How Search Engine Advertising Affects Sales over Time: An Empirical Investigation

TL;DR

This paper empirically investigates how various factors influence sales over time in Search Engine Advertising (SEA), revealing dynamic effects and emphasizing the importance of carryover, conversion rate, and ad position in campaign effectiveness.

Contribution

It introduces a novel time-varying coefficient model to analyze the dynamic relationship between SEA factors and sales, based on a unique dataset from a large U.S. e-commerce retailer.

Findings

Carryover effects are stronger than direct response in generating sales.

Conversion rate is more impactful than click-through rate.

Ad position does not significantly affect sales.

Abstract

As a mainstream marketing channel on the Internet, Search Engine Advertising (SEA) has a huge business impact and attracts a plethora of attention from both academia and industry. One important goal of advertising is to increase sales. Nevertheless, while previous research has studied multiple factors that are potentially related to the outcome of SEA campaigns, effects of these factors on actual sales generated by SEA remain understudied. It is also unclear whether and how such effects change over time in highly dynamic SEA campaigns. As the first empirical investigation of the dynamic advertisement-sales relationship in SEA, this study builds an advertising response model within a time-varying coefficient (TVC) modeling framework, and estimates the model using a unique dataset from a large E-Commerce retailer in the United States. Results reveal the effects of the advertising expenditure, consumer behaviors and advertisement characteristics on realized sales, and demonstrate that such effects on sales do change over time in non-linear ways. More importantly, we find that carryover has a stronger effect in generating sales than direct response does, conversion rate is much more important than click-through rate, and ad position does not have significant effects on sales. These findings have direct implications for advertisers to launch more effective SEA campaigns.