DP12948 Advertising as a reminder: Evidence from the Dutch State Lottery

Author(s): Chen He, Tobias Klein
Publication Date: May 2018
Keyword(s): adoption model, dynamic demand, limited attention, reminder advertising
JEL(s): D12, D83, M37
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12948

We use high frequency data on TV and radio advertising together with data on online sales for lottery tickets to measure the short run effects of advertising. We find them to be strong and to last for up to about 4 hours. They are the bigger the less time there is until the draw. We develop the argument that this finding is consistent with the idea that advertisements remind consumers to buy a ticket and that consumers value this. Then, we point out that in terms of timing the interests of the firm and the consumers are aligned: consumers wish to be reminded in a way that makes them most likely to consider buying a lottery ticket. We present direct evidence that this does not only affect the timing of purchases, but leads to market expansion. Then, we develop a tractable dynamic structural model of consumer behavior, estimate the parameters of this model and simulate the effects of a number of counterfactual dynamic advertising strategies. We find that relative to the actual schedule it would be valued by the consumers and profitable for the firm to spread advertising less over time and move it to the last days before the draw.