Measuring the Relative Effectiveness of Specific Advertising Channels for a Retailer Predominately Selling Offline

Abstract

The current marketing environment is characterized by a steady increase in new media and changing media usage patterns. This situation requires firms to understand the interactions between diverse online and offline advertising channels and their impact on multichannel sales. This study investigates the presence, magnitude, and carryover of cross-channel effects for online advertising (emails, online banner ads, and paid search advertising) and offline advertising (TV and aggregated traditional advertising) on multichannel sales. The analysis considers how these advertising expenditures translate directly into sales, and indirectly through mediators (search click-throughs and online banner clickthroughs) – thereby enabling offline advertising to be credited for their ability to enhance online advertising’s effectiveness. We apply a vector autoregressive (VAR) model to data from a Norwegian florist predominately selling through the offline channel to study the effects. We find that cross-channel effects and indirect effects are substantial and essential. Indeed, cross-channel elasticities are larger than own-channel elasticities. The result is primarily due to strong cross-channel effects on the offline channel. Online advertising, and in particular, paid search advertising is more effective than offline advertising. In sum, our research suggests that retailers predominately selling offline can benefit from online advertising. Furthermore, ignoring cross-channel effects and endogeneity in advertising channels can lead to a substantial miscalculation of online advertising’s effectiveness. Keywords: advertising elasticity, paid search advertising, online banner advertising, email advertising, offline advertising, cross-channel effects, synergies, vector autoregressive (VAR) model