Samsun Knight, Tsung-Yiou Hsieh, and Yakov Bart | December 2023

Abstract: We estimate the heterogeneous effects of TV advertising on revenues of physical retail stores and restaurants in the United States for 313 brands using a novel panel of store-level revenue data and a two-way fixed effects design. We find a mean revenue elasticity to TV advertising of 0.094 and a median elasticity of 0.044, along with a significant estimated S-curvature in the marginal effect of advertising. We document significant heterogeneity in estimated effective- ness across store-level characteristics, and in particular find that advertising is more effective for stores in denser areas and for stores in areas with higher numbers of competitor locations. We then use these heterogeneity estimates to construct optimal allocations of ad expenditure across DMAs and project that these counterfactual reallocations would increase returns on advertising by a median of 4.3% and a mean of 22.1%. This study advances recent research demonstrating that TV advertising is less effective than is generally assumed by highlighting the role of suboptimal geographic targeting and by quantifying how much realized effectiveness can understate advertising’s potential effect.