Firms spend billions of dollars developing advertising content, yet there is little field evidence on how much or how it affects demand. We analyze a direct mail field experiment in South Africa implemented by a consumer lender that randomized advertising content, loan price, and loan offer deadlines simultaneously. We find that advertising content significantly affects demand. Although it was difficult to predict ex ante which specific advertising features would matter most in this context, the features that do matter have large effects. Showing fewer example loans, not suggesting a particular use for the loan, or including a photo of an attractive woman increases loan demand by about as much as a 25% reduction in the interest rate. The evidence also suggests that advertising content persuades by appealing “peripherally” to intuition rather than reason. Although the advertising content effects point to an important role for persuasion and related psychology, our deadline results do not support the psychological prediction that shorter deadlines may help overcome time-management problems; instead, demand strongly increases with longer deadlines.
Impacts on Demand: Take-up decision, loan obtained or not, amount borrowed, loan amount maturity. Impacts on Outside Borrowing. Impacts on Repayment Behaviour (default or not).
Interest rates: 4% increase in take-up for every 13% decrease in the interest rate, with a take-up price elasticity of -0.28; these results are nearly identical with respect to actually obtaining the loan as well. The total loan amount borrowed also responded negatively to price. Default rate rose with price. Substitution effects were not present - outside borrowing was not affected by the interest rate offered. Advertising content treatment: Advertising content had a significant effect on take-up. There is some evidence that these effects were economically large relative to price effects. Consumer response to advertising content does not seem to have been driven by substitution across lenders, and there is no evidence that it produced adverse selection. Female clients did not respond significantly to the content treatments, although these insignificant results are imprecise and do not rule out economically large effects of advertising content for women, as well. In this context, advertising content appears more effective when it is aimed at triggering an intuitive response rather than a deliberative response. Deadline: Deadline length trumped both advertising content and price in economic importance, and we found no systematic evidence of time management problems. Take-up and loan amount increased dramatically with deadline length. Lengthening the deadline by approximately two weeks (i.e., moving from the omitted short deadline to the extension option or medium deadline, or from medium to long deadline) increases take-up by about three percentage points. Shifting the deadline by two weeks had about the same effect as a 1,000 basis point reduction in the interest rate.