Executive Summary —
The introduction of online metrics such as click
through rate (CTR) and cost per acquisition (CPA) by Google and other
online advertisers has made it easy for marketing managers to justify
their online ad spending in comparison to the budgets used for
television and other media. However, these metrics suffer from two
fundamental problems: (a) they do not account for attribution, since
they give credit to the last click and ignore the impact of other ad
formats that may have helped a consumer move down the conversion funnel,
and (b) they ignore the dynamics, since they only account for the
immediate impact of ads. As firms spend more of their ad dollars on
online search and display, managers and researchers alike recognize a
need for more careful attribution adjustment that takes into account the
journey consumers follow before conversion as well as account for the
impact of ads over time. In this paper, the authors use time series
models to infer the interaction between search and display ads and also
capture their impact over time. Examining data from a bank that used
online advertising to acquire new customers for its checking account,
the authors found that display ads have a significant impact on search
applications, as well as clicks. The majority of this spillover was not
instant, but took effect only after two weeks. On the other hand, search
advertising did not lead to an increase in display applications.
However, search ads showed significant dynamic effects on search
applications that made them very cost effective in the long run. Key
concepts include:
- Classic metrics used in practice are highly biased since they do not account for the effects documented in this study. As a result, firms may be making suboptimal budget allocation decisions.
- Managers should carefully consider the interaction and dynamic effects of search and display advertising.
- In the study, revised measures of ad effectiveness lead to a very different budget allocation than the one used currently by the firm.
- Even though the proposed allocation gives credit to display due to its effect on search applications, the search ad budget should be increased by 36% from its current level due to its strong dynamic effects. The display ad budget should be decreased by 31%.
Author Abstract
As firms increasingly rely on online media to acquire consumers, marketing managers feel comfortable justifying higher online marketing spending by referring to online metrics such as click-through rate (CTR) and cost per acquisition (CPA). However, these standard online advertising metrics are plagued with attribution problems and do not account for dynamics. These issues can easily lead firms to overspend on some actions and thus waste money, and/or underspend in others, leaving money on the table. We developed a multivariate time series model to investigate the interaction between paid search and display ads and calibrated the model using data from a large commercial bank that uses online ads to acquire new checking account customers. We find that display ads significantly increase search conversion. Both search and display ads also exhibit significant dynamics that improve their effectiveness and ROI over time. Finally, in addition to increasing search conversion, display ad exposure also increases search clicks, thereby increasing search advertising costs. After accounting for these three effects, we find that each $1 invested in display and search leads to a return of $1.24 for display and $1.75 for search ads, which contrasts sharply with the estimated returns based on standard metrics. We use these results to show how optimal budget allocation may shift dramatically after accounting for attribution and dynamics. Although display benefits from attribution, the strong dynamic effects of search call for an increase in search advertising budget share by up to 36% in our empirical context.Source: http://hbswk.hbs.edu
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