Advertising as a reminder: evidence from the Dutch State Lottery∗

We use high frequency data on TV and radio advertising together with online sales data for lottery tickets to measure the short run effects of advertising. Advertisements remind consumers to buy a ticket. We find the effects of advertising to be strong and to last up to about 4 hours. They are the bigger the less time there is until the draw. Based on these findings, we point out a tradeoff the firm faces. On the one hand, if it allocates all the advertising budget very late, then it may not reach certain consumers, for instance because they will not watch TV on these days; on the other hand, if it spreads advertising expenditures out over time in order to reach more consumers, then it may forego the possibility to effectively spend the money at later points in time. This means that total sales will crucially depend on the dynamic advertising strategy and that it would be valuable to assess the dependence of sales on counterfactual advertising strategies. For this, we develop a tractable structural model of consumer behavior. At a given point in time, consumers either buy a ticket for the following draw or postpone the decision to do so, with the possibility that they then either forget to buy a ticket or consciously decide not to do so. This means that in our model, advertisements act as a reminder. Our counterfactual experiments suggest that the firm puts too much weight on advertising early and spreading advertisements over time. Shifting advertising expenditures to the days before the draw could be a strategy to increase sales for a given advertising budget.