Competing “Creatively” in Sponsored Search Markets: The Effect of Rank, Differentiation Strategy, and Competition on Performance

Abstract

A lthough efficiency-enhancing features of online markets have been well studied, much less is known about firms' differentiation strategies in these competitive markets or the outcomes of such differentiation. This study examines competition among firms in online sponsored search markets-one of the fastest growing and most competitive of online markets. We develop and test a model that predicts the clickthrough rate (CTR) of a seller's listing in a sponsored search setting. Drawing on consumer search theory and competitive positioning strategies, we theorize that CTR is jointly driven by a seller's positioning strategy as reflected by the unique selling proposition (USP) in its "ad creative," by its rank in a sponsored search listing, and by the nature of competition around the focal firm's listing. We use data from a field experiment conducted by a leading firm in the mortgage industry where the firm varied its rank and USP dynamically. Results suggest that sponsored search listings can act as effective customer segmentation mechanisms, consistent with a model of consumer search in directional markets. We further find that the effect on CTR of a firm's positioning strategy and its rank in a listing is strongly moderated by its ability to differentiate itself from adjacent rivals. We discuss the implications of our findings for sellers' strategies in sponsored search markets and for extending the understanding of consumer search behavior in directional markets.

The Effects of Rewarding User Engagement: The Case of Facebook Apps

“…This natural experiment-like change in the effectiveness of social media channels therefore allows for a similar identification as for field experiments (Aral and Walker 2011, Goldfarb and Tucker 2011, Animesh et al 2011, Tucker and Zhang 2011, Tucker 2011.…”

Achieving more by saying less? On the Moderating Effect of Information Cues in Paid Search

“…Following Rutz and Trusov [6] every description text contained attention grabbing content by incorporating a call-to-action (see Table 1). The position on which an ad is displayed is considered to be one of the main success determinants of paid search campaigns (e.g., [5], [16]) and user characteristics might be significantly different from each other based on the ad position [7]. To prevent confounds we aimed to build a homogeneous sample by executing a paid search campaign which targeted the most prominent ad positions directly below the search query (slots 1-4).…”

“…However, researchers have only just started to investigate different types of messages in the context of paid search. It is already known that user behavior is determined by factors such as the ad copy itself, but also by the search query [13] and the position where the ad appears on a SERP [7]. In order to evaluate user behavior in response to information cues we shall consider three areas of paid search research: keywords, ad positioning, and ad copies.…”

“…Yet, at least in terms of CTR, position effects seem to be weaker for smaller firms and more specific search queries [17]. A field experiment conducted by Animesh et al [7] studies the relationship between ad copy designs and different ad positions. The authors conclude that crafting an ad with a unique selling proposition is not sufficient to affect click behavior, whereas an ad copy that differentiates the firm from others is moderated by its visual placement on a SERP.…”

“…One key aspect of paid search campaigns that has received far less scholarly attention so far has been ad copy design itself [6]. This is surprising as a well-crafted ad is an important success-determinant from an advertiser's perspective [7] to reach the target audience and convince potential buyers to click the ad. Current research has investigated either the use of individual textual elements (e.g., [8]) or message framing (e.g., [9]).…”