The Effect of Price Rank on Clicks and Conversations in Online Search Advertising
Mengzhou Zhuang, Jongkuk Lee, Eric (Er) Fang, and Xiaoling Li, 2018, 18-102
Keyword advertising serves as a channel for firms to communicate with consumers, and price information plays a critical role in consumers’ decision making. In this study, researchers investigate how the advertised product price affects consumers’ responses to keyword search advertising. They also look at the moderating effects of two keyword attributes: specificity and popularity.
Their dataset is from a leading electronic shopping platform that had detailed display information for more than 2,500 keywords, with more than 9,000 observations. Using a hierarchical Bayesian model, they show that consumers tend to click extreme-priced options (i.e., highest or lowest) more than moderate-priced ones, though this effect diminishes among consumers searching with more specific keywords and increases for those searching with more popular keywords. In contrast, consumers tend to initiate conversations about moderate-priced options, an effect that is especially strong when they use either more specific or more popular keywords.
This study is among the first to reveal the role of product price as a local context that influences consumers’ responses to keyword search advertising. In addition, they clearly differentiate two behavioral responses to price ranks: Extremely priced displays tend to increase customer click-through behavior, but inhibit interactive searches for more detailed product information.
This study also expands understanding of keyword attributes (i.e., specificity and popularity) and how they interact with price ranks to influence consumers’ responses to advertising displays. These two keyword attributes even signal consumer characteristics, in terms of their stage in the decision-making process and potential market size.
Firms set budgets to sponsor a few keywords out of the millions available. Identifying the most effective set, given budget constraints, is challenging, especially considering the complicated nature of search advertising.
These findings suggest that differentiated strategies are required to attract exploratory consumers versus those who exhibit deeper engagement. When targeting exploratory consumers, to introduce products more widely, managers should adopt extreme price positions, either high or low. But if the goal is to attract targets who are seeking for customized information close to their purchase decision, managers should adopt moderate prices.
Further, the contrasting effects of keyword specificity and popularity suggest that they can differentiate consumers’ likely responses (i.e., click or conversation) to display lists. Managers should pay more attention to these keyword attributes as segmentation tools, in order to strategically set prices relative to those of competitors who also appear in the keyword search results.
Mengzhou Zhuang is a doctoral student in marketing, Gies College of Business, University of Illinois at Urbana-Champaign. Jongkuk Lee is Associate Professor of Marketing, Ewha School of Business, Ewha Womans University, Seoul, Korea. Eric (Er) Fang is Professor of Marketing and James Tower Faculty Fellow, University of Illinois at Urbana-Champaign, and Distinguished Visiting Professor of Marketing, Nanjing University, China. Xiaoling Li is Assistant Professor, Economics and Business Management School, Chongqing University, Chongqing, China.
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