Working Paper: CEPR ID: DP12948
Authors: Chen He; Tobias Klein
Abstract: Consumers who intend to buy a product may forget to do so because they suffer from limited attention. 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 develop an approach to distinguish reminder effects of advertising from other effects, such as conveying information about the size of the jackpot. We use minute-level advertising and online sales data and find that the reminder effect of advertising is strong. Reaching one percent of the population leads to an increase in online sales of 1.7 percent in the first hour after the advertisement is aired. We also provide direct evidence that reminding consumers does not only affect the timing of purchases, but also leads to market expansion. Finally, we estimate a model of consumer behavior under limited attention to quantify the effect on total sales. We find that total sales would be 15.7 percent lower without the reminder effect of advertising and that shifting advertising to the week of the draw would lead to a 10.8 percent increase in sales.
Keywords: reminder advertising; limited attention; adoption model
JEL Codes: M37; D12; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Advertising exposure (M37) | Online lottery ticket sales (H27) |
| Advertising exposure (M37) | Probability to think about buying (C69) |
| Advertising exposure (M37) | Total number of consumers buying tickets (D19) |
| Without reminder effect of advertising (M37) | Total sales (L81) |
| Shifting advertising to week of draw (D44) | Online lottery ticket sales (H27) |