suitable for our analysis, because the product is simple, it is very well-known, and there are multiple fixed and known purchase cycles per year. Moreover, TV and radio advertisements are designed to explicitly remind consumers to buy a lottery ticket before the draw. This can conveniently be done online. We use high frequency advertising and online sales data to measure the effects of TV and radio advertising. We show that advertising effects are short-lived and the bigger the less time there is until the draw. This is consistent with the predictions of a simple model in which consumers suffer from limited attention and advertising affects the probability that consumers think about buying a lottery ticket and otherwise value buying it as late as possible. We provide direct evidence that advertising does not only affect the timing of purchases, but also leads to market expansion. Finally, we estimate a dynamic structural model of consumer behavior and simulate the effects of a number of counterfactual dynamic advertising strategies. We find that total sales would be 35 percent lower without advertising and that shifting advertising to the week of the draw would lead to a 16 percent increase in sales. This means that consumers react strongly to reminder advertising and wish to be reminded late, when their intention to buy is higher.

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Bibliographic Reference

He, C and Klein, T. 2018. 'Advertising as a reminder: Evidence from the Dutch State Lottery'. London, Centre for Economic Policy Research.