Online advertisers should rethink pay-for-placement strategies

"Sponsored search," or "pay-for-placement," advertising is one of the fastest growing and most competitive online markets.  The little ads, which appear alongside regular search results on popular search engines such as Google and Yahoo!, constitute an $11 billion industry, representing nearly 40% of all online advertising spending.

But many advertisers should rethink their strategies for positioning themselves in this burgeoning online market, according to researchers from McGill University's Desautels Faculty of Management and the University of Maryland's Robert H. Smith School of Business.

Their report, published in the journal Information Systems Research, reaffirms the widespread belief that higher ranking ads perform better than lower ranking ones; but it also finds that an ad's rank explains only a small proportion of the variance in "click-through rates" that a firm obtains.  (In the sponsored-search market, advertisers compete in online auctions to be listed in the top ranks of search results generated in response to keyword queries.)  

The study also shows that a larger percentage of consumers who click only the top-placed ads tend to be most concerned with product quality, while those who click on lower-placed ads are more likely to be price-conscious.  This suggests that sponsored search listings can act as a mechanism for segmenting customers -- and that advertisers should consider tailoring their positioning strategies accordingly.

A seller could, for example, customize his landing page for ads shown at differing ranks, notes McGill Prof. Animesh Animesh, the study's lead author.  For an ad appearing at the bottom rank, a consumer who clicks on the ad could be taken to a page featuring bargain prices.  For a top-ranked ad by the same seller, by contrast, the customer could be taken to a page with premium-priced products.

Further, the study shows that sellers need to monitor the competition on sponsored search listings and differentiate their advertising message from the adjoining rival ads to increase visits to their site.

To optimize their positioning strategies, sellers also need to build Web-based information systems capable of capturing the rank of an ad that a consumer clicked and of assessing the competitive intensity of the listing, the authors note. 

The study breaks new ground in the analysis of so-called "directional markets," in which firms appearing on the top of a list are likely to get more consumer clicks than firms that are lower in the listing.

Contact:

Chris Chipello

Media Relations Office

McGill University

514-398-4201

christopher.chipello [at] mcgill.ca

Prof. Animesh Animesh

Desautels Faculty of Management

McGill University

animesh.animesh [at] mcgill.ca