EconPapers    
Economics at your fingertips  
 

The Unfavorable Economics of Measuring the Returns to Advertising

Randall Lewis and Justin M. Rao

The Quarterly Journal of Economics, 2015, vol. 130, issue 4, 1941-1973

Abstract: Twenty-five large field experiments with major U.S. retailers and brokerages, most reaching millions of customers and collectively representing $2.8 million in digital advertising expenditure, reveal that measuring the returns to advertising is difficult. The median confidence interval on return on investment is over 100 percentage points wide. Detailed sales data show that relative to the per capita cost of the advertising, individual-level sales are very volatile; a coefficient of variation of 10 is common. Hence, informative advertising experiments can easily require more than 10 million person-weeks, making experiments costly and potentially infeasible for many firms. Despite these unfavorable economics, randomized control trials represent progress by injecting new, unbiased information into the market. The inference challenges revealed in the field experiments also show that selection bias, due to the targeted nature of advertising, is a crippling concern for widely employed observational methods. JEL Codes: L10, M37, C93.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (94)

Downloads: (external link)
http://hdl.handle.net/10.1093/qje/qjv023 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:130:y:2015:i:4:p:1941-1973

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-03-19
Handle: RePEc:oup:qjecon:v:130:y:2015:i:4:p:1941-1973