Paid Search Marketing Effectiveness, Essay Example

Introduction

While internet advertising is growing at a faster than ever rate in the United States and estimates for its effectiveness drive more companies towards using paid ads, not many large scale studies are available to prove the impact of paid product and brand placements in consumer behavior. The study created by Blake, Nosko and Tadelis is designed to prove or disprove the hypothesis which is commonly accepted: online paid advertisement, in particular search engine marketing (SEM) creates a high return on investment for companies. The authors quote several studies and publications stating that the main benefit of online advertising over conventional methods, creating a higher effectiveness is the fact that different segments of the market can be targeted through campaigns. In search marketing, advertisements appearing on the screen are closely related to the query of the customer. While targeting the intent of the user, the ads should generate a higher conversion rate. (Blake, Nosko and Tadeli 2) Further, one of the presumed benefits of SEM is that the results, conversions and different variables can be tracked, so the campaigns can be perfected over time.

Research Question

The researchers were looking for the answer to the question: is it possible to measure the effectiveness of search engine marketing campaigns in a controlled environment, and do the results match the return on investment (ROI) claims made by the industry? Is there a good and a bad way of doing search engine marketing, and do companies make decisions about paying for placements based on results and detailed analysis?

Hypotheses

The researchers initially stated that the effectiveness of SEM on eBay was limited and did not generate a ROI figure comparable to traditional marketing methods’.

Further, the question of brand name advertising was also tested, questioning whether these placements had any impact on well-known companies’ branding and business performance.

The authors also predict that there is going to be no short-term or long-term impact of brand advertising on business performance, brand recognition and awareness in the case of well-known companies.

Research Methodology

The researchers created a controlled study to measure the effectiveness of paid search engine marketing on eBay. It was a large scale field experiment that used data from a random set of internet users, recording their decisions and buying choices. There was a test and a control group selected and the results were compared. The authors also used a difference-in-differences calculation, which helped them quantify the impact of paid advertising on sales. The measures were taken separately from different geographic markets. This way separate outcomes could be observed.

Results

Brand name paid advertising was found ineffective. It did not increase sales among customers with or without brand preferences.

Further, the effectiveness of not brand name advertising was also measured small. Not many people were using brand name, for example “shoes on eBay”. While Amazon came up for several product searches and brand name queries, the company’s own site did not.

The buying decisions of long term internet users and experienced buyers was not influenced by paid placements, however, casual browsers were somewhat more responsive.

After analyzing the results found in Figure 4, it is also evident that search advertising only shows effectiveness for customers who are the least active. While most firms are aiming to increase the value of the most active clients, who already spend a significant amount (which makes an economic sense), search engine advertising does not result in significant increase in revenues.

Conclusion

The effectiveness and return on investment that is attributed to paid search placement is not confirmed. The authors are asking what the reason for companies spending huge amounts on internet marketing placement campaigns not delivering results. Product attributes did not change the level of impact on the number of transactions, either.

In the non-brand terms controlled experiment, it is evident that people look more for reviews, information and technical details of products rather than places to purchase. This reduces the conversion rate of paid advertisement, and consequently ROI. In the case of eBay, this type of keyword targeting was proven to be more effective, as some people ended up on the site, but it cannot be said that they would not have done so without the ad appearing in the search results.

Implications and Future Research

The researchers indicate that the measurements of effectiveness only covered internet-based transactions, and that the quantification of offline sales and brand reputation. The research did not measure and analyze the user-level characteristics, therefore, it is hard to confirm that internet advertisements and paid search engine placements do not work at all. For some customers they might be an acceptable way of locating products.

In order to increase the effectiveness of internet advertising, there is a need to evaluate consumer behavior and characteristics at the same time as the impact on sales. This would help firms decide whether it is effective to user SEM based on their target audience or not.

References

Blake, T., Nosko, C., Tadelis, S. (2013) Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment.